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District: 1 | Northeast Austin

City Council 1/30/25

Ledgestone Development Group and the Strategic Housing Finance Corporation of Travis County (SHFC) are partnering on a 343-unit workforce housing deal in Northeast Austin. The $92.21M project secured updated entitlements through Austin's new DB90 density bonus program, replacing the previously invalidated VMU2 zoning and maintaining the project's viability.

The January 2025 rezoning approval (CS-MU-V-CO-DB90-NP) allows maximum height of 90 feet and provides modified compatibility standards, enabling efficient development of a mixed-income community with ground-floor retail. The project maintains market-responsive unit sizing with 224 two-bedrooms (65%), 77 one-bedrooms (22%), and 42 three-bedrooms (12%), while delivering significant affordability. The workforce income structure layers affordability from 120% AMI down to 50% AMI, breaking through the typical bottom 60% AMI threshold for workforce HFCs in Texas.

The partnership structure generates $8.34M in revenue for SHFC over a 15-year term, split between earned fees ($4.52M) and participation in cash flow and refinancing ($3.83M). The tax abatement structure yields $22.2M in savings over the term while supporting deeper affordability than typical workforce housing projects.

This first-time partnership between Ledgestone Development Group and Strategic HFC is also the first implementation of SHFC’s off-the-shelf approach to MOUs. In an effort to reduce transaction costs and timeline uncertainties for future partnerships, Executive Director Dianna Grey explained that SHFC’s goal is "to have the MOU almost ready for execution when we bring it to the board."

Over the 15-year term, the project will generate $8,341,803 in total revenue for SHFC, split between $4,516,178 in earned fees and $3,825,625 from cash flow and refinance/sale participation.

Annual tax savings: $1,479,838 ($22.2M over 15 years)

Affordability mix exceeds baseline requirements with deeper affordability:

The deal's unique feature lies in its market positioning of higher-income units. The 120% AMI and market-rate units are currently underwritten at 57%-114% AMI, effectively creating natural affordability in the unrestricted units. This strategy results in some 80% AMI units not requiring rent subsidies, allowing for deeper affordability in other units while maintaining financial viability.

The core revenue streams include a $30,000 annual management fee with 3% escalator (totaling $450,000), a 25% share of the development fee ($413,201), and a substantial 15% annual lease payment based on property tax value escalating 3% ($3,210,851 million over term). The general contractor fee, structured as 25% of sales tax savings, adds $442,126. Additionally, SHFC secured a 3.29% share of net sale proceeds, projected at $2,323,049, and a 5% cash flow participation estimated at $1,502,576.

A key financial innovation is the project's debt coverage ratio (DCR) structure. Without property tax abatement, the DCR would fall below the industry minimum 1.15 through year 7, making the deal unfeasible. The tax abatement allows the DCR to start at 1.32 in year 4 and rise to 1.83 by year 15, creating a sufficient cushion for investor comfort while maintaining affordability.

Notably absent from board discussion were significant concerns about the financial structure, suggesting comfort with the standardized approach.

The public benefit analysis demonstrates strong efficiency in tax abatement utilization. Of the $22.2 million in abated taxes over 15 years, 49% ($10.97 million) returns directly through rental discounts.

When combined with fees and other benefits, the project achieves an 87% public benefit ratio before bonus points, rising to 91.9% with adjustments for architectural design, public worker preference, decarbonization, and service access features.

The development achieves a density of 86 units/acre on 4 acres. The $92.21M project ($268,834/unit) incorporates podium-style construction with ground-floor commercial space and extensive community amenities, including a clubroom with outdoor cooking facilities, pool and cabanas, courtyard, fitness center, yoga lawn, bike storage, and electric vehicle charging stations.

The unit mix emphasizes family-sized units with 65% two-beds (224 units), 22% one-beds (77 units), and 12% three-beds (42 units). This aligns with the project's goal of providing deeper affordability options for families.

SHFC 9/26/24

The Strategic Housing Finance Corporation of Travis County's September 2024 board meeting showed how the board evaluates and engages with new development partners. The FiveOne deal sparked a particularly nuanced discussion around property management practices and community integration.

The financial structure demonstrates the evolving standards of the board. Executive Director Dianna Grey explained that while current requirements mandate 60% of abated taxes be returned in rent discounts, this project was grandfathered under previous terms, returning 49% of the estimated $22.2 million in abated tax value through rent discounts over 15 years. The total public benefit reached 91.9% including bonus points.

Board President Julio Gonzalez Altamirano set an important tone asking the Developer "a question we always ask our first-time partners. It's sort of like a first-day question.”

This led to an extended discussion about property management oversight, with Ledgestone's Craig Alter emphasizing their approach to monthly monitoring and policy enforcement.

Vice President Jan Wenig conducted a thorough examination of tenant screening practices, asking specifically about "eviction prevention" and "allowance for Section 8 voucher applicants."

Alter's response that Section 8 acceptance was "an automatic yes" appeared to resonate positively with the board. He emphasized the importance of consistent, board-directed screening policies rather than individual manager discretion.

The affordability structure received particular attention, featuring units at 50% AMI instead of the typical 60% AMI threshold. The mix includes 40% at 120% AMI, 30% at 80% AMI, and 20% at 50% AMI, proportionally distributed across all unit types. The development predominantly offers studios and one-bedrooms, with 42 two-bedroom units (12% of total).

Community engagement emerged as a critical success factor. The team's approach included site walks with neighborhood groups and incorporation of specific community requests. The retail component, required by vertical mixed-use zoning, directly addressed neighborhood desires for closer amenities than Mueller. The plaza design extending beyond the sidewalk demonstrated attention to creating community gathering spaces.

Ledgestone’s Craig Alter described a deeply collaborative process with the neighborhood.

Alter emphasized that the retail space emerged from community input in their design-centric process.

The unanimous approval highlighted several key factors: deeper affordability levels, thorough community engagement, clear property management policies, and integrated retail components. The discussion demonstrated the board's particular attention to tenant experience, screening practices, and community integration while maintaining focus on financial viability and public benefit returns.

The meeting concluded with this exchange:

SHFC 9/26/24

The Strategic Housing Finance Corporation of Travis County approved Resolution No. SHFC-2024-47 on consent September 26, 2024, authorizing final transaction documents for Banyan Residential’s "Banyan at Braker Lane," a 214-unit deal for leveraging Qualified Opportunity Zone equity financing alongside traditional debt.

The affordability mix demonstrates unusual depth for workforce housing:

The financial structure combines a $45.18 million construction loan from Arbor Realty SR, Inc. with equity through a Qualified Opportunity Zone (QOZ) structure. Rather than utilizing traditional affordable housing tools like bonds or tax credits, the development leverages SHFC's tax-exempt status alongside QOZ benefits to create a replicable model for workforce housing development. The QOZ investment flows through a series of entities - Braker QOZ Business LLC as special member, Braker QOF LLC as sponsor member, and Banyan SFR Manager LLC as manager - creating tax advantages for investors while preserving SHFC's control as general partner.

The Strategic Housing Finance Corporation of Travis County approved Resolution No. SHFC-2024-47 on consent September 26, 2024, authorizing final transaction documents for Banyan at Braker Lane, a multifamily development leveraging Qualified Opportunity Zone equity financing alongside traditional debt.

Control Structure: SHFC maintains oversight through two distinct entities. First, SHFC Braker Lane Land LLC retains fee ownership of the underlying land, leasing it to the project through a long-term ground lease. Second, SHFC Braker Lane MM LLC serves as managing member of the ownership entity, providing direct control over development decisions and ongoing operations. This dual-entity approach ensures SHFC's interests remain protected while enabling private investment through the Qualified Opportunity Zone structure.

Fee Structure and Economic Terms: The total fee package of $6.2 million over 15 years is structured in three primary components:

Construction Administration: A one-time fee of $781,492, divided into two payments - half at closing and half upon receipt of the certificate of occupancy. This compensates SHFC for oversight during the development phase.

Ground Lease Payments: Beginning in 2026, annual payments start at $248,971 and increase by 3% each year. Over the 15-year term, these escalating payments total approximately $4.25 million, providing steady cash flow to SHFC while maintaining long-term control of the land.

Management Fees: Once the project is placed in service (anticipated 2026 or 2027), annual management fees begin at $74,200 and also increase by 3% annually. This stream totals roughly $1.16 million over 15 years, compensating SHFC for ongoing asset management services.

Additional Participation Rights: Beyond the fixed fee components, SHFC participates in major capital events. Upon sale, SHFC receives 1.5% of gross proceeds. In a refinancing scenario, SHFC receives 1.5% of net proceeds. These provisions ensure SHFC benefits from potential upside while the fixed fee components provide reliable baseline returns.

The $52.8 million Amberlin South Ranch deal, with a per-unit cost of $261,573, represents Sparrow Partners' first collaboration with SHFC and introduces an age-restricted product to an underserved submarket near Manchaca and FM 1626.

The financial structure centers on a 15-year tax abatement valued at $13.2 million. The development achieves a 106.14 public benefit score without bonus points, returning 59% of abated property tax value through rental discounts. This return rate is particularly notable given the submarket's higher market rents, which generate $7.79 million in rent savings over the abatement period.

SHFC's revenue streams are structured across multiple phases of the project. During development, SHFC receives a $193,202 general contractor fee for providing sales tax exemption and $361,601 as its 25% share of the Developer Fee.

The partnership management fee begins at $25,000 annually and increases by 3% each year, totaling $427,158 over the term. The annual lease payment, calculated at 15% of estimated taxes escalating 3%, generates $2.3 million during the abatement period.

Operating revenue includes 5% of cash flow, projected at $1.04 million over 15 years based on stabilized operations beginning in year 6. Upon disposition, SHFC receives 5% of net proceeds from sale or refinancing, estimated at $1.92 million using a 5% cap rate scenario. Total revenue to SHFC over the 15-year term ranges from $12.1 million with no sale to $14.1 million assuming a sale at a 5% cap rate.

Welltower Inc., a publicly traded healthcare REIT, provides both debt and equity financing. The proforma projects a 1.30-1.52 debt coverage ratio in years 6-15 after stabilization, with lower ratios during construction and lease-up. The development combines 93 one-bedroom and 109 two-bedroom units across four affordability tiers: 60% AMI (20% of units), 80% AMI (30%), 120% AMI (40%), and market rate (10%).

The project has secured permits and demonstrates strong market positioning, with the highest concentration of seniors aged 65-74 within a 5-minute drive time of any active adult community in Austin. The financial analysis from Hilltop Securities indicates three scenarios for public benefit ratios: 106.14% assuming a 5% cap rate at sale, 96.72% at a 7% cap rate, and 91.60% with no sale or refinance event.

This initial MOU authorization allows staff to proceed with document preparation but requires subsequent board approval of final agreements. The deal structure reflects SHFC's recent policy evolution regarding source of income protection, though this project falls under previous term sheet requirements that did not include Section 8 voucher acceptance as a scoring component.

SHFC 9/26/24

Executive Director Dianna Grey highlighted a distinctive financial aspect - the project achieves nearly 60% of abated tax value in rent reductions due to higher market rents in the submarket.

The September 26, 2024, notably lacked direct developer any representation from Sparrow Partners. Executive Director Dianna Grey and SHFC Development Manager Keith Hoffpauir presented the project and fielded all board questions. This absence became particularly relevant during the discussion when Board Chair Julio Gonzalez specifically requested a future meeting with "Jeff", (CEO and Co-founder of Sparrow Partners) to discuss mission alignment, specifically because they are a first-time partner.

This dynamic influenced the meeting's flow, with Grey addressing board members' questions about operational details, senior services, and voucher acceptance policies, often acknowledging the need for future follow-up with the developer team.

Director Jan Wenig probed deeper into operational commitments, particularly regarding senior services:

Wenig further inquired about potential additional services:

The discussion of Section 8 vouchers revealed evolving policy priorities. Grey explained that while voucher acceptance wasn't required under the previous term sheet used for this project, it now carries bonus points in SHFC's updated terms.

This led to a broader policy discussion, with Gonzalez explaining their approach to incentives versus requirements.

Director Wenig noted a potential future shift, suggesting that source of income protection requirements are "now approaching the norm" among peer organizations in Travis County.

The deal's location at 323 San Leanna Drive, near the intersection of FM 1626 and South 1st Street, represents strategic positioning in an underserved market. Grey noted there "aren't any active adult properties in the immediate proximity," while highlighting the site's access to South Park Meadows retail and its 20-minute proximity to both downtown Austin and the airport.

The board unanimously approved the resolution authorizing negotiation and execution of the MOU, with the project's existing permits suggesting an expedited closing timeline. No public comments were recorded during the discussion of this development.

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