Sources: Seattle passed on buying, preserving 1,400 affordable homes – Puget Sound Business Journal – The Business Journals
A portfolio of super small Seattle rental homes called aPodments is on the market, and real estate industry sources say the city has taken a pass on buying and preserving the affordability of the 1,401 units.
The sources said Amazon was going to help finance the purchase through its $2 billion Housing Equity Fund, which provides low-interest loans and grants to build and preserve affordable housing in Seattle as well as Nashville, Tennessee, and Arlington, Virginia, where the company is expanding.
Amazon officials declined to comment for this story as did public information officers in the Mayor’s Office and the Office of Housing.
The brainchild of Gary Mulhair, once the leader of a nonprofit where he saw the need for affordable housing up close, aPodments rent for an average of $921 a month. That includes utilities, free use of laundry facilities, and there’s no application fee. Public money is not used to subsidize rents.
If the city or a nonprofit operator of low-income housing doesn’t buy the portfolio, a market-rate investor very likely will and jack up rents, and the affordability of the aPodments would be lost forever.
Despite this being a market-rate solution to the city’s affordable housing crisis, the City Council unanimously approved in 2014 new rules that essentially ban aPodment development. That was under pressure from voters who didn’t like the density the product creates.
Micro-sized apartments can still be built in the city, just not as small as aPodments, which average around 165 square feet,
APodments are furnished with a twin bed and desk, with most having private bathrooms and small kitchenettes. Each building has at least one full-sized, common-area kitchen, but no parking.
Some neighbors objected to aPodment dwellers taking up on-street parking.
The first aPodment building opened in 2009, and the 31 units leased up in just a week —an unheard of pace, said Mitchell Belcher, a managing director at Berkadia. He leads the team that has the listing for the 23-building aPodment portfolio, which stretches from Northgate to the Central District.
The list price of the portfolio is around $220 million, according to a multifamily industry source familiar with the deal, who didn’t want to be named to protect business relationships. Belcher declined to comment on the price or the city’s decision to pass on the opportunity.
The asking price works out to around just $157,000 per unit, well below an estimated replacement cost of $180,000 and miles from the record $861,765 notched earlier this year with the sale of the West Edge, a luxury tower near Pike Place Market.
Calhoun Properties’ co-founder Gary Mulhair is the former president of Pioneer Human Services, which provides job training and other services to people who have mental health issues, substance abuse disorders or were recently incarcerated.
After completing the first aPodment building, he realized he could develop the product quickly and inexpensively, Belcher said. Calhoun went on to acquire development sites in highly walkable areas with robust transit service.
Mulhair and his wife, Sandra, who manages the portfolio, want to retire, Belcher said.
APodments are desirable to investors because the homes are generally always leased out. Belcher said that for most of the last decade, the average vacancy rate across all product types was just over 6%. During that same time, the aPodment portfolio was under 1% vacant, he said.
And while the rents are much lower, on a per-square-foot basis they’re significantly higher — around $5.50 versus the low $3 across the wider market.
Development of small-efficiency dwelling units, or SEDUs, is still allowed. But proposals must go through Seattle’s onerous design-review process, which aPodments escaped through a loophole that a different developer, the late Jim Potter, discovered.
The 2014 legislation set the minimum size of SEDUs at 220 square feet and required at least two sinks per unit.
APodments and similar micro-units have the lowest rent levels in King County and SEDUs, the next step up, have historically achieved rents $300 above micro-apartments, with some approaching $1,500 per unit, according to Berkadia’s research. Average studio rents in all areas surrounding Seattle are at least 20% higher than the average of the aPodment portfolio.
Mayor Bruce Harrell, who was on the council in 2014, earlier this year said his administration would look at allowing aPodment-style micro-units.
“I think all things like (micro-units) should be back on the table to evaluate,” Harrell told the Business Journal. “My administration will look at aPodments to see what adjustments could be made and if they can once again become an effective tool to achieve density.”
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