Houston | 324-Unit PFC

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MOU January 13, 2025 – HHA December 17, 2024

District: K | Southwest Houston

• 324-Unit Multifamily PFC | 13414 Almeda Rd | Executed

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DISTRICT: K

Thrive Almeda at Fuqua 13414 Almeda Rd

Southwest Houston | 14.19 Acres | 324 Units | Executed

The Thrive Almeda at Fuqua deal represents a 324-unit, $52 million deal leveraging 100% property tax exemption through Chapter 303 of the Texas Local Government Code. The project achieves 50.31% affordable units while generating substantial ongoing revenue for the public entity through creative fee structures.

Executed on January 13, 2025, the Houston Housing Authority (HHA) and Aces Development MOU employs a tiered affordability approach with 5 units reserved at 30% AMI, 60 units (18.52%) at 60% AMI, 98 units (30.25%) at 80% AMI, allowing for 49.69% of units to operate at market rates. The property will include 192 one-bedroom units, 102 two-bedroom units, and 30 three-bedroom units, with an average unit size of 840 square feet.

The ownership structure employs HHA’s Lakeside Place PFC holding fee title, leasing the property to a Developer-formed operating company through a 60-year ground lease. The controlling entity behind the operating company utilizes a limited partnership with Developer affiliate as GP (0.01%), Developer affiliate or third-party as Investor LP (99.98%), and HHA affiliate as Special LP (0.01%). This arrangement provides the tax exemption benefits while maintaining appropriate governance controls.

The Housing Authority captures $1,173,373 in upfront fees from this deal. First, HHA receives a 1% Acquisition Fee on Total Development Costs (approximately $520,000). Lease terms are defined as an upfront payment equal to the Acquisition Fee (1% of TDC - $520,000), effectively doubling the term that scales with TDC. Then, the HHA PFC captures 10% of the fixed $1,333,730 Developer Fee ($133,373).

Continuing income sources include a 12% preferred return based on hypothetical property taxes and an asset management fee starting at the greater of 0.5% of gross income or $50,000 annually (increasing by 3% each year). Upon disposition, HHA receives a 1% transfer fee and participates in returns exceeding the 12% IRR threshold through a 15% carried interest.

The capital stack includes construction financing limited to 75% of total development costs from the Developer's chosen lender, with options for permanent refinancing after completion. The Developer and its affiliates provide all necessary guaranties, with HHA bearing no financial guarantee obligations. Investor equity completes the funding sources.

Cash flow waterfalls prioritize debt service and operating expenses, followed by HHA's preferred return, reserves, unpaid developer fee (split 90/10), partner loans, then remaining amounts to the Investor LP. Capital event proceeds follow a similar structure but include the investor's 12% IRR hurdle before HHA's participation in excess returns.

Underwriting Assessment Highlights

The independent third-party underwriting assessment from Novogradac was required under House Bill 2071 (passed by the 88th Regular Session of the Texas Legislature), which mandates that a PFC must obtain an underwriting assessment from an uninterested professional entity with affordable housing experience at least 30 days before approving the transaction. This assessment must demonstrate that the development would not be feasible without the participation of the housing authority corporation or similar subsidy.

The assessment findings confirm:

1. Feasibility Gap Without Exemption: The analysis reveals a $61,390 shortfall between required NOI and actual NOI under full taxation, but with the PILOT structure (at 15% of regular tax burden), the project generates a $557,935 positive margin.

2. Strong Market Demand: The survey of comparable properties showed 3.4% average vacancy with affordable properties operating at just 2.6% vacancy, with multiple properties maintaining waiting lists.

3. Rent Achievement Verification: The maximum allowable rents at 60% AMI are fully achievable, providing a 17-36% advantage over market rents. The 80% AMI rents are achievable at maximum levels for two and three-bedroom units, with some discount needed for one-bedroom units.

4. Operating Expense Validation: The market-derived operating expenses of $8,562 per unit annually align with comparable properties in the area.

5. Real Estate Tax Analysis: The assessor's methodology for affordable housing was applied to determine a blended capitalization rate of 6.75% and resulting tax burden of $2,249 per unit, which is correctly positioned between affordable and market-rate comparables.

The assessment conclusively states:

The PILOT (Payment In Lieu of Taxes) structure is a crucial element that makes this development financially viable. Here's why it's significant:

The 15% PILOT mechanism means the property only pays 15% of what would normally be due in property taxes. Without the tax exemption, the project would have a $61,390 shortfall between required and actual NOI, making it economically unfeasible to develop as an affordable housing property.

Not all PFC deals include PILOT payments. Aces Development and the HHA structured with a 15% PILOT payment, which means it is still receiving an 85% property tax reduction, but it's making a voluntary 15% payment. The decision to include the PILOT under a PFC structure could reflect:

1. Political considerations - demonstrating some continued tax contribution

2. Local policy preferences - balancing tax benefits with public returns

3. Potential response to criticism

HHA Board 12/17/24

MOU | Approved

The Houston Housing Authority Board unanimously approved the Thrive Almeda at Fuqua transaction on December 17, 2024. Chairman Proler emphasized its significance:

Chairman Proler specifically recognized David Cukierman and Jay Mason from the Real Estate Investment and Development (REID) team "who worked very hard to negotiate to provide deeper affordability," calling this achievement central to the agency's mission. HHA’s preference for 30% AMI, specifically 5 units at 30% AMI, appears in other 2025 HHA public facility corporation structures:

Developer/Owner: Aces Development, Ronny Hecht Phone: (713) 457-1926 Email: [email protected] LinkedIn

Public Partner: Houston Housing Authority (HHA), Jamie Bryant Phone: (713) 260-0501 Email: [email protected] LinkedIn, Jennine Hovell-Cox Phone: (832) 209-2296 Email: [email protected] LinkedIn

Pro Forma: Thrive Almeda at Fuqua Underwriting Assessment

Deal Scan: Thrive Almeda at Fuqua DS

Project Plans: Thrive Almeda at Fuqua Plan

Memorandum of Understanding (MOU):  Thrive Almeda at Fuqua MOU

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