Leveraging on History: Former Textile Mill in Lowell Being Rehabilitated Into Artist Housing
By Caitlin Jones
7 min read
Boston-based developer Trinity Financial, Inc. is in the process of transforming a rundown historic former textile mill in Lowell, Mass. into affordable live/work apartments targeted to local artists, in a $64 million transaction featuring a creative financial structure and innovative design.
The project, called Appleton Mills, is utilizing multiple layers of financing and subsidies, including federal and state historic rehabilitation and low-income housing tax credits. Once completed, the development will contain 130 loft-style studio, one-, and two-bedroom housing credit apartments in a nearly 110-year-old building spanning four and five stories, plus a ground-level art gallery, four-story central atrium/art gallery, and green roof.
For the studio units, monthly initial rents will be $403 for tenants earning 30% of the area median income (AMI) and $775 for tenants earning up to 60% of AMI. For the one-bedroom units, rents for the same income groups will be $418 and $817, respectively. For the two-bedroom units (a formal bedroom and second open loft bedroom area), rents for the same income groups will be $492 and $896, respectively. For the two-bedroom townhouse-style units, rents will be $936 for tenants earning up to 60% of AMI.
State and local officials, including Gov. Deval Patrick, celebrated the project at a formal groundbreaking in November 2009.
Appleton Mills is the first phase of a planned 10-year redevelopment of the 15-acre Hamilton Canal District by Trinity Financial, the master developer chosen by the city. At the confluence of three canals, the Hamilton Canal District, adjoining downtown, is in the Lowell National Park Historic District, which highlights the city’s rich history as the nation’s largest textile manufacturing center in the early 1800s.
When completely built out, the redeveloped Hamilton Canal District will contain 1.9 million square feet of mixed-use transit-oriented development, including up to 725 market-rate and affordable housing units, up to 425,000 square feet of commercial office/research and development space, and up to 55,000 square feet of retail space.
“This is a significant, very transformative type of project for Lowell,” said Trinity Financial President and Principal James Keefe, speaking at a recent conference of the National Housing & Rehabilitation Association. “It’s going to broaden the tax base and bring jobs and economic development right to the downtown.”
Historic Heritage
Appleton Mills reflects the city’s rich industrial heritage. In the early 1800s, Lowell, with plenty of hydropower, thrived as the site of numerous textile mills. One of these was Appleton Mills, established by Nathan Appleton.
At one point Lowell was the second largest city in Massachusetts. Over the years, though, the city’s fortunes waned as manufacturing companies closed their local plants and moved their operations to the South. The Appleton Manufacturing Company closed its mill in 1927, and the abandoned buildings fell into disrepair, with some of them eventually torn down.
However, as 2000 approached, the city began to undergo a renaissance, and modern-day developers started to rehabilitate some of Lowell’s former mill buildings for housing, including Boston-based WinnDevelopment.
Design Challenges
As it undertook the Hamilton Canal District redevelopment, the National Park Service wanted Trinity Financial to first do something about the Appleton Mills building due to its prominence and eyesore condition.
An initial challenge for Trinity was deciding on a future use for the building that would be economically viable, given the huge amount of capital that would have to be invested to restore the structure due to its deteriorated condition. After ruling out industrial or pure office use, “we began to look at housing as a possibility,” Keefe said.
Family housing didn’t make sense, because of the building’s vertical orientation and minimal outdoor space. But an alternative took shape. “There’s a significant and growing artist community in Lowell,” says Keefe. “And the communities, in these master planning exercises, had expressed concern that they were being forced out of the city because they couldn’t afford the rents there anymore so we began thinking of this in terms of artist housing. It’s got high ceilings, lots of windows, and wide open space.”
The next step was coming up with a design for the historic rehabilitation and adaptive reuse of the massive building to accommodate residential use and attract artists. At the same time, the rehab plans had to be able to win approval from the National Park Service, in order to qualify the project for federal historic tax credits.
Regarding the latter, the process involved some give and take. One issue, for example, was deciding what to do about the building’s huge floor plate, the size of a football field. To create a more efficient building, Trinity originally thought of sawing off part of the back of the building and narrowing the plate à but the Park Service objected. The end result: the plate will stay as is, but form the base for the new four-story atrium that will occupy the center of the building.
Bifurcation
The final challenge was figuring out how to finance the project to make it economically viable while subsidizing apartment rents to levels affordable to low-income artists. The solution was to secure multiple sources of favorable funding and subsidies, including federal and state historic and low-income housing tax credits, and to “˜bifurcate’ the project into two distinct pieces. Under this condominium structure, each piece is owned by a separate limited partnership and has its own funding package, architect’s contract, construction contract, and management contract. There is, however, a single general contractor and construction lender for the entire job.
Reznick Group CPA John Mackey, who helped to structure the deal, said the condominium structure was prompted by the inability to get a large enough allocation of 9% federal housing credits for the entire project.
“In Massachusetts, like most states, there are both [per] unit and project cost limits for the 9% credit,” he noted. “So it was not practical to do the entire project as a 9% credit project because we were at those cost limits.”
One piece of the project, with 90 apartments and a total development cost of $47 million, is utilizing 4% housing credits and tax-exempt bond financing. The second piece, with 40 apartments and costing $17 million, received an allocation of 9% housing credits. By splitting the project into two pieces, the developer was able to secure a sufficient amount of housing credits for the entire development. The development was bifurcated in a way that permitted the allocation of more project costs to the bond-financed piece, in order to maximize the amount of 4% housing credits.
Extra housing credits were also generated by the project’s location in a Difficult Development Area, and from $3 million in expenditures for city-required off-site road and utility improvements.
Red Stone Partners, of New York, syndicated the tax credits on behalf of the equity investor, MetLife. The total tax credit equity of about $42 million accounts for nearly 66% of the project’s total development cost. Additional funding sources include federal HOME program dollars, two small permanent mortgages from MassHousing, state grant dollars, and a deferred developer’s fee.
Mackey and Red Stone Partner’s Stephanie Smith said one strong point of the project is the low amount of foreclosable hard debt à $1.6 million total.
Smith said other features that made the deal attractive included the “great” developer (Trinity Financial); strong development team; a designated property management firm experienced with the Lowell market (The Winn Companies); strong reserve funds; little construction risk (10% budget contingency, only 10% of equity in during construction); and discounted rents.
