Transmittal - 6/23/2023
SALT LAKE CITY CORPORATION
451 SOUTH STATE STREET, ROOM 118 WWW.SLC.GOV · WWW.SLCRDA.COM
P.O. BOX 145518, SALT LAKE CITY, UTAH 84114-5518 TEL 801-535-7240 · FAX 801-535-7245
MAYOR ERIN MENDENHALL
Executive Director
DANNY WALZ
Director
REDEVELOPMENT AGENCY of SALT LAKE CITY
STAFF MEMO
DATE: June 23, 2023
PREPARED BY: Danny Walz, Director
RE: Affordable housing and tenant wealth building initiative led by the
Perpetual Housing Fund (PHF)
REQUESTED ACTION: Review the proposed Perpetual Housing Fund term sheet
POLICY ITEM: Affordable housing
BUDGET IMPACTS: $10 million in American Rescue Plan Act funds (Rescue Plan Funds)
EXECUTIVE SUMMARY
When the City first received notice of the significant Rescue Plan Funds that it would receive,
the Administration set out to identify the principles by which it would propose this money be
allocated. In addition to taking care of the City’s most urgent needs (revenue replacement, public
safety, and emergency shelter), the Administration’s goal is to allocate a large portion of Rescue
Plan Funds in a way that leverages private investment and creates lasting, generational changes
for families in Salt Lake City.
This proposal, to be carried out in partnership with the Perpetual Housing Fund of Utah (PHF),
provides funding for an affordable housing development with a unique tenant wealth building
program. The City’s funds are anticipated to be used as transformational seed funds for
development costs, including the cost for PHF to acquire existing structures to construct
affordable units. With the help of other partners and the leveraging of City funds, PHF’s ultimate
organizational goal is to provide approximately 1,000 safe, stable, and affordable homes in Salt
Lake City that benefit individuals and families by helping them build income. Over the next 20
years, PHF anticipates that this investment will translate into $50 million in the hands of lower-
and middle-income City residents.
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On June 6, 2023, Salt Lake City Council adopted an ordinance to amend the final budget of Salt
Lake City, which included the approval of a $10 million contribution in Rescue Plan Funds to
PHF, contingent on the Council’s approval of an associated term sheet. This memo reviews
PHF’s proposal and the terms or conditions upon which the approved funding would be released
to the organization.
BACKGROUND/DISCUSSION
About the Perpetual Housing Fund of Utah
PHF is a Utah non-profit affordable housing organization whose mission is to reimagine existing
housing programs to share profits with PHF project residents. PHF exists to help remove
financial barriers that keep a rapidly expanding portion of population from building wealth
where they live. Unlike other non-profit affordable housing development entities that use profits
to build more affordable units, PHF will share their profits with residents in a variety of ways, as
detailed in the next section.
PHF plans to develop projects in Salt Lake City that provide rent and income restricted
affordable units. PHF anticipates breaking ground on two affordable housing projects in Salt
Lake City in 2024 that will serve those at 25-120% AMI. From there, they plan to develop over
1,000 affordable units over the next decade. PHF’s first two projects will be located in Salt Lake
City, with a priority to acquire additional land in the City for subsequent projects.
Through this investment from the City, PHF will be able to develop wealth-building affordable
housing units at the 515 east 100 south location, and ensure that future PHF projects are not
driven by maximizing return to financial investors but rather remain committed to sharing wealth
with PHF project residents.
How the profit-sharing model works
PHF projects are anticipated to be financed with traditional affordable housing resources and
may include Low Income Housing Tax Credits (LIHTCs). Under PHF’s model, PHF will share
with PHF project residents the majority of profits generated from annual cash flow, long-term
equity generation, and future refinance and sale proceeds. The amount of cash flow and profit
(which will translate into payouts to the tenants) will largely depend on annual rent increases and
the paydown of the project’s mortgage. Over the past several years, area median incomes (AMIs)
have been increasing much faster than is projected when development projects are underwritten
and financed. With LIHTC-funded projects, rental rates are tied to AMIs and, as such, rents have
been increasing faster than projected. Traditional developers and their investors have been
receiving the financial benefits of these rapidly escalating rents that increase annual cash flow of
the project. Instead of reaping these benefits for the developer and investors, PHF would share
these financial benefits with PHF project residents.
PHF will establish a nonprofit tenant entity that, while not having a fee ownership interest in the
development, will have a permanent interest in the development and the contractual obligation to
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ensure PHF project residents will receive profits from the project. The ownership and profits-
interest structure will vary slightly, depending on if the project utilizes LIHTCs and has a tax
credit investor in the ownership structure during the first years after a PHF project is placed into
service. The ownership structure and profits-interest will generally be as follows:
LIHTC PROJECTS: YEAR 1 – 15
OWNERSHIP
%
PROFIT
%
LIHTC INVESTOR 99.99% 10%
PHF & FUND
INVESTORS 0.01% 15%
RESIDENTS/TENANT
NPO 0.00% 75% NON LIHTC PROJECTS &
LIHTC PROJECTS: YEAR 16 +
OWNERSHIP % PROFIT %
PHF & FUND
INVESTORS 99.99% 25.00%
RESIDENTS/TENANT
NPO 0.00% 75.00%
The profits-interest not otherwise allocated to the PHF project residents will offset costs
associated with developing and managing the units. PHF project residents will not have
ownership or shares in the real estate itself. Rather, there will be an agreement between the
tenant nonprofit entity and the PHF project residents to distribute proceeds in the following
ways.
• Annual rent rebate – A portion of the project’s annual cash flow (profit after collecting
all rent and other income, paying all operating expenses, paying debt service, and setting
aside cash reserves for future repairs) that would typically be received by the developer
will be allocated to current PHF project residents as a rent rebate via cash payment to be
distributed on an annual basis.
• Profit payout – When there is an event that generates profit, or further cashflow
(refinance, exit of the limited partner, etc.), all the cumulative residents over time will
receive a payment that represents a proportionate share of the available profit. The
proportion of the profit a household receives will depend on the length of time they lived
in a PHF unit. With projects that involve LIHTCs, the profit generating event will often
happen 15 years after the project is placed into service because that's when the tax credits
end and the LIHTC investor exits the ownership structure.
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• Profit advance – PHF will set aside a portion of its initial developer fee for the project to
fund a 0%, zero payment revolving fund to help PHF project residents access a portion
of their anticipated profits early in the event of an emergency or major life event
(medical, educational, entrepreneurial, etc.). These funds are replenished from the PHF
project resident’s share of profit whenever a profit payout would naturally happen.
• Profit tradeup – PHF will be co-developing hundreds of units with the Rocky Mountain
Homes Fund (RMHF), an entity that provides a missing-middle home ownership option
for households making 60-120% AMI (and occasionally less). Subject to availability,
PHF tenants will be able to transfer their accruals from a PHF project for a 1:1 reduction
in purchase price on a RMHF home.
PROJECT DETAILS
515 East 100 South
• Adaptive reuse of an existing office building and new construction of an additional
building, to occur in phases.
• This property will have multiple social-equity based future uses and is slated to be
acquired by Fall 2023. The floors on which affordable units are constructed will be
condominiumized and separated and then sold to PHF prior to ARPA City funds being
utilized on the project.
o Phase 1: Adaptive reuse.
Estimated to begin construction Q2 2024 and be completed by the end of
2024.
60 or more units with a mix of studios, 3-Bedrooms, and 4-Bedrooms
located on floors 3-11 of the existing office tower.
All 60+ residential units will be affordable to incomes at 25%-50 of AMI.
Currently slated to also include profit-sharing coworking/office model
similar to PHF in other floors.
o Phase 2: New building. (Note: Depending on PHF’s pipeline, PHF may choose to
begin a different project in Salt Lake City with more units prior to beginning this
project which could delay or alter the amount of units in this project.)
Estimated to begin construction Q3 2024 and be completed in 2026.
Approximately 40 new units (depending on final construction
estimates/cost constraints) with a planned mix of 5% Studios, 25% 3-
Bedroom, and 70% 2-Bedroom (depending on final construction
estimates/cost constraints)
All ~40 units will be PHF affordable to (25-50% AMI)
Affordable daycare on bottom floor, available to building users and
community members of all incomes.
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CONDITIONS FOR FUNDING
The Administration (acting through the RDA) and PHF must execute a funding agreement with
conditions to ensure that Rescue Plan Funds are deployed in accordance with federal regulations
and in a manner that brings the greatest public benefit for City residents and prospective
residents. These conditions have been outlined within the term sheet under Attachment A for the
Board’s initial review. As a condition of the $10 million budget allocation, the Board must
review and approve the final term sheet.
PHF is also working to establish a Concerted Community Revitalization Plan (CCRP) as a part
of this partnership with Salt Lake City. A CCRP is a plan from a local jurisdiction, which
establishes an active partnership between local a government and community-based organization
that commits to measurable goals, actions, and timetables to foster the construction or
rehabilitation of affordable housing. This document must be approved by the local jurisdiction’s
governing body and may be brought to next month’s RDA Board or City Council meeting for
potential adoption. Partnership details and goals within the CCRP will align the information
included in the attached term sheet. Establishing this plan would garner additional points for
PHF’s LIHTC proposals (for projects that are within Salt Lake City and incorporate the wealth-
generation model described in this term sheet) to Utah Housing Corporation within a very
competitive application process, and especially in this upcoming competitive cycle for the 515
Phase I project. Establishing this CCRP will ensure PHF can achieve its 1,000-unit commitment
and help to accelerate the delivery of the units.
NEXT STEPS
The Board should review the draft term sheet included under Attachment A to determine if
adequate for future approval.
ATTACHMENTS
A. Draft Funding Agreement Term Sheet – Perpetual Housing Fund
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ATTACHMENT A
DRAFT
Funding Agreement Term Sheet
Perpetual Housing Fund
Parties
The Perpetual Housing Fund of Utah, LLC, a Utah limited liability company (PHF), and the
Redevelopment Agency of Salt Lake City (RDA).
Property
515 East 100 South, Salt Lake City, Utah 84102
Project Description and Affordability
PHF will use the Rescue Plan Funds by June 30, 2024 to acquire real property that will have
been converted into large condominiums that will be subsequently subdivided into 60 or more
residential units in the existing building at 515 east 100 south (515 Project). These units will be
converted from office spaces to residential apartments and will be affordable to those at 25-55%
of the area median income (AMI). The 515 Project tenants will participate in the tenant wealth
building initiative, which shares the profits of the residential project through rent rebates, profit
payouts, profit advances, and profit trade-ups.
Proposed Funding Terms
• Amount: $10 million in America Rescue Plan Act funds (Rescue Plan Funds).
• Term: Concurrently with the distribution of the Rescue Plan Funds, PHF shall record a
restriction against the condominiumized portion of the building that obligates PHF to
develop 60 or more rent and income restricted apartments for those at 25-55% AMI for
50 years. The restriction will also require the wealth building initiative to be maintained
for a term of 50 years (the Restrictive Covenant).
• Disbursement: One lump sum upon meeting the conditions for funding, as detailed
below. PHF will not be required to repay the funds like a traditional loan.
• Return on Investment: As permitted by the American Rescue Plan Act (ARPA), as a
transformational seed funder, the RDA will be treated like an equity investor in PHF and
receive a 2-6% return paid annually every year.
• Use of Funds: PHF must deploy 100% of the funds by June 30, 2024 on ARPA eligible
uses.
• Additional Projects: For non-monetary consideration in addition to the $10 million
investment, PHF will commit to developing additional affordable housing projects in Salt
Lake City. More specifically, by year 20, PHF or its affiliates and subsidiaries will have
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developed 1,000 additional units in Salt Lake City that will be affordable for those
between 25% and 65% AMI. These additional projects shall also include the tenant
wealth building initiative and, if new construction, will achieve an energy star score of 90
or higher, participate in the City’s Elevate Buildings Program, and be designed to operate
without onsite fossil fuel combustion.
• Waiver of Sustainable Development Policy: PHF’s is obligations to comply with the
RDA’s Sustainable Development Policy may be waived, if necessary, in part due to the
adaptive reuse element of the 515 Project as well as PHF’s commitment to incorporate
these standards into the new construction of the additional projects, even though such
incorporation is not required under the policy.
Conditions for RDA to Distribute Funds
Prior to dispersing the Rescue Plan Funds, the PHF will complete the following:
• PHF will be ready to close on the acquisition of the condominium spaces within which to
build 60 or more affordable apartments on or before June 30, 2024. Implied in this
requirement is that PHF’s predecessor-in-interest will have acquired the Property and
condominiumized the Property so the portions within which the residential apartments
will be constructed can be acquired by PHF.
• PHF and RDA will agree on the form of the Restrictive Covenant to be recorded against
the Property concurrently with funding. The Restrictive Covenant will require PHF to
maintain, for a term of 50 years, 60 or more affordable housing units at 25-55% AMI,
maintain a mix of unit sizes, and the following wealth building opportunities for tenants:
o Annual rent rebate – A portion of the project’s annual cash flow (profit after
collecting all rent and other income, paying all operating expenses, paying debt
service, and setting aside cash reserves for future operations and repairs) that
would typically be received by the owner will be allocated to current PHF project
residents as a rent rebate via cash payment to be distributed on an annual basis.
o Profit payout – When there is a capital transaction event that generates profit, or
further cashflow (refinance, exit of the limited partner, etc.), all the cumulative
residents over time will receive a payment that represents a proportionate share of
the available profit. The proportion of the profit a household receives will depend
on the length of time they lived in a 515 Project unit. With projects that involve
Low Income Housing Tax Credits (LIHTC), the profit generating event will often
happen at the end of the LIHTC compliance period, which is typically 15 years
after the project is placed into service.
o Profit advance – PHF will set aside a portion of its initial developer fee for the
project to fund a 0%, zero payment revolving fund to help PHF project residents
access a portion of their anticipated profits early in the event of an emergency or
major life event (medical, educational, entrepreneurial, etc.). Disbursements
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made to a PHF project resident from this revolving fund will be replenished from
the PHF project resident’s share of profit whenever a profit payout would
naturally happen.
o Profit tradeup – PHF will be co-developing hundreds of units with other impact
partners that target missing middle home ownership opportunities for households
making 60%-120% AMI (and occasionally less). Subject to availability, PHF
tenants will be able to transfer their accruals from a PHF project for a 1:1
reduction in purchase price on these homes.
• PHF shall establish all required legal entities to fulfill the profit-sharing obligations and
demonstrate such establishment to RDA’s satisfaction.
• Receive approval from the RDA and the City Attorney’s Office on all matters pertaining
to title, legality of the funding agreement, and the legality, sufficiency, and form and
substance of all other documents that are deemed reasonably necessary for the funding
transaction.
• Provide evidence of insurance in such amounts and with such coverage as deemed
necessary by the RDA.
PHF’s Obligations after the Funds are Distributed
• Prior to the Rescue Plan Funds being distributed, PHF and RDA will agree on the form of
a funding agreement. The funding agreement will require PHF to do the following after
the funds are distributed:
o PHF shall demonstrate to RDA’s satisfaction, sufficient sources of project
financing for the 515 Project. Sources of financing must equal the total project
cost.
o PHF will have applied for Low Income Housing Tax Credits for the 515 Project
by June 30, 2024.
o PHF shall obtain all required city approvals to convert the 515 Project office
spaces to residential units, including all necessary approvals from the City’s
Planning and building services’ division. Additionally, PHF will commit to
commencing and diligently pursing the completion of construction.
o PHF will provide RDA biannual progress reports on the construction and
operation of the units.
o PHF will agree to implement an equitable process for tenant selection and as
permitted by law, potentially prioritize certain applications.
o PHF will commit to develop additional affordable housing projects in Salt Lake
City to meet the following terms and conditions:
Within 20 years, PHF or its affiliates and subsidiaries will have developed
1,000 affordable housing units in Salt Lake City for those at 65% AMI and
below.
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These additional housing units must also participate in the tenant wealth
building initiative as detailed above.
All newly constructed PHF projects shall achieve an energy star score of
90 or higher, participate in the City’s Elevate Buildings Program, and be
designed to operate without onsite fossil fuel combustion.
Defaults and Remedies
Events of default under the restrictive use or funding agreements may include, but are not limited
to:
• PHF fails to construct the 515 Project within the timeframe provided in the funding
agreement.
• PHF fails to maintain the affordability (as required under the Restrictive Covenant) of the
515 Project units or the tenant wealth building initiative in the 515 Project.
• PHF fails to provide regular development reports.
• PHF fails to develop and maintain the additional affordable housing/tenant wealth
building projects in Salt Lake City.
• PHF fails to comply with any other city, state, or federal requirements.
Remedies if PHF fails to cure in the event of a default may include, but are not limited to:
• If PHF does not meet the initial conditions for funding, the RDA will not distribute the
funds.
• Once funds are distributed and upon an event of default, the RDA may:
o File a breach of contract claim, which may include claims for:
Liquidated damages,
Injunctive relief, and/or
Specific performance.
o File a direct action against PHF to comply with their obligations.
o Any other remedies available at law or equity.
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