QUESTIONS & ANSWERS: Financial

1. What is a land lease? How does it work? What are options for a land lease?
A land-lease property is one in which the land beneath the building is owned by someone else. The land might be owned by a government entity or a private entity such as a land trust. By continuing to own the land, either of these entities can enforce a variety of controls on how the homeowner can sell his/her home

2. What are development models? Pros and cons?
In the case of large scale land developments, these are production systems for the development of the land according to some plan such as a Master Plan. There are several often used models. These include:

• Master Developer – One Developer takes on the responsibility of developing all aspects of the project. This includes all infrastructure and building homes.
• Master Land Developer - One Developer only takes on the development of the major spine infrastructure (roads, sewer, trails, etc.), but sells tracts of land to individual developers and/or builders who produce improved lots and build the units.
• Government Development Authority - Government, usually through an agency it creates, such as an urban renewal authority, acts as either a Master Developer or Master Land Developer. Typically the new entity is separate from the City, although the board of directors may be named by the city council and include elected officials as representatives on the board.

3. What are implications of options? (Need examples for lay person.)
All of the developer models will be required to follow the master plan and design guidelines. All phases would require review and approval by Planning Commission and staff, which will involve an ENN for each phase. Following are some of the differences of each model:

a. Master developer – one developer are usually production builders that are very good a producing a lot of units at a time. Because of these developers are able to build several units at once in a production line, they are able to keep costs lower and have greater control over quality. Some have their own in-house crews and others use local sub-contractors.

b. Master developer – may be a for-profit or non-profit developer who provides all the spine infrastructure and follows the master plan. Under this model, multiple builders may provide housing in different phases of the project. Access to financing for the infrastructure financing is similar.

c. A Government Development Authority is similar to a master developer who oversees the implementation of the spine infrastructure. Often these entities are subject to more governmental oversight, which may increase costs because of multiple project reviews and delays. Depending on the structure, these authorities may have access to different types of bond financing or federal programs.

4. What financing, programs are available? (State, local federal)
Financing programs are usually divided between “Front End” and “Back End”. Back End financing refers to the financing that the homebuyer receives to purchase the home, typically mortgage financing. For the affordable units there are a variety of programs, mostly managed by the New Mexico Mortgage Finance Authority, which provide subsidized downpayment assistance and low rate mortgages for low income home buyers. Two local non-profits also provide down payment assistance for income qualified buyers. Front End financing refers to the financing the developer obtains for the costs of purchasing land and managing the development of the project. Typically, the developer obtains development financing from a lending institutions, but may also obtain financing through, equity investments. In same cases, a private developer may receive the financial assistance of local government to cover the costs of the project’s infrastructure through the issuance of bonds which are supported by the creation of special taxing mechanisms such as Tax Incentive Districts. TID’s are districts in which the local taxing authority (city, county, school district), gives up collecting the incremental taxes (property and/or gross receipts) that are caused by the project improvements for a period of time.

In addition there are a variety of low cost financing programs which the developer can use to cover some development costs related to affordable housing units. These are operated by the state and federal government. Examples include the Federal and State Low Income Housing Tax Credits, the New Mexico Affordable Housing Trust and a variety of federal programs for financing special needs and senior housing.

5. How much do “affordable” units actually cost? How much does green building cost?
Attached is a summary of the city’s Santa Fe Homes Program which includes specific pricing points for the affordable units. These are the prices the developers must sell the affordable units based on income levels of the homebuyer and household size.

6. Are there incentives for green building?
There are some financial incentives, although the dollar value on a per unit basis may be limited. The State recently passed new legislation that may provide more incentives in the future. There are several programs that have a history of providing funding for green building, including a program operated by Enterprise Community Partners, which provides grants and below market financing for affordable housing which meets a set of green building requirements. The New Mexico Mortgage Finance Authority uses these standards in awarding low cost financing for several of its programs and Fannie Mae provides a green building mortgage. (See attached for additional resources).

7. $/sf cost and $/Ac. Cost.
Presently, affordable units being built are running approximately $110 per square foot. Market units are somewhat higher, but as the Master Planning process proceeds, these assumptions will be refined.

8. How do you maintain it “affordable” for future generations? What programs are in place to ensure “affordability?”
There are several methods that are used throughout the country. The Santa Fe Homes Program uses two of these methods:

a. Shared equity lien: Homes sold under HOP or the Santa Fe Homes Program has a lien placed against the property that captures the difference in the price the home was sold for and the appraised value of the property. The value of the shared equity lien is a “buy-down” that is expected to remain in place in perpetuity and is the primary mechanism that is used to ensure affordability over time as the buy down will always remain in place, except in unusual circumstances. In addition, the shared equity lien allows the City or its Agent the right of first refusal to purchase a unit so it could be resold to future income qualified buyers, if one is not found at the time the unit is being resold.

b. A land lease: Homes may be sold or rented subject to a land lease that requires the home to be resold or rented to an income qualified buyer at an affordable price that is defined in the lease. Currently, land leases in Santa Fe are administered by the Santa Fe Community Housing Trust.

9. Clarify inclusionary zoning ordinance requirements.
Please see attached Santa Fe Home Program Summary

10. What are desired amenities?
To be determined

11. How do you get equity with affordability programs?
Following is an example of how equity is gained and affordability maintained over time:

12. Infrastructure costs?
To be determined as the Master Planning process proceeds.

FOR MORE INFORMATION, CONTACT:

Public Process: Carl Moore - carl@thecommunitystore.com
Technical Info: Claudia Meyer Horn - nwquadrant@designworkshop.com