What is the RED Housing Fund?
In response to the well-documented, unmet need for affordable and market rate infill housing in urban areas of Sonoma County, the Renewal Enterprise District (RED) launched an initiative to design and implement the RED Housing Fund to help accelerate the creation of infill, mid-to-high density housing near transit, jobs, services and other amenities that help build healthy, complete communities.
With the RED Housing Fund, housing sponsors whose projects align with RED Criteria will have an opportunity to access gap-filling capital that can quickly move projects forward, helping to create higher density housing near transit, jobs, services and other amenities that contribute to healthy and inclusive communities.
The RED Housing Fund’s goals include:
- Leveraging pro-housing actions taken by local stakeholders. Actions already taken by the public sector and pro-housing advocacy groups have positioned Santa Rosa and Sonoma County for new infill development, creating an opportunity for the Fund to provide financing that can catalyze new housing development.
- Filling existing gaps and activating additional resources. The Fund will deliver investment products designed to catalyze infill development in a way that traditionally has not been possible. The Fund will serve as a complement to existing financial resources available to developers, providing critical low-cost, gap-filling capital to make projects financially feasible.
- Meeting a market need. Ramifications from the Sonoma Complex Fires and COVID-19, combined with a persistent deficit in available housing, have increased the need for additional infill housing development to occur, even as financial resources for this purpose are limited. With financing from the Fund, a market for an infill, multifamily housing product can be proven, and more housing can be built.
The RED Housing Fund will support projects located in infill areas within Sonoma County. Initially, the Fund intends to support projects located in downtown Santa Rosa and other appropriately planned areas within Sonoma County. In addition to being geographically located in Sonoma County, projects must also be located on an infill site, be of mid- to high-density, be either residential or mixed-use, and must be located within a planned area specified in the RED Project Criteria.
Why was the RED Housing Fund Created?
Within Sonoma County, there is no established market for dense, infill housing in downtown Santa Rosa and other planned urban areas. With no comparable projects available to prove a project’s value, commercial lenders are unable to provide a loan large enough to fully fund the project. Loans provided by the RED Housing Fund will work alongside traditional debt and equity and support the existing development market, while filling the last gap of capital needed to move projects forward.
Santa Rosa, like many other cities across California that are further removed from more mature metropolitan regions, represents a development environment in which there isn’t enough market information to drive the shift from dispersed, distributed development to denser, infill development. Philanthropic resources and development capacity have typically been concentrated in close-in Bay Area, Peninsula and coastal cities, leaving cities such as Santa Rosa to struggle with comparable development costs, but significantly fewer resources to manage them. The RED Housing Fund is a new model for repairing these types of dysfunctional housing markets, with greater applicability to regions throughout the state. Combined with public sector capital commitments, outspoken public support, and a growing pipeline of infill multifamily projects, Santa Rosa and Sonoma County are ideally suited to test this new model for shifting traditional development patterns and stimulating higher density.
What are the Affordability Requirements?
The RED Housing Fund will finance projects at a range of income levels, given the vast need for affordable, middle income and market housing. Primarily, the Fund aims to create more dense, vibrant, equitable and inclusive downtowns within Sonoma County, and will seek to achieve this by supporting affordable, middle income and market projects.
How Will the RED Housing Fund Report on its Lending Activity?
The RED Housing Fund will submit quarterly and annual reports, and audited financial statements to its public and private sector investors and lenders, providing detail on the Fund’s loan and investment portfolio and financial performance, including financial statements.
What are the Next Steps?
Over the next two months, the RED Housing Fund will close on current public sector commitments and will seek to supplement this capital with additional loan and grant commitments from the public and private sectors. Immediate next steps include development of lending infrastructure, such as a Notice of Funding Availability (NOFA), project loan manual, project scoring and evaluation material, and supporting in the drafting of project loan agreements with legal counsel. The Fund is targeting a fall 2021 launch, with the commencement of lending occurring shortly thereafter.
The Fund will use its capital to offer financing products to support the development of climate smart, equity focused, disaster resilient multifamily housing. Overall, the Fund will strive to provide products that adequately respond to the current market needs, repurposing its product offerings and recycling its capital to adapt to the development landscape whenever necessary. These financing products are intended to be offered to developers at as low-cost and long-term as possible, in order to fully support the projects’ financial feasibility. Initially, the RED Housing Fund intends to offer:
- For affordable developers, a subordinate loan (up to 18 years) that can fill gaps in a project’s capital stack at all phases of the development process; and
- For middle income/market rate developers, construction financing that is subordinate to a conventional construction loan, representing up to 10% of a project’s total cost. When necessary, this loan may convert to a subordinate permanent loan (up to 10 years) or equity, sized to a project’s available cash flow after payment of required, first-position debt.