Seattle downtown apartment building tests new affordable housing model

A downtown Seattle apartment building will soon be the city's first test site of a novel approach to affordable housing.

The Seattle Social Housing Developer will pay about $61 million for the 150-unit Elara at the Market building at the corner of Western Avenue and Blanchard Street.

The move marks a milestone for the city-funded developer. Three years after Seattle voters approved the agency and a year after they OK'd a tax to fund the effort, the deal will officially put the developer in the business of operating housing.

"Social housing will be a reality in Seattle," interim CEO Tiffani McCoy told supporters at a news conference Friday.

The developer's board officially approved the deal Thursday evening in a basement meeting room at City Hall where supporters toasted with Martinelli's in paper cups.

Modeled on similar efforts in Europe, social housing is publicly owned rental housing with the goal of integrating renters across the economic spectrum and shifting more housing away from private-market ownership.

Unlike some other forms of affordable housing, social housing does not rely on federal tax credits and remains affordable in perpetuity. To buy this building and others - and to eventually start building new housing - the developer taps revenues from a voter-approved city tax on companies with individual employees who earn more than $1 million a year.

That tax is expected to bring the social housing developer $115 million this year, a windfall compared with early estimates of $50 million annually. The developer may also use bonds to access low-interest loans.

Despite voter support, the effort has had a rocky start in Seattle with a slow ramp-up, disputes on the agency's board and the firing of its first CEO. Some critics have been wary of giving such a significant budget to an untested agency, while others have urged the developer to focus on building affordable housing instead of buying existing buildings.

Elara at the Market is relatively new, built in 2017 and owned by a South Carolina-based developer. Some apartments have Elliott Bay views, and the rooftop deck looks out on downtown and the water.

The social housing developer declined to disclose the value a seller-commissioned appraisal assigned the building. King County values the property at about $54.5 million. (Valuations for property tax purposes are typically lower than what buildings may sell for on the open market.)

The deal is expected to close in mid-June.

The building is today home to a mix of high- and middle-income renters. One in five units in the building is already somewhat affordable as part of the Multifamily Tax Exemption program.

The sale means additional homes will become more affordable. But that transition will take time.

The social housing developer has promised not to displace any current tenants, so change will happen through roughly 10 existing vacancies and then through expected renter turnover in the coming months.

As tenants paying market-rate prices move out, the developer will shift those units to have income restrictions and lower rents. Applicants will prove their income through a process similar to other types of affordable housing in the city.

The agency will select tenants through an online lottery. That lottery will be open for the next two weeks to tenants whose income is below 80% of area median income (about $92,000 for a single person).

The first 15 apartments will rent to households earning 30% of area median income or less, about $34,500 for a single person. The developer will then rent the next 45 available homes to people earning 30% to 50% of area median income, up to about $57,500. The goal: transition all 60 of those apartments to affordable rents this year, with the first tenants moving in around July 1.

Rents for new leases in the building today range from about $1,600 for a studio to as much as $2,400 for a one-bedroom and up to $3,700 for a two-bedroom, according to online ads. Under social housing, one-bedroom rents for people with the lowest incomes could be as low as $810.

For existing tenants at the Elara, the developer plans to freeze rents for two years and offer free one-year transit passes.

The building doesn't require significant maintenance but the agency plans to study the cost of some green-energy upgrades. A private property management company will run day-to-day operations with input from a "resident governance" structure. The developer estimates the building will generate about $2 million per year in revenue for the agency.

Renters at the building had little indication the sale was coming.

"I'm just going to see how they roll things out," said Cassandra Hernandez, who moved into the building just a few weeks ago and was surprised to read about the deal on Reddit on Thursday night. (Tenants received a letter from the developer Friday.)

"I don't think it's a bad thing to have more affordable housing," said Hernandez, who works for a social media company and spends more than the recommended 30% of her income to afford the $2,400 rent for her one-bedroom apartment.

That financial strain is "not very fun," she said, "so I'm glad other people don't have to go through that to live here."

Adrian Helmus, who earns just above minimum wage and lives with their dog Amos in a one-bedroom apartment in the building, said they appreciate the mix of incomes already there. They pay about $1,900 for an MFTE apartment.

"I like to see the people getting chances to be able to live in decent homes, Helmus said. "It's in a good location and well-maintained for the most part, and I think people deserve that.

Some observers are skeptical of the deal.

Jamie Madden, an affordable housing consultant, has argued the social housing developer should focus on building new housing, not buying existing buildings, to have a bigger impact on Seattle's housing crisis.

"The outcomes are: profit to a private developer from South Carolina; a temporary freeze on rents for existing, market-rate residents at the Elara; and a promise of affordable rents sometime as vacant apartments turn over," Madden said in an email Friday.

Supporters say there's broader value in removing buildings from the private real estate market. Public ownership eliminates the threat of hedge-fund buyers or displacement for luxury redevelopment, Seattle City Councilmember Alexis Mercedes Rinck said at the news conference Friday.

"This is how you build a city that is actually stable, not just for a decade, not just until the market shifts - permanently," she said.

The social housing developer is already working on its next property purchase, with a goal of buying 300 apartments this year and beginning construction on new housing by 2028 for a total of 1,670 acquired or under-construction units over the next five years.

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