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Seattle Builder Aims Low

United Kingdom Architecture News - Apr 10, 2014 - 13:25   2354 views

Spectrum Is Building Three Apartment Buildings in Seattle

 

Seattle Builder Aims Low

Anthem, expected to open next spring, is part of an overhaul of an area where Jimi Hendrix once lived.Mithun

As the cost of rental housing shoots up across the country, so has the need for affordable housing. Yet most new apartment buildings are geared to the higher end of the market; building and operating affordable housing, many developers argue, isn't profitable.

Seattle builder Spectrum Development Solutions is testing the conventional wisdom. With help from Canada-based financial partner Gracorp Capital Advisors, Spectrum is spending nearly $70 million to construct three apartment buildings in the First Hill section near Seattle's downtown.

Spectrum broke ground last month on the first of the three buildings, Anthem, and is unveiling plans Wednesday for the other two, Decibel and Revel. Anthem, expected to open next spring, is the first private development in a broad overhaul of the Yesler Terrace public-housing neighborhood where late musician Jimi Hendrix was once a resident.

While the buildings are just three of nearly 200 apartment buildings under construction or in the planning stages in Seattle, they are unique in that all of the combined 279 units in the three buildings will target people below the area median income.

That is uncommon these days for private developers in Seattle. Most that provide any affordable housing set aside just a small amount for it, usually the 20% required to qualify for the city's Multifamily Property Tax Exemption, or MFTE.

Under MFTE, a 12-year property-tax exemption on residential construction or improvements, affordable housing is defined as units rented to households with incomes that are at or below 85% of the area median income. In Seattle, the AMI ranges from $61,800 for one person to $88,200 for a four-person family. The MFTE program sets a limit of $1,687 for monthly rent including basic utilities for two-bedroom units targeting tenants who make 85% of area median income. That is about 16% below the market-rate average for the rent alone of two-bedroom units in Seattle, according to local research firm Dupre & Scott Apartment Advisors.

Many developers in Seattle believe the tax exemption isn't enough to make affordable housing profitable. "Everybody's struggling with this issue," said Al Clise, the fourth-generation chief executive of Clise Properties Inc., which has plans under way for a 40-story apartment building that would target high-end residents. "You have to buy the land—that's very expensive. Then you have to construct—that's very expensive." Mr. Clise said his firm doesn't build affordable housing.

Data from Dupre & Scott show only 4.6% of new one-bedroom units built in Seattle's "in-city" market area since 2009 rented for below $1,450 per month.

But Spectrum believes it has a workable financial model. Among the key ingredients: smaller floor plans that will range from 475 square feet for a studio to 850 square feet for two-bedroom units. The studios are 5.4% smaller than the current Seattle average, while the two-bedroom units are 16% smaller, according to Dupre & Scott. The Spectrum buildings, designed by architecture firm Mithun, also will have fewer parking spots, and share amenities including a club room, fitness rooms and rooftop terraces.

The company is betting that Seattle's young professionals will sacrifice space and cars to live closer to their jobs and public transit. The trend has been slower to catch on in Seattle than in other U.S. cities, largely because its public-transit system has been lacking. But a new streetcar system and other transit efforts could change that.

"Parking is a big cost to any project so by maximizing walkability and mass transit, we save costs and provide a more sustainable, urban project which in turn allows us to keep the rents lower and allow our residents to save further by lowering their cost of transportation," said Jake McKinstry, principal at Spectrum.

Gracorp is providing equity for all the land purchases, which Mr. McKinstry noted "helps to reduce the upfront financing and carry cost while the project is designed and entitled." Spectrum closed on the Reverb property in December for $2.2 million and the Anthem property in February for $2.8 million, while the $2.6 million purchase of the Decibel property is expected to close this year.

Rental prices will be set according to AMI. Anthem will have 20% of its units rented to people making less than 50% of AMI while Decibel and Revel each will set 20% of units for people making between 65% and 85% of AMI. The remaining 80% of all three will set rent targeting 80% to 85% of AMI.

> via WSJ