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Houston | 352-Unit PFC
11/14/24 Ariza Park Row
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MOU November 14, 2024 - CC October 23, 2024 - CC October 15, 2024
District: A | West Houston
352-Unit Multifamily PFC | 1100 Blackhaw St | Approved | Executed
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DISTRICT: A
Ariza Park Row 1100 Blackhaw St
West Houston | 9.41 Acres | 352 Units | Approved | Executed
The November 14, 2024, Ariza Park Row MOU combines a PFC tax exemption and HUD financing to create 352 mixed-income units in West Houston. Under the $81.6M structure, 50.28% of units are designated affordable, with rents at 20% at 60% AMI and 30% at 80% AMI. The Houston Housing Authority (HHA) and Cypressbrook partnership secured Council approval in October 2024 despite facing initial scrutiny over flooding risks and transparency. It is one of the first deals reviewed by Houston City Council under new state PFC oversight requirements.
Ownership structure places a Cypressbrook affiliate as 0.005% General Partner, investors at 99.99% Limited Partner interest, and a Housing Authority affiliate as 0.005% Special Limited Partner with consent rights over property management, material changes, refinancing, and other key decisions. The initial term is 60 years with a 60-year renewal option.
The PFC structure requires an upfront lease payment of $12,066,700 for the land acquisition. The Agency receives multiple ongoing fees: an acquisition fee of 0.875% of total development costs ($714,191) and an annual asset management fee of the greater of 0.5% of gross income or $50,000 (escalating 3% annually).
When ownership transfers occur in the project, two distinct fee mechanisms protect the Housing Authority's economic interests. The first is a one-time Transfer Fee of 1% of the gross purchase price, payable to the Special LP at the time of sale. The second is the ongoing AVT Fee, which equals 10% of what the property taxes would have been without the tax exemption.
The AVT Fee effectively converts the Housing Authority's equity participation into a fixed payment structure that continues after ownership changes. This fee becomes part of the regular rent payments under the Lease Agreement, applying to both Leasehold Sales and Transfers of Sponsor Entity Interests. The arrangement enables the property to maintain its tax-exempt status while ensuring the Housing Authority receives consistent financial returns from the project.
While the MOU clearly establishes these fees for initial transfers, it does not explicitly address whether the 1% Transfer Fee applies to subsequent sales, though the AVT Fee structure would continue with new owners.
U/ Finance
Term | |
|---|---|
HA Acquisition Fee | 0.875% of Total Development Costs ($714,191) |
HA Management Fee | Greater of $50,000 with 3% escalator or 0.5% of gross income |
Contractor Fee | $25% of total sales tax savings |
Lease Payment | $12,066,700 upfront lease payment for property acquisition |
AVT Fee | 10% of would-be property taxes upon transfer of interests annually |
Transfer Fee | 1% |
The core financing leverages a $63.8M HUD 221(d)(4) loan covering 78% of total development costs at a 1.176 DSCR with 35-year amortization and 6% interest rate. This financing structure is notably more advantageous than market rate terms, which would only allow 65% LTC at 1.20 DSCR. The total development cost of $81.6M includes $12.1M in land costs and $53.4M in hard construction costs.
The affordability mix includes 71 units (20.17%) at 60% AMI and 106 units (30.11%) at 80% AMI, with the remaining 175 units (49.72%) at market rate. The unit mix spans 216 one-bedrooms averaging 698 square feet, 115 two-bedrooms averaging 1,001 square feet, and 21 three-bedrooms averaging 1,302 square feet. At least five 60% AMI units must accept Housing Choice Vouchers.
Market analysis shows significant rent differentials, with 60% AMI rents providing 24% savings versus the market, while 80% AMI rents track just slightly below market rates. Market rents were established at $1,500 for one-bedrooms, $1,650 for two-bedrooms, and $2,350 for three-bedrooms.
The deal's feasibility hinges on the tax exemption - financial modeling shows a 7.93% IRR with the PFC structure versus -1.21% IRR without it. This spread demonstrates the essential nature of the tax exemption to support the affordable housing restrictions. The Developer’s analysis was performed by Advisor Sphere, an independent consulting firm, as required by HB 2071 Enrolled enacted in the 88th Regular Session (2023) to verify that the development would not be feasible without PFC participation.
The operating structure assumes 4% annual rent growth and 3% expense growth, with a 5% vacancy rate. Additional deal requirements include 30% MBE/WBE participation split evenly, even distribution of affordable units throughout the property, and comparable quality standards between market and affordable units. The affordability restrictions run for 20 years, and the deal includes $150,000 in agency legal fees paid at closing.
Term | Ariza Park Row Pro Forma 11/14/24 |
|---|---|
Construction/Permanent Loan | $63,836,700 (HUD 221(d)(4)) |
GP Equity | 0.005% (Cypressbrook) |
LP Equity | 99.99% Investor Limited Partner (LP) 0.005% Special Limited Partner (SLP) |
Total Financing | $81,621,763 |
Estimated Revenue Forgone: General Funds | $1,467,197 (Year 1 taxes) |
Land Acquisition | $12,066,700 |
Hard Construction Costs | $53,427,896 |
Reserves | $53,550 (Year 1) |
Other Notable Terms | 5 units minimum at 60% AMI must accept Housing Choice Vouchers. |
City Council 10/22/24
PFC Approval | Approved
The Ariza Park Row deal came back for a final vote on October 23, 2024, after being tagged for review the previous week. The resolution passed with only Council Members Peck (the district representative), Flickinger, Huffman, and Carter voting against it, while the majority voted in favor.
This vote is particularly notable because Council Member Amy Peck, who represents District A where the project is located, voted against the project in her district. This follows the previous week's discussion where council members debated the efficacy of Public Facility Corporation (PFC) deals and the need for greater council oversight of these transactions.
City Council 10/15/24
PFC Approval | Postponed
The Houston City Council's October 15, 2024 discussion of Ariza Park Row marked one of the first exercises of new PFC oversight authority mandated by recent state legislation. The project, presented as Item 16 for District A (Council Member Peck), prompted discussion about the council's new review role and transparency in affordable housing deals.
Council Member Julian Ramirez, At-Large Position 1, highlighted the historical significance, noting this was "the first time they've come before Houston City Council" due to HB 2071's new requirements. The law mandates PFC deals must receive approval through a public hearing at the housing authority's governing body meeting, unless the project has 20% public housing units or participates in specific federal programs. The law also requires detailed reporting to the state comptroller and local appraisal district, including annual independent audits of compliance.
Significantly for the Council's oversight role, HB 2071 requires a corporation or sponsor seeking tax exemption to provide 60-day advance written notice to the municipality's mayor before property acquisition. The law also mandates public transparency through website posting of compliance information and voucher acceptance policies.
‟These are quite complex…we need more information and greater bandwidth on the part of the city to be able to evaluate, properly, these developments. This is a new power we've gotten and we need to take it seriously and dive deeply into these when we have them.
The most significant opposition came from project’s District A Vice Mayor Pro Tem Member Amy Peck. She raised serious concerns about flood risk for vulnerable populations, citing the site's proximity to Addicks Reservoir and history of flooding. While affirming her general support for affordable housing in District A, she emphasized the importance of appropriate siting.
‟This area has flooded before and will continue to flood. If something is going to be built, it certainly shouldn't be affordable housing for an already vulnerable population that probably can't afford to start over if they get flooded. I've supported affordable housing in District A but it needs to be in the right location and this one just isn't it.
Another concern came from Council Member Fred Flickinger, District E, who sought clarity on the rental rate structure, requesting "what the full market rates for the rents are [and] what these subsidized rates for the lower income is going to be." He later elaborated that his concern centered on developer accountability rather than opposition to affordable housing, citing past deals.
‟This isn't an issue with poor people, it's a question that goes to the developer... tax abatements have been given to them and they say 'oh we're going to have 60% AMI' well the AMI is such that the 60% were paying full market rates.
The project was tagged (delayed) at the October 15 meeting, with Flickinger requesting additional rental rate information. When brought back for final consideration on October 23, the resolution passed 11-4, with Council Members Peck (District A), Flickinger (District E), Huffman (District G), and Carter (At-Large Position 3) voting against it.
Specific debate about Ariza Park Row's merits was limited. No community members spoke for or against the project during either session, and most of the council discussion focused on the general process of reviewing PFC deals rather than project-specific concerns.
Developer: Cypressbrook Management Company, Michael Novelli Phone: (281) 364-1777 Email: [email protected] LinkedIn
Land Owner: JDM Co., JD McCaslin Phone: (214) 445-6005 Email: [email protected]
Public Partner: Houston Housing Authority (HHA) via Lakeside Place PFC, Jennine Hovell-Cox Phone: (832) 209-2296 Email: [email protected] LinkedIn
Pro Forma: Ariza Park Row PF
Memorandum of Understanding (MOU): Ariza Park Row MOU
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