Last year, Seattle’s Office of Housing decided to break protocol — and the law — by not following the Department of Housing and Urban Development’s (HUD) income standard for calculation of rents in units in the Multifamily Housing Tax Exemption (MFTE) program. Why? Because incomes went up in 2017 and therefore so did the calculation of what households could pay. Not only is following  calculation a legal requirement it is also in the contracts the City signs with developers who build and finance MFTE projects.

Having the certainty of that contract sets the relationship between lenders and developers; if rents don’t keep up with expenses then the ratio of debt to money coming in from rents changes. It doesn’t take much to impact that ratio, usually called a Debt to Credit Ratio or DCR. Many projects lost money when rents didn’t keep up and that meant lenders could demand more equity — cash — be put on the table to get the DCR back to the typical 1.20 or 1.25. Who cares about dozens of dollars lost per unit, right? When that lost rent is multiplied across all the MFTE units and then again by 12 it means quite a hit. 

And now we understand the City is starting to look at reauthorizing the program without small and medium sized developers that build many of these projects. What we’re hearing is that a small group of big developers is working on getting what they want from the new MFTE — without anyone else in the development community being involved, including lenders and people who finance these projects. So, for the record, we wrote this letter. This time we want to be sure the City doesn’t claim a “bargain” at our expense. 

July 16, 2019

To: Steve Walker, Office of Housing
From: Roger Valdez, Director
Re: Multifamily Housing Tax Exemption Program (MFTE) Reauthorization

The City of Seattle’s Multifamily Tax Exemption (MFTE) program has been a quantitative success, generating more than 8,000 rent-restricted units in Seattle. To generate additional MFTE units at scale, the development community requires certainty that the Office of Housing will manage the MFTE program in a manner that is consistent with the Seattle Municipal Code and executed MFTE contracts. Seattle for Growth desires to help the Office of Housing improve the MFTE program to create these additional MFTE units.

Unfortunately, recent Office of Housing decisions have removed certainty from the MFTE program. As background, the Seattle Municipal Code indexes MFTE affordable rent to median family income for the Seattle area as published by HUD for the Section 8 program (see SMC 5.73.020, defining “affordable rent”).

• Last year, the Office of Housing removed certainty from the program when it artificially reduced the MFTE rent for all participants below the amount authorized by the median family income data published by HUD.
• This year, the Office of Housing removed certainty from the program when it established an “expectation” that rent increases for existing MFTE tenants fall below the amount authorized by the median family income data published by HUD.

Both actions are in violation of the Seattle Municipal Code, Director’s Rule 01-2009, and the many contracts that the Office of Housing executed with property owners. Both actions created uncertainty for the developers and builders who provide housing using the incentive created by the MFTE program. This uncertainty has also contributed to the unwillingness of some investors and property owners to participate in the MFTE program.

It is our understanding that the Office of Housing is now meeting with selected developers to amend and reauthorize the MFTE program. However, the Office of Housing has not engaged any developer or investor who is a supporter of Seattle for Growth. As you know, many small and medium sized builders and developers who participate in the MFTE program support Seattle for Growth. We are concerned, therefore, that the Office of Housing is revising the MFTE program without the necessary information. Developing affordable MFTE units at scale requires revising the program so that it works for Seattle’s broad development community, not just the developers hand-selected by the Office of Housing.

Seattle for Growth asks to be included in any conversations regarding the amendment and reauthorization of the MFTE program. Thank you for your work and please contact me this week with information about your process and how we can get involved.

Sincerely,

Roger Valdez
Director