Triumphs in Affordable Housing Development
It’s December 1, 2023. Five Points Crossing is weeks away from opening, and all its apartments are already leased. Fifty households will soon be moving into brand-new, energy-efficient units in downtown Rocky Mount, with amenities like a playground, fitness center, and a covered rooftop terrace with views. The apartments are conveniently located within a 10-minute walk of a grocery store, a science museum, an arts center, a train station, and several downtown shops and restaurants.
But the best part about Five Points Crossing? It’s affordable and will remain that way, with rents limited to 30 percent of a household’s income for the life of the lease. These 50 affordable units, however, didn’t come easily.
Partnering for change
The partnership between Rocky Mount and the Development Finance Initiative, which led to the Five Points Crossing project, began in 2017. Over several months, DFI conducted pre-development feasibility analysis and engaged local leaders to identify sites that would be competitive for Low-Income Housing Tax Credits, a critical source of financial capital for multifamily affordable rental housing.
Once a final site was selected, DFI staff met other challenges to complete the project. Rocky Mount was experiencing political turmoil and turnover within key positions in City Hall, so building consensus with local government staff and staying on schedule proved difficult. Additionally, as is often the case with affordable housing projects, the site’s neighbors opposed the new development. A DFI-led community meeting revealed deep-seated misconceptions about who the affordable housing would serve and how it would operate long-term. Moreover, the selected site, the best among limited options, was a brownfield with potential environmental issues. It once housed a dry-cleaning operation and required DFI to organize extensive testing and planning around mitigation strategies to prevent contamination and become development-ready. Finally, the DFI financial feasibility analysis found that the project required additional gap funding.
Most developers would walk away and not attempt a project like Five Points Crossing. Developers work via a success fee model; they are paid if and when the project happens. This contributes to shortages of affordable housing units. Rocky Mount's inventory of new affordable housing units increased by only 200 in the past decade, a fraction of the 2,200 units that DFI found were urgently needed in the city.
Despite the project’s challenges, the DFI team persisted and brought the deal together, helping the City of Rocky Mount select and negotiate a development agreement with an experienced firm called Woda Cooper.
The DFI team’s persistence and expertise were essential to completing Five Points Crossing. Thanks to credit union support, DFI has cultivated its expertise in affordable housing, even before so many of its clients sought help with this issue.
Growing expertise
In its early days, DFI projects largely centered on market-rate, mixed-use projects in central business districts: luxury multifamily residential development and commercial uses like office, retail, and hospitality. This focus was in response to local government priorities, which were often focused on directing their limited resources to downtown revitalization. DFI staff were troubled by the pattern that emerged when analyzing socioeconomic data in every community they worked in: a shortage of safe, affordable housing. Since local governments weren’t prioritizing affordable housing at the time, DFI wasn’t gaining project-based experience and realized they had a knowledge gap regarding how affordable housing is built and financed.
In 2017, in anticipation of an impending housing crisis, the DFI team committed to building internal capacity around affordable housing so that, when the time came, it would be poised to respond to local government requests. This would be difficult for a typical startup without paying clients willing to support this work. But, because of generous support from the credit union, DFI was able to invest in itself and dedicate resources to fostering its expertise in affordable housing: engaging with experts and building partnerships, touring projects, taking advantage of professional development opportunities, and carving out the time to learn and experiment with financial models. Thanks to that early investment, DFI was able to confidently secure two major affordable housing contracts: the first with Durham County, which eventually led to two mixed-use, mixed-income developments in downtown Durham, and the second with North Carolina Emergency Management, the engagement that resulted in Rocky Mount’s Five Points Crossing as well as a senior housing development in Lumberton.
Tackling affordable housing today
The affordable housing crisis currently dominates the news and DFI’s project portfolio. In 2023, nearly 70 percent of DFI’s projects were related to affordable housing. DFI is now known for its affordable housing expertise, even supporting UNC School of Government faculty to create a new professional course in 2022 dedicated to the topic.
Although the DFI team is more knowledgeable, affordable housing development is more challenging than ever. Suitable sites are scarce and expensive to acquire, sky-high construction costs require gap financing that can be hard to come by, and local neighbors can be resistant to development. Even so, DFI has several exciting affordable housing projects in the works with committed local government champions as partners.
For example, DFI is working with Buncombe County on four distinct affordable housing projects to bring urgently needed workforce housing to the Asheville area. One of those projects is the 650-plus unit Ferry Road development, including affordable and market-rate residences for rent and ownership side-by-side. Also, in western North Carolina, DFI is working on affordable housing projects with local governments in Brevard, Jackson County, and Watauga County. To the south, DFI is helping the City of Salisbury redevelop the former Kesler Mill site—a brownfield—into townhomes and affordable rentals. Closer to home, DFI is advising Apex on opportunities to create more affordable housing and preserve manufactured home communities under threat. Also in the Triangle area, DFI advised the Research Triangle Foundation on how it might integrate workforce housing into its vision for the new Frontier Campus. Affordable housing-related requests don’t seem to be slowing down, as local governments lead the way in facilitating affordable housing development in their community that is tailored to their local needs and context.
DFI Assistant Director for Housing and Revitalization Sarah Odio describes DFI’s role this way: “Right now, the tools available to finance affordable housing tend to be rigid and formulaic. If local governments sit back and hope the private market will solve the problem, they either get one type of project that may not fit their needs or get none. DFI works in places that haven’t seen tax credit projects in 10 years. We put communities in the driver’s seat and provide them with information to help them make decisions and take action. Local governments don’t realize the resources they have at their disposal to make the Low-Income Housing Tax Credit program work for them and bring those dollars to their communities.”
Thanks to support from Local Government Federal Credit Union and Civic Federal Credit Union, DFI can help local governments make affordable housing projects such as Five Points Crossing a reality.