Affordable Housing Redevelopment Opportunity

Opportunity to Redevelop the Site

Harpeth Hills Apartments present two distinct redevelopment opportunities: First is the opportunity to renovate/redevelop the existing 1968 built, 51 Unit Project Based Section 8 community with upgraded interior and exterior finishes plus add community amenities for recreation purposes for the purpose of maintaining its Affordable Housing status. The second opportunity is to build a new conventional community that would appeal to the overall demographics of Franklin with a Median Household Income of $100,165 in 2021. (esri Market Profile) This Offering Memorandum will consider the merits to redevelop the site into updated or new construction for Affordable Housing subsidized by federal programs.

History of Harpeth Hills Apartment Section 8 community

Built in 1968 as conventional apartment community. In 1995 Harpeth Hills Apartments were foreclosed upon and sold at auction. As a condition of the sale, the community was required to become a Section 8 community. Since that time, Harpeth Hills has provided safe and affordable housing for the residents. The community has an excellent reputation in the neighborhood. The rent roll reveals many long term residents that have called Harpeth Hills home for the past 15-20 years. Residents at Harpeth Hills must qualify for the Extremely Low Income Limits. The original Land Use Restriction Agreement expired in 2015. Since then the community has operated under 5-year contracts with HUD. The most recent Renewal Contract was executed effective February 1, 2021. The agreement expires in 5 years - January 31, 2026.
The current Annual Rent Subsidy provided by HUD is $279,055 for 50 of the 51 units in the community. This amount represents approximately 70% of rent collected annually.

Investment Rationale

Affordable housing in Franklin is scarce due to appreciating land values which have increased the cost to build both single family and multifamily communities. Harpeth Hills is one of only two affordable housing communities located in Williamson County. Because of its location in Williamson County, which is included in the Nashville HUD Metro FMR area, Harpeth Hills benefits from the same Rent and Income Limits as Nashville. The 4-person AMI for the Nashville FMR area has increased over 55% from 2013-2022. Currently, the available FMR for a 2BR/2BA apartment lease in Franklin is $1,253 compared to Harpeth Hills 2BR/1BA at 30% AMI unit at $714

Redevelopment of the Section 8 Community

After a review of similar apartment communities in the neighborhood built in the same era, it is clear that the Harpeth Hills community would benefit from a review of the market rents. According to HUD guidelines, the Fair Market Rents represent the cost to rent a moderately priced dwelling unit in the local housing market. The Public Housing Authority (PHA) determines a payment standard that is between 90 percent and 110 percent of the Fair Market Rents (FMR's). These rents are noted in Unit Mix section and supported by the selected comparable Rental and Sale communities in Franklin.

Favorable Zoning for Redevelopment

The in-place zoning for Harpeth Hills Apartments is Planned District (PD) which will allow greater density than the existing 10 units per acre if parking and grassland requirements are met. An example of a higher density development available with the Planned District zoning is located next door to Harpeth Hills. Built in 2013, The Everly Apartments is a Class A garden style construction with 214 units located on a 15-acre site with PD zoning. The site plan yielded 14.43 Developable Units Per Acre (DUA). Per Envision Franklin guidelines The Everly was limited in height to a 3-story development. Another more recent comparable development still under construction is The Oakbrook Townhomes located at 200 Mallory Station Rd. The 89 unit community sits on approximately 6.4 acres, according to tax records, for a 13.91 DUA.

Project Based Section 8 Summary

Harpeth Hills Operates Under a Section 8 HAP Contract * Contract Number is TN43E000003 * HAP Start Date: 02/01/2021 * HAP End Date: 01/31/2026 * HAP Renewal Option: Section 524(a) of MAHRA (not including a Mark-Up-To-Market renewal * Latest REAC Score: 83c * REAC Inspection Date: March 13, 2018 * Old Reg or New Reg HAP? Old * M2M Project: NO * Rents At, Above, Below Market? Below * HUD Project Manager: Gwen Coffey; Director of Section 8 Contract Administration & Compliance * HAP Contract Administrator: CGI - Don Watt Chief Program Officer
Projected Rents for Redeveloped Affordable Housing Under existing Section 8 guidelines for 2023, The Pro Forma rents anticipate a 1.024% rent increase over 2022. After 2023 the allowable rents will increase to justify the cost to renovate the existing community. New rents will be consistant with the rents of similar vintage communities that have been renovated in Franklin. These rents will be derived from the communities identified in the Rent Comparable Section.

Williamson County - A Snapshot View

Recently named Tennessee's healthiest county by U.S. News & World Report's 2022 county ranking, Williamson County was named the 19th out of 500 scored counties based on its strong scores in the economic, population health, community vitality and education categories. It's also the highest ranking county in the Southeastern United States outside of Virginia. Williamson County is the wealthiest county in Tennessee with the average household earning $111,196 annually, according to the 2020 census. This enabled Williamson County to rank 97 out of a possible score of 100 for economic vitality. The next highest score came in Community Vitality ranking 90 out of 100. This score is helped by factors including strong civic engagement at the local elections and a steady stream of new residents adding to the community. The public school system in Williamson County was cited for its outstanding quality of public schools. Its score for education was 82 out of 100.

Williamson County Multi-family

Williamson County is one of the most desirable suburban locations in Nashville. The strong base of office employers, its abundance of retail and entertainment options located in Brentwood and Franklin as well as its highly rated public schools make Williamson County a top rated location for out of state investors. Demand for housing of any kind in Williamson County far exceeds supply. While the inventory in this submarket has more than doubled since 2010, asking rents averaged over 10% increase in the past 12 months. Of the 984 units delivered in Williamson County the past 12 months, 484 units were absorbed during this time, according to recent reports by CoStar. During 2021, CoStar reports that rents grew by 20%. For the year to date through June, 2022 rent growth is on pace for a 7.8% increase. Average asking rents hit $1,970/month this year. This means Williamson County is below only the Downtown Submarket for the most expensive rents metro-wide.

Projected New Construction

Projections for Proposed and Under Construction for the next 24 months appear high with over 4,000 units. Historically, the Average Annual Absorption is near only 300 units. This projected supply is expected to moderate rent growth in Williamson County. However, most observers believe the demand to rent apartments in Williamson County will increase sufficiently partly as a result of the larger than usual new supply. As evidence for this belief, rents on the submarket's newest communities average more than $2/SF. Some high-end communities are asking rents north of $2.50/SF.

History of Franklin, Tennessee

The City of Franklin was founded in 1799 and was named after Benjamin Franklin. Mr. Franklin was a good friend of Dr. Hugh Williamson, a member of the Continental Congress for whom Williamson County was named. For most of its first 180 years, Franklin was a tranquil, small county seat. In the years prior to the Civil War, Williamson County was one of the wealthiest counties in Tennessee and Franklin the center of plantation economy. However, the Civil War devastated the economy. Union troops occupied the area for nearly three years. The Battle of Franklin was fought on November 30, 1864 and was one of the war's bloodiest battles, costing more than 8,000 casualties and turning every home and building into a hospital.
Today, Franklin is one of the wealthiest cities in one of the wealthiest counties in the United States. A new affordable housing development would address the rising demand for housing as a result of the increasing population in Franklin. In 2010 the population of Franklin was estimated at 62,487 based on US Census Report. In 2021 the population in Franklin reached 85,469 according to the US Census. This equates to an increase in population for Franklin of 37%. This equates to a growth rate of approximately 3.36% annually or 2,089 people per year. Impressively, the projected rate of annual population growth for Franklin between 2001 and 2006 is 2.9% according to esri Demographics or 2,985 people per year.

Factory at Franklin

In October of 2021, Holladay Properties invested $56 million to purchase The Factory at Franklin located at the corner of Franklin Road and Liberty Pike. Holladay Properties envisions major renovations and upgrades to bring the usage more in line with a work, recreation and dining venue. Original plans announced after their acquisition included 80,000 SF of retail (which will include both longtime and yet-to-be-announced tenants), 80,000 SF of dining, 80,000 SF of office space and 30,000 SF of event and theater space. The original floorplate of The Factory at Franklin is 244,871 SF. Given that the entire site is 20+ acres or over 87,000 SF, it is likely that Holladay Properties will add additional buildings to the site. These could include apartments or hotel properties given it's close proximity to Historic Downtown Franklin.
One of the more exciting interior improvements will be the "Grand Hall." Architectural renderings of the Grand Hall have been released showing a long bar and service area for customers to enjoy cocktails and dinner. Finally, The Factory at Franklin is home to the Farmers Market on the weekends. Over a thousand people shop at the Farmers market when open on Saturday mornings. The Farmers Market serves as a social setting for Franklin residents.
Additional Neighborhood Improvements: The Factory at Franklin will be a multi use commercial development located only three blocks from Historic Downtown Franklin and will create a dynamic neighborhood for residents and small businesses. As a result, Franklin Road is being widened to three lanes and will include a walkable sidewalk to nearby Downtown Franklin approximately three blocks from Factory at Franklin. The new wide sidewalk will create a new ambiance for the Historic Downtown Franklin.