A New Model for Housing Development

A New Model for Housing Development in Squirrel Hill Real Estate Development & Design Fall 2014 Carnegie Mellon University | Eleni Katrini [ekatrini]

1

1. Project Description The ultimate purpose of this project is to create a new housing model in South Squirrel Hill that will host affordable units for people with 60% or less than the Area Median Income (AMI). The building will offer communal spaces and a co-working office space on the first floor.

Currently, as Pittsburgh is getting a lot of attention as an affordable and hip city to live in, rental

prices have been rising constantly. Neighborhoods such as Squirrel Hill, Shadyside and Oakland that are well established with good housing stock and a selection of amenities are the ones affected first by t he rise of the prices, both for housing rentals and sales.

Moreover, even though Squirrel Hill in general seems to be a wealthy neighborhood, Squirrel Hill South has significantly lower median income ($56,000) than Squirrel Hill North and a higher percentage of population under poverty (12%). (US Census Bureau 2010) A building with

affordable housing units will offer a great opportunity to people with a lower income from different

backgrounds; families who struggling with their monthly budget, young people that just came out of high school or college and people over the age of 60 who are retiring and looking to age in place.

For the above reasons, a new type of housing is proposed at the location of the old Poli restaurant; a collaborative housing model. The restaurant will be demolished and new construction will take

place. This new housing typology will create new opportunities for people of lower income through the construction of affordable housing units, but also will intend to create new social interactions

among residents in order to achieve a sense of community that benefits all. This report will initially

outline the idea for the new collaborative housing model, explain how that is relevant to Squirrel Hill North, through neighborhood demographics and current trends and finally describe all the

necessary details for the successful realization of the project. In the second part of the report, the financial model that will bring the project to reality through current tax incentives and funding

opportunities will be presented along with ideas and propositions of how it can be sustainable in the long run.

2

2. Location and Description of Existing Site The project will be located on the intersection of Murray Ave, Forward Ave and Pocusset St, right

where the old local restaurant Poli used to be. The location for the project is on a critical point for

Squirrel Hill South, right at the entrance of the neighborhood. The specific intersection used to have a certain buzz with different amenities, among which the old restaurant, that are currently gone.

Hopefully the project will bring again some pedestrian life to the location which is conveniently place next to the bus stop.

Figure 1 - Site location and surrounding amenities. The three parcels to be purchased for the purposes of the project are highlighted with the red dashed lines. The existing building to be demolished is represented with a grey outline and a striped hatch. Surrounding amenities & public transportation are also indicated.

3

Other amenities around the property are the Getgo fuel station, Young’s Oriental grocery store, Tula Organic Salon and Spa, Computer Support, Forward Lanes Bowling Center, Auto Repair Services,

Supercuts Hair Salon, a Nail Salon, a Gourmet Market Inc and the Shaare Torah Congregation.

The lot for the construction of the new building is comprised of two properties: parcel 0087-G-

00066-0000-00 (6,330 sq ft) and parcel 0087-G-00065-0000-00 (3,723 sq ft). On Murray Ave, right across the project location, there is a triangular lot of 9,210 sq ft (parcel 0087-G-00046-0000-00)

where the restaurant’s parking used to be. An estimated guess for the existing parking’s capacity is 15-25 spaces. This property will be redeveloped too, but continue to be a parking space that will serve the new housing units and office space. The parking lot will be developed in a community

sensitive way leaving space for some seating and necessary plantings to deal with the stormwater.

Consequently, that little triangular corner can also offer both a nice resting stop for the pedestrians trying to cross the complicated intersection, and a vegetated green entryway for cars entering Squirrel Hill from Murray Avenue. The cost of purchase for these three parcels is $435,000.

(Allegheny County 2014)1

3. Zoning Regulations Based on the zoning uses, all the parcels to be purchased are falling under the Local Neighborhood Commercial districts. This means that it is allowed to develop mixed uses on site, and a proposal

that combines multi-family residential with local small office uses is permitted. (City of Pittsburgh 2014)

The maximum floor to area ratio (FAR) for a Local Neighborhood Commercial District based on the

Pittsburgh Zoning code is 2:1 and the maximum lot coverage is 90%. This means that the maximum

The cost of purchase is assumed to be the price at which Action Housing Inc purchased the property from Poli Restaurants Inc in October 2013.

1

4

allowable buildable space can be up to 20,160 sq ft. There is no required setback and the minimum rear setback is 20ft, only when adjacent to a way.

Figure 2 - Zoning Districts - Red: Local Neighborhood Commercial, Yellow: Two and three unit residential, Bright yellow: Single family units, Green: Parks (Source: City or Pittsburgh)

The maximum height for this district is 45 ft, which means that buildings should not exceed three

floors. However, by a general area assessment, slightly higher heights and a more tightly knit built

environment would definitely help create a sense of place at this loose and confusing intersection of these five streets. Moreover, the buildings right next to the project’s location on Murray (Parcel

number: 87-G-64) have five and eight floors accordingly, even though they seem to be in a single

family residential district. For that reason, a zoning hearing for the change of maximum heights for the two parcels (0087-G-00066, 0087-G-00065) is proposed in order to align better with the current built environment.

The above zoning hearing can also be strongly supported in case LEED certification is pursued by

the project. In the case of a LEED certified building, both FAR and the maximum height allowed can be increased by an additional maximum of 20%. (City of Pittsburgh 2005) This means that if the 5

building is design to meet the LEED certification requirements, then the maximum allowable buildable space can go up to 24,200 sq ft.

The parking requirement for Local Neighborhood Commercial Districts is and off-street parking is a minimum of ten parking spaces or a minimum of 2,500 square feet surface area. Due to the fact that

the proposed project is a multi-family residential building, it will need one parking space per unit.

(City of Pittsburgh 2005)

Figure 3 - Examples of two different approaches on using the FAR, height and lot coverage limitations. On the left only 65% coverage is used with the 2:1 floor to area ratio and on the left maximum lot coverage is used (90%).

For the purposes of our project a 75% lot coverage will be selected, and the building will be built based on the LEED certification requirements. Based on that, the footprint of the building will be

7,600 square feet and the maximum height will be 54 ft (4 floors). However, based on the adjusted

FAR from the LEED bonus, which is 2.4:1, we are able to built only 3.2 floors (meaning three whole floors and a percentage of the fourth floor).

The proposal intends to place a residential project in the neighborhood and promote a tightly knit, walkable and livable character. For that reason, a slightly higher density is proposed in order for

the project to be able to take advantage of all 4 floors of the maximum height limit while preserving 6

a 75% of lot coverage, which means that the floor to area ratio needs to be increased up to 3:1. In

order to do so, an application for zoning variance will be submitted through a public zoning hearing process. Because the buildings next to the proposed parcels on Murray Avenue have significantly higher heights (5 and 7 floors) and increased floor to area ratios, where single family housing

should be, we believe that the proposed variance above will not be denied. In that way, the project will naturally blend in nicely with the existing building stock at the Squirrel Hill gateway.

Figure 4 - Proposed Building Scheme with FAR, building heights and lot coverage

7

4. Squirrel Hill South Demographics & Residential Market Squirrel Hill South is a neighborhood with a creative class that consists of three main market

segments: L4 the Solo Acts, L3 the Metropolis and L6 Scholars and Patriots. The characteristics that identify the neighborhood are in general well educated people with mid and good income levels.

(ESRI Business Analyst Online 2013)

In 2010, Squirrel Hill South had a population of 15,110 people, out of which 52% were male and

48% female. The neighborhood is mainly white (82%) with an upcoming Asian population (11.4%) and a small part of African Americans (3.2%) and other ethnicities (1%). The average age is 36

years old, a little bit older than the average Pittsburgh age as well as its neighboring Squirrel Hill

North and Shadyside. Over the last decade (2000-2012) the population has stayed roughly stable, with a slight increase in the population between the ages of 20-34 and a small decrease in the

population between the ages of 35-59. (“PLANPGH” 2014)

A significant point to be mentioned is also that the population above the age of 60, which has been

stable since 2000, was occupying about 1/3 of the neighborhood’s households in 2012. On the other

hand only 6.7% of the households in Squirrel Hill are families with children below the age of 6, and 19% in total are families with children under the age of 18 years old. These facts along with the

high percentage of renters in the neighborhood might be a sign of young people leaving Squirrel Hill South, when the time comes to start a family.

There are 7,514 housing units in the neighborhood, out of which 40.6% are owner-occupied, 54%

are renter-occupied and 5.4% are vacant. The median household income is $56,190, which is

significantly lower compared to that of Squirrel Hill North ($86,500), but higher than the median

household income of Shadyside ($46,745) and Pittsburgh in general ($36,860). (US Census Bureau 2010)

8

9

The most popular employment sector of the Squirrel Hill South residents is “Educational Services, Health care and Social Assistance” (40.5%), the second one is “Arts, entertainment, recreation,

accommodation and food services”, while the third is “Finance, Insurance and Real Estate” (9.2%).

Most of the residents work out of the area and 68% of them drive alone to work. Unfortunately the estimated percentage under poverty in Squirrel Hill South in 2010 was 11.7%.

Currently the average listing for housing prices in Squirrel Hill South at Trulia is $425,000, which is

significantly lower compared to Squirrel Hill North’s average of $710,000. Specifically, the average price per square foot in Squirrel Hill South is $168, while in North is $250. (Trulia 2014) As far as rentals are concerned, the average rent price is $1,360 per month, and renting is considered

cheaper than buying after 12 years of living in Squirrel Hill South. On the contrary buying would be

cheaper than renting in Squirrel hill north, if someone was to stay for 12 years in the neighborhood.

Rental property in Squirrel Hill in general is in high demand, while availability is low. Specifically in Squirrel Hill South, rent prices have increased by 41% between the months of September to November 2014. (Realtor 2014)

5. Proposed Project Detailed Description The Collaborative Housing Model The collaborative housing model is based on tight-knit social interactions and collaborations. It is a model where residents benefit from mutual everyday social interactions and where urban micro

housing units are combined with communal spaces for all. This model takes advantage of shared infrastructure and resources in order to provide a low-cost but high-quality of life.

This model could be applicable and highly beneficial for a community like Squirrel Hill South. Based on the demographics and trends explored earlier, it seems that there is high demand for housing

rentals but very low supply. Moreover, it seems that renting in this neighborhood can be cheaper in 10

the long run, rather than buying an apartment or house. Hence the selection of pursuing the development of a rental project seems to be the appropriate and more secure way to go.

Looking at the specific demographics of Squirrel Hill South, it seems that there is an increasing

young population moving in, such as students and young professionals (20-34), which is dropping right at the point of starting a family and settling down (35-59). Generally the two main factors affecting the decision making process of a family that wants to buy a house and settle in a

neighborhood are good housing stock and a good school district. As the Squirrel Hill school district offers a good mix of neighborhood schools (Pittsburgh City Living 2010), we could deduct that the housing options for families are not very affordable in Squirrel Hill.

Another important point that might contribute to our collaborative housing model is the high

number of households with one or more people at or above the age of 60 years old. Almost 1/3 of the households in Squirrel Hill South are occupied by residents at their retirement phase. This might mean that there is an increased need for communality and closeness between those

populations. People at the age of retirement might face the empty nest symptom and live in big

family households alone or with their husband/wife. In those cases sustaining a big house like this usually does not make economic sense and becomes an additional burden to parents that have invested in their children education and they now have a limited retirement fund.

11

Taking in consideration all the above observations, this project aims to provide affordable housing to populations that earn 60% or less of the Area Median Income (AMI) and fall under one of the following groups of residents:

A. Young students or professionals who just joined the work force and are receiving 60% or less of the AMI for a single person household. This means that they earn annually $23,600

or less (one person household). The co-working office space on the first floor might also

give the opportunity for young professionals to grow and create their own small business or startup. In this way a live-work culture is developed that it is significantly more affordable and environmentally beneficial, as transportations costs are minimized.

B. People in the stage of retirement at the age of 60 or above who are earning 60% or less of the AMI for a single person household. This means that they earn annually $23,600 or less.

The units offered in the project would be easily accessible and ideal for people who are looking for a more contained household that it is easy to maintain. The collaborative

character of the building will also give the opportunity to socialize and feel part of a vibrant community.

C. Young couples that just had children and are receiving 60% or less of the AMI for a twoperson household. This means that they earn annually $44,460 or less. The building will

also provide a small communal space on the first floor that will serve as daycare. As the

expenses for daycare increase and are a significant economic burden for young working

parents, this space will give the opportunity to create a child care co-op and collaboratively hire someone to look after their children while they are at work. These ideas are not new and have been practiced all around the world in a very successful manner. (Parent

Cooperative Preschools International 2010) In an ideal scenario, the building occupants at the age of retirement might be willing to sustain the child care co-op as a way to expand

their activities and earn an extra small income. Older women (and men) who have already 12

raised their own children and have retired from their professional careers might be

interested in taking care of the building’s children as a creative way to earn a small income.

As seen above, by hosting in this building the above populations a series of synergies will take place that will indeed create an affordable lifestyle, not only because of the reduced rental prices of the

units but because of the mutual benefits that will emerge through the collaborative coexistence of different populations under the same roof. An additional benefit that might emerge from this

process is that couples that just had young children can extend their stay in the neighborhood and

not move outside of Squirrel Hill South. This might eventually make them invest in the

neighborhood by buying a house as soon as they are ready to become homeowners. Currently only

6.7% of the households in Squirrel Hill South are families with children under the age of 6 years old, and hopefully a housing block like that might create a future paradigm shift and increase the number of young families who invest in the neighborhood.

This model of collaborative housing is assumed to be developed by a nonprofit. Several nonprofits in the Pittsburgh area that are focusing on the Real Estate Sector (like Action Housing Inc.) could

adopt the idea, or even a new nonprofit cooperative could potentially be developed by interested

future residents who want to pursue a more collaborative lifestyle. In that way the project will be

exempt from real estate taxes, a fact that is a key to the project’s financial viability.

Proposed Plans – General Site

The general site for the proposed model above consists of the residential building itself, which will

have a total of four floors. The first floor will accommodate the office spaces and common areas and

the rest three will be the residential floors. The building’s footprint as mentioned above covers the 75% of the lot, which is 7,600 sq ft. Next to the building, the rest 25% of the lot which remains will be an open seating area with plantings for the office spaces hosted on the first floor.

13

Across the Murray Ave, the triangular lot will host the parking spaces for the residential units.

Currently, based on a rough estimate, 26 parking spaces could potential be provided on that lot (estimating about 300-350 sq ft per parking space). (Schaefer 2014) However, the site has a

difficult topology and it might not be able to accommodate that many spaces. Moreover, the parking demand as per the zoning requirements is one space per unit, which means 30 parking spaces.

Because of the nature of the site and the great financial burden it creates on this project, which

main goal is affordability, we will have to apply for a variance at the public zoning hearing along

with the demand for a FAR variance. 2 As there is a possibility not to get the variance accepted and

because further investigation is required for the layout of the parking, it is assumed and calculated that above ground parking will be provided with 30 spaces in order to meet the demand.

Figure 5 - The site plan above is representing the ideally desired layout with the surface parking that accommodates 26 spaces, considering that the project can get the parking variance approved. However above surface parking would probably be more appropriate for the project and further investigation is required.

Both on the parking site and in front of the building, trees and plantings will be added in order to

promote a more walkable character and create an interesting experience for the pedestrians. Along As it is already know, Action Housing is developing this site currently, and they were able to get a variance for 25 parking spots for the same site, so it is probable that a variance like that would be accepted.

2

14

the same lines, vegetated street bump outs and a clear crossing will be developed, in order to make it easier for the users of the building to cross easily and safely the complicated intersection and

reach the parking lot area. Bike racks will be installed both on the triangular site between the car parking and the intersection, as well as on the side open space area next to the building.

Proposed Plans – Building’s First Floor

The first floor of the building will accommodate 3,650 square feet of co-working office space, 1,330

sq ft of office or retail for small local business, 1,050 square feet of storage space for the units and

another 730 square feet which can be used for the child care coop. In case the residents decide not to pursue the child care coop, the space can be leased as an office space too.

Figure 6 - First Floor Plan Layout

For our calculations it is assumed that the 730 sq ft space will be used as a child care coop, and that the residents will pay a small fee for renting the space which will be significantly lower than the

actual cost of daycare. Currently, in the Squirrel Hill area daycare costs can vary from $650-1000 15

per month. In order to support the daycare coop, each family will pay a total of $450 monthly; $275

for the space rental and an additional $175 fee will be allocated for the person taking care of the children. Ideally, this will be a task that will be undertaken by someone from the building too.

Several co-working spaces exist in Pittsburgh such as the Beauty Shop in East Liberty, the

StartUptown in Uptown and Catapult in Lawrenceville. However, none exists in Squirrel Hill,

Shadyside or Oakland area, where recent graduates and young professionals live. The co-working space on the first floor will be a great addition to the neighborhood. The space will be rented to a

third party entity as office space and that entity will be responsible of developing the co-working model for the space. (Diehl 2013)

Proposed Plans – Building’s Typical Floor (2nd, 3rd, 4th)

Figure 2 - Typical Floor Plan Layout

The typical floor of the housing units will consist of both one and two-bedroom apartments. Each floor has five one-bedroom units and five two-bedroom units, leading in a total of 30 units in the 16

building. Based on the interest of the potential residents some of the one-bedroom units have the

possibility to share one common kitchen in order to use fewer resources and adopt a more sociable lifestyle. This could be a good opportunity for young professionals living together, or it could give the opportunity to change those units easily to two-bedroom in case there is a change in future

demand from more families. The vertical circulation of the building will be placed in the center of the building and will be accommodated through both stairs and an elevator.

Detailed Program Summary

Use

Units Floors

Residential: Two-bedroom units Residential: One-bedroom units

15

Total Residential Area (with common areas)

15

30

Co-working Office Space (30-40 seats) Child daycare coop

Office/Retail space

Common Areas – 1st fl (with storage space) Parking spots

17

Total Sq Footage

570

8,550

3

745

22,800

1

1

3,650

3,650

1

1

730

730

1

Total Office Area

Area (sf)

30

1

1,330

11,175

1,330 5,710

1,900

Above, the detail break down of spaces is provided, with the building’s massing diagram that shows where each space is. Details on the rental prices and lease’s details are provided in the following section of the Financial Analysis of the model.

6. Sustainability Goals The sustainability goals for this project are two-fold. Firstly, the project will pursue a LEED

certification, either Silver or Gold. Probably LEED Silver is more likely due to the limited budget of the project.

Based on the current information about the project it is safe to say that it will most likely be able to receive the points for the Following Credits: Sustainable Sites Credit 1 Credit 2 Credit 4.1 Credit 4.2 Credit 4.3 Credit 4.4 Credit 8

Site Selection Development Density & Community Connectivity Alternative Transportation, Public Transportation Access Alternative Transportation, Bike Storage & Bike racks Alternative Transportation, Low-Emitting and Fuel Efficient Vehicles Parking Capacity Light Pollution Reduction

Credit 3

Water Use Reduction

Credit 1 Credit 5

Optimize Energy Performance Measurement & Verification

Water Efficiency

Energy & Atmosphere

More credits available in the LEED documentation can be pursued through the careful and good

design of the building itself, the use of the materials, careful waste management, and attention to the Indoor Environmental Quality of the spaces such as thermal comfort, ventilation and natural daylighting.

18

Apart from the more conventional sustainability goals of the LEED certification, the building itself

will promote a more sustainable lifestyle among its residents that cannot be documented through a certification process. The social network that is intended to be created in this residential building

will promote a culture of sharing resources among residents, leading to decreased need for excess use of resources, such as everyday tools, laundry machines, children toys, bikes, books etc. The

aspiration of the project in the long run is to create also a shift in the residents’ lifestyles in a way

that they live in a more sociable, environmentally friendly and affordable manner. This aspiration might be larger than the project itself but it addresses the three main prongs of sustainability; people, planet and profit.

7. Financial Analysis A. Financing Sources In order to realize this project, two main funding sources are being considered; the Low Income

Housing Tax Credits (LIHTC) and the PennHomes loan. Both funding sources are provided by the

Pennsylvania Housing Finance Agency (PFHA) and are considered to be combined well together as funding sources. The PennHomes loan is a 0% interest, deferred payment loan and can be used either as a primary or secondary mortgage loan at a 100% LTV ratio. (PFHA 2014a) For our

purposes we are using a 15.3% LTV, as the rest of the funding needs will be covered by the LIHTC.

PFHA also provides an equity bridge loan program to multifamily development that utilizes LIHTC as a funding source and cannot meet the equity requirements right up front. (PFHA 2014b)

Unfortunately, the equity bridge loan is not provided for this fiscal year of 2015 and hence the

information for the application and loan details were not available. For that reason, in the proforma calculations there is no interest reserve for the bridge loan, and for the sake of the assignment it is

assumed that the non-profit organization will have the necessary funds to start the project until the funding from the loan and the LIHTC go through.

19

As far as the LIHTC are concerned, syndication with BNY Mellon is assumed at 99 cents per dollar.

This is an agreement, that has already happened with Action Housing Inc. and so we are assuming

the same syndication for this project too. (Metropoulos 2014)

Because of the nature of these two funding sources, which are meant to support affordable housing

development in the US, the project is much more viable for long-term operations as there no loan

interest payments. Considering also the low cash flow due to the affordable housing rents, a project like this would not be able to be realized in any other way.

B. Hard Costs The acquisition costs for the three parcels are $435,000 based on Allegheny County Assessment

Property Assessment tool. (Allegheny County 2014) Before estimating the construction costs, it was

necessary to take into consideration the demolition costs of the existing building, where the Poli restaurant used to be. The existing building has two floors and a total of 16,500 square feet (Schooley 2007), leading to $82,500 of expenses for demolition ($5 psf).

The rest of the construction costs include the construction of the residential units, the office and communal spaces, the construction cost of the parking lot, the site work both on the residential building and the parking lot, the tenant allowance and a contingency at 8% rate of the hard construction costs.

C. Soft Costs For the soft costs, there are certain expenses to be included as part of the acquisition, which come up to $50,100. The consultants to be hired for this project are: Architects and Engineers, a traffic consultant who will review the parking lot access, legal and accounting consultants. Their fees

account for roughly $682,600. As mentioned above in order to pursue a higher FAR and height limit 20

through the LEED bonus, a LEED certification application will be realized. For that an extra cost of $326,000 is taken into consideration for fees, extra construction costs, cost of commissioning, energy modeling and consultancy. (Malin 2014)

Certain resources have also been set aside, to take into consideration possible environmental issues that might come up, even though the project does not seem to raise any specific problems at the

moment. As far as the marketing fees for the project are concerned, certain marketing and broker

services are taken into consideration for the office spaces mainly. It is assumed that no marketing will be needed for the affordable housing units.

The applications for the funding sources are intricate and lengthy and they do have certain

financing fees attached to them that come up to $18,800. Real estate taxes for the properties are assumed during the one year of construction, along with $2,500 for insurance and $20,000 for

utilities expenses during construction. Finally, a period of six months is estimated until the property is fully (or almost fully) leased, and a reserve is put on the side for 6 months of operating expenses after the end of construction. The developer’s fee is calculated at 12% of hard costs.

D. Rentals & Affordability In order to apply for the Low Income Housing Tax Credits, the project aims to offer housing units that are affordable to households which earn 60% of the Area Median Income (AMI). The

Pittsburgh’s median income for one resident household is $39,300, for two resident household is $74,100 and for three resident household is $94,800. (City Data 2009) Based on the LIHTC

requirements, in order for the units to be affordable, the rent, maintenance and utilities should not surpass the 30% of the households’ income. Consequently, a gross rent approach is used for the

project and the affordable units’ rents were calculated based on the 30% of the 60% of the AMI. The following table describes the adjusted rents maximum limits for the project: 21

Area Median Income (PGH)

Max Allowed Income (60% AMI)

One resident

$39,300

$23,580

Affordable Rent (30% of Allowed Income) $590

Three residents

$94,800

$56,880

$1,422

Household size

Two residents

$74,100

$44,460

$1,112

For the project’s purposes, all one bedroom apartments were represented as equal in size. In

reality, the project would ideally have a variation of two typologies of one bedroom apartments; a studio/micro-unit and a normal sized one-bedroom as represented currently. In that case the

studio/micro-unit would be considered as a one resident household, while the one-bedroom and the two bedroom units as two-resident households. The rents for each typology then would be

$590, $700 and $1,100 accordingly. 3 For that reason on the Rental Income Summary, a part of the one bedroom units are considered one-resident households (7 out of 15) and the rest are considered two-resident households (8 out of 15).

As mentioned above, for the calculations sake, it is assumed that all 30 parking spaces are being

provided for the project (one per unit) in an above surface structure. Additional parking needs for the offices can be met by on-street parking. In the case that a variance for less parking is accepted, then the project will be relieved by a significant cost of above surface parking and the surface

parking option will be pursued. The price for parking is indented to be kept at a low cost too, so the monthly fee is at $50 per parking space.

E. Operating Expenses As this is a gross rent model, there are significant expenses to be covered by the managing non-

profit. These expenses include insurance ($400 per unit), apartments and office space utilities 3

Detailed information and tables about the cost are attached in the detailed spreadsheets.

22

(including heating, water, electricity and garbage) and maintenance costs for both the leased spaces and the common areas.

As far as the child care coop is concerned, each family living in the 15 two-bedroom units will be

giving an extra $450 fee per month, which will go for the space support and also for the payment of

one/two stuff persons that will take care of the children according to the trending needs at the time.

This will be a great economic relief for the families living in the building, as daycare expenses in the Pittsburgh area range between $700 and $1,200 per month. (Babycenter community 2009)

F. Cash Flow and Operations For the Cash Flow rates of increased the limits outlined by the LIHTC requirements were used; 2% increase for income revenue and 3% increase for operating expenses. (PHFA 2014) The vacancy

rate is estimated at 7% and it is consistent throughout the 10 first years of the building’s operation.

An operating reserve for the non-profit organization is put on the side and it is estimated at 4% of the Net Operating Income. The PHFA PennHomes loan is paid back through 10 equal annual

payments, and the debt coverage ratio is 3.05. Taking into consideration all the above, the first

year’s operating cash flow is at roughly $259,750 and the tenth year’s operating cash flow is at roughly $279,575.

8. Conclusion & Next Steps Based on the above, the project seems successful in the long run, at least for the first 10 years of

operations. However, there are certain challenges and limitations to be mentioned. Acquiring the

funding sources that were presented can be very challenging and time demanding. The application processes need a lot of bureaucracy, fees and attention to detail. Moreover, the Low Income 23

Housing Tax Credits are a very competitive funding source and it means that there is a lot of risk

that the project might not be awarded. More specifically as Squirrel Hill is considered a healthier

neighborhood economically compared to other low-income areas in Pittsburgh, it might not be as easy to make the case for such a project there.

In addition, the above proposal was based on the assumption of an existing initial equity, in lack of a

bridge loan. In reality, the operating cash flow would be less, as we would need to pay back the

bridge loan at some certain interest. Assuming for the purposes of the project, that a non-profit

would have the necessary equity to start a project like this seems unlikely.

Apart from the lack of initial equity, an affordable housing project can be challenging also due to the rent limitations and the manager’s high maintenance costs. The high maintenance costs are mainly the result of the gross rent lease agreement, which is necessary in order to ensure that rent and utilities do not surpass the 30% of the household’s income.

The opportunities around affordable housing are great, as not all governments provide such

incentives and easements for projects that address the lower income populations. Nonetheless, the developer’s and manager’s responsibility for a successful affordable housing model is significant.

Both the developer and the manager (if not the same entity) need to be sensitive and not profit driven. Affordable housing development is not an area where a developer can grow and make

money. Unfortunately often enough, in order to make ends meet, developers/managers reduce the quality of the project and make cuts in maintenance costs, resulting in bad projects. That is the

reason why in the US, sometimes affordable housing has a bad connotation and it is usually related to slumlords.

Hopefully a model that combines the characteristics of an inclusive, collaborative community along with the federal incentives provided, affordable housing can have new positive connotation and support a lifestyle where people are living far better for far less.

24

25

References Allegheny County. 2014. “Allegheny County Office of Property Assessments.” http://www.county.allegheny.pa.us/opa/index.aspx.

Babycenter community. 2009. “Cost of Daycare in Pittsburgh?” BabyCenter. /post/a7282485/cost_of_daycare_in_pittsburgh.

City Data. 2009. “Pittsburgh, PA Income Map, Earnings Map and Wages Data.” http://www.citydata.com/income/income-Pittsburgh-Pennsylvania.html.

City of Pittsburgh. 2005. Pittsburgh Zoning Code. http://ecode360.com/13715795?highlight=parking,streets,parked,street,parks#13715795.

———. 2014. “Pittsburgh Zoning Districts.” Pittsburgh, PA: Esri. http://gis.pittsburghpa.gov/zoning/.

Diehl, Emma. 2013. “Co-Working Spaces in Pittsburgh: Cheap Digs and Collaboration.” Pop City, August. http://www.popcitymedia.com/features/sharedworkspaces0821.aspx.

ESRI Business Analyst Online. 2013. Business & Demographic Analysis.

Malin, Naday. 2014. “Understanding the Cost of LEED-NC Project Certification.” LEEDuser. http://www.leeduser.com/strategy/cost-leed-report-and-understanding-cost-leed-projectcertification.

Metropoulos, Linda. 2014. “Action Housing Inc.” November 6.

Parent Cooperative Preschools International. 2010. “Child Care Co-Ops.” http://www.preschools.coop/v/child-care-co-ops/.

PFHA. 2014a. “PennHomes Program Guidelines 2015.” http://www.phfa.org/forms/multifamily_application_guidelines/guidelines/dv_06_2015_g dlns_loan_gdlns.pdf.

———. 2014b. “Equity Bridge Loan Program Requirements.” http://www.phfa.org/forms/multifamily_application_guidelines/guidelines/dv_10_2015_gl lns_eqty_brdg_ln_prgrm.pdf.

PHFA. 2014. “2015 Multifamily Pre-Application Workshop.” slide 82, October 1. http://www.phfa.org/forms/multifamily_application_guidelines/presentation/2015_pre_a pplication_powerpoint.pdf.

Pittsburgh City Living. 2010. “Squirrel Hill.” PittsburghCityLiving.com. http://pittsburghcityliving.com/neighborhoodProfile.php?neighborhood=Squirrel%20Hill.

“PLANPGH.” 2014. Accessed February 24. http://planpgh.com/.

Realtor. 2014. “Realtor.com.” Realtor.com. http://www.realtor.com/local/Squirrel-HillSouth_Pittsburgh_PA/rent-prices.

Schaefer, Mark. 2014. “How to Calculate the Square Feet of Pavement for Parking Spaces.” eHow. Accessed December 1. http://www.ehow.com/how_6500293_calculate-square-feetparking-spaces.html.

Schooley, Tim. 2007. “One Year after Restaurant Closes, Owners of Poli’s Seek Chapter 11.”

Pittsburgh Business Times. March 8. http://www.bizjournals.com/pittsburgh/stories/2007/03/12/story9.html?page=all.

Trulia. 2014. “Squirrel Hill South, Pittsburgh Real Estate Overview - Trulia.com.” November. http://www.trulia.com/real_estate/Squirrel_Hill_South-Pittsburgh/5913/.

US Census Bureau, A. S. D. 2010. “Data Access Tools - U.S. Census Bureau.” http://www.census.gov/main/www/access.html.

26

27