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- Houston | 263-Unit PFC
Houston | 263-Unit PFC
4/8/22 | The Dacoma
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MOU April 8, 2022
District: A | Northwest Houston
263-Unit Acquisition/Rehab PFC | 3900 Dacoma St | Approved
DISTRICT: A
The Dacoma 3900 Dacoma St
Northwest Houston | 6.31 Acres | 263 Units | Closed | Executed
The Dacoma acquisition/rehab PFC is unique in its fee architecture and distribution waterfall. The April 4, 2022, Memorandum of Understanding between Houston Housing Authority (HHA) and Santa Monica-based Post Acquisitions LLC front-loads the Developer’s returns with $731,955 in fixed fees at closing.
Built in 2019, the 263-unit deal has a three-tier affordability structure: 27 units at 60% AMI, 104 units at 80% AMI, and 132 market-rate units. The unit mix emphasizes workforce housing demand: 26 studios, 158 one-bedrooms, and 79 two-bedrooms. The property sits on 6.31 acres in the Brookhollow submarket, valued at $4.12M ($15/SF) for land basis in 2024.
Ownership Architecture
HHA creates a PFC to hold fee title, while a newly formed partnership handles operations. Post Acquisitions' affiliate serves as Managing Entity with 0.005% ownership, HHA's affiliate as Special Member/LP with 0.005%, and an investor member holding 99.99%.
However, the deal's distinguishing feature lies in its fee structure rather than backend promotes.
Developer compensation prioritizes fixed fees over traditional percentage splits:
$631,955 acquisition fee (closing)
$100,000 administration fee (closing)
$100,000 annual asset management fee
3% property management fee on gross revenue
This front-loaded approach, combined with substantial annual fees, reduces reliance on uncertain backend promotes while maintaining significant day-one value capture. HHA's more conventional compensation ($457,500 acquisition fee, $25,000 annual asset management) creates advantageous asymmetry in ongoing fee streams.
Distribution Waterfall:
8% IRR priority return to 99.99% investor member
15% of tax savings to HHA Special Member/LP, remainder to investor
Sale/refinancing proceeds: 92.5% investor/7.5% HHA after hurdles
HHA Preferred Return accrues at 2% annual escalation on tax savings baseline
Control Mechanisms:
$50,000 capital improvement approval threshold
$100,000 single/$200,000 aggregate change order limits
Three-month operating deficit trigger for property manager removal
Special Member/LP removal rights for fiduciary breach
10-year minimum Regulatory Agreement term
Post-year-10 disposition rights subject to ROFR
U/ Finance
Term | MOU |
|---|---|
PFC Upfront Fee | $457,500 |
PFC Management Fee/Preferred Return | $25,000 per year + 15% of tax savings (based on 2021 assessment) with 2% annual escalator as Preferred Return |
Upfront Lease Payment | Equal to purchase price (amount not specified) |
PFC Sale/Refi Fee | 7.50% to Special Member/LP after 8% IRR on sale/refinancing, 1% minimum |
Other Notable Terms | $631,955 One-time Acquisition Fee to Developer at closing $100,000 One-time Administration Fee to Developer at closing $100,000 Annual fee to Developer for Asset Management fee, payable monthly 3% of monthly gross revenues for Property Management fee At least 5 HCVP voucher units required |
Affordability Structure: The 27 units at 60% AMI (10.27%), 104 units at 80% AMI (39.54%), and mix maximizes market rate units while meeting minimum thresholds. Five HCVP units provide additional compliance margin. The structure suggests sophisticated navigation of PFC requirements versus market optimization.
Notable Provisions:
Agency counsel fee cap ($95,000) demonstrates attention to transaction cost control
Lease payment equals purchase price, indicating potential basis step-up strategy
Post-rehabilitation compliance certification triggers certain rights
Internal investor transfers permitted without consent
Tax exemption as closing condition creates clean exit mechanism if benefits fail
The deal architecture reveals several replicable innovations, particularly in fee structuring and control mechanisms. The emphasis on fixed fees over backend promotes could prove especially valuable in markets with uncertain appreciation trajectories. The multiple approval thresholds and removal rights create a balanced governance framework that preserves developer autonomy while protecting public interest.
Looking deeper into the MOU, several additional structural elements stand out:
In refinancing scenarios, the special member's approval isn't required if using Fannie Mae, Freddie Mac, HUD, or similar government agency debt, provided the loan maintains an 85% maximum LTV and minimum 1.15x DSCR.
The disposition structure has specific timing gates. After year 10, the managing entity can pursue a "Fee Sale" including lease termination. After stabilization and compliance verification, they can pursue a "Leasehold Sale" with the ground lease remaining in effect, though this requires HHA's reasonable consent.
HHA's special member rights include granular asset management control: they must approve any capital improvements exceeding $50,000, and have authority to remove the property manager if operating deficits occur for any three consecutive months.
Income restrictions carry specific calculation methodologies. The 80% AMI rents use "80% Low" calculations with a notable "1 Person/1 Bedroom + 1" standard for household size. Rent limits are set at exactly 30% of the applicable median income.
The minimum 1% exit fee to HHA on any sale/transfer is structured to be satisfied through either the 7.5% waterfall participation or a separate fee, with a true-up mechanism if waterfall proceeds fall short.
HHA maintains Right of First Refusal on property sales, but must exercise within 30 days and close within 90 days of exercise. Failure triggers either a full property transfer to the company for third-party sale, or lease transfer with HHA retaining 10% of future tax savings.
The agreement includes a specific "Blocked Persons" clause restricting sales to parties suspended from HUD programs since January 2011, with detailed three-tier criteria for suspension qualification.
Agency legal fees are capped at $95,000 for closing, a notably precise figure that suggests specific scope alignment.
Developer: Post Acquisitions, LLC, Jason Post Phone: (310) 788-3445 LinkedIn, Scott Pickett Email: [email protected] LinkedIn
Memorandum of Understanding (MOU): The Dacoma MOU
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