Beginning Betances
By Mark Fogarty
6 min read
40-building Bronx RAD rehab gets started
There’s no question that the 40 buildings in the Betances Portfolio in the Bronx borough of New York City can benefit from substantial rehabilitation. After all, the earliest of these Betances multifamily properties was constructed in 1906.
In an interesting wrinkle, the project (there’s one community center included in it) was done without Low Income Housing Tax Credits (LIHTC), although the deal was structured to resemble a tax credit deal using taxable finance. A $120 million Department of Housing and Urban Development Rental Assistance Demonstration (HUD) (RAD) project is set to do substantial rehab at Betances over the next two years, converting the aging scattered-site buildings (the newest was built in 1974) from public housing into project-based Section 8 housing and providing a $120,000 or so update for each of 1,088 apartments without affecting affordability or displacing current tenants.
Unlike other recent RAD deals, such as one ongoing in Baltimore (Tax Credit Advisor, April 2018), no LIHTCs are being used, and no tenants are being temporarily relocated while rehab work goes on. The Baltimore RAD projects used four percent tax credits to raise significant proceeds to renovate the housing stock and moved tenants temporarily into units in their buildings that opened up from attrition, or to nearby buildings.
“There’s no place for these residents to go,” says Joshua Reiss, vice president of New York City-based Hunt Real Estate Capital, which provided the bulk of the financing (there is also some borrower equity and deferred purchase price in the deal). Instead, tenants will stay in place during intensive, fast in-and-out construction planned to take just three to five days apiece with workers being in the units just eight hours a day to cause the least inconvenience.
“These rehabilitations have to be done with the residents in place,” Reiss says, as there were no nearby New York City Housing Agency (NYCHA) projects to temporarily move residents into.
The buildout blitz will be substantial, including replacing floors, kitchen cabinets, bathroom vanities and tub enclosures. Residents will have access to a hospitality suite, as well as bathrooms, running water and a hot plate while work is in progress.
The units are in need of substantial rehabilitation, according to Reiss. In fact, he says, “There is an overwhelming need for renovation and improvements and preservation, but limited resources and limited capacity to update all the housing stock” under NYCHA.
Reiss touts the absence of a big public subsidy for the project, which he hopes can be a template for others. “At Betances, we were not able to secure tax credit bond financing for the project,” he says. Instead, the company went with taxable product, partnering with Fannie Mae, which has a sizable multifamily effort, as well as a single-family one, on a 30-year loan.
“That would effectively pay for the majority of the renovation,” he says. A portion of the purchase price was deferred, and a seller’s note was used to allow the housing authority to benefit from the purchase for a longer period of time.
But, he says, the deal looks pretty much exactly like a LIHTC project, without actually having any credits.
He elaborates, “We have the length of the partnership, the expertise of the client sponsors behind the development—it looks exactly like a tax credit deal without tax credits. It’s a product that would allow far more flexibility to perform the work over a significant period of time, in this case over 24 months, and give them the flexibility to do all that work on an immediate funding basis without relying on a construction lender.”
Imitation Tax Credit Deal Structure
Hunt and Fannie Mae did this “imitation” tax credit structure purposefully to include a lot of the nuances and flavors of a corporate bond transaction without the tax-exempt financing, he says.
Bob Simpson, Fannie Mae vice president, affordable and green financing, comments, “Public/private partnerships like these are great examples of what we can do.” Hunt Real Estate Capital is a Fannie Mae DUS (Delegated Underwriting and Servicing) lender.
The buyer of the public housing, from the New York City Housing Authority’s giant 175,000-unit portfolio, is a public-private partnership called Betances RAD LLC. As in other RAD deals, the new ownership is a partnership between an affiliate of the city housing authority (NYCHA in this case) and the developer of the RAD project. The developer here is RDC Development, which is composed of MDG Design and Wavecrest Management. The units are located in the Mott Haven neighborhood of the South Bronx, which has a national reputation for old, decaying public housing.
The Betances properties are redbrick buildings ranging from two to 20 floors, according to Reiss. There are six Betances projects, the largest being Betances I, which includes 309 units. The unit mix includes studios, one-, two-, three-, four- and five-bedroom apartments.
They are named after Ramon E. Betances, a 19th century Puerto Rican doctor and proponent of independence from Spain for the current U.S. territory, who had an interesting life, which included being an abolitionist, diplomat, poet and novelist. (The United States took control of Puerto Rico from Spain after the War of 1898, the year Betances died.)
Rents at Betances will remain affordable for the next 40 years at 30 percent of adjusted income.
Model for Future Rehab
Reiss says NYCHA eventually plans to rehab 60,000 units through public-private partnerships, like RAD. (This deal is also using a second HUD disposition program, Section 18. The breakdown is 738 RAD units and 350 Section 18 units.)
“We’re extremely proud of this project. We hope as NYCHA works through this portfolio it uses this as a template for future financing.”
Hunt Real Estate Capital will be part of that effort. It is now working on another such project in a different borough of the Big Apple.
“It’s a huge task,” he says. “I think they recognize this is the main way they can leverage private markets to assist in the renovation of public housing stock and preserving a major asset for New York City.”
Story Contact:
Joshua Reiss, Vice President
Hunt Real Estate Capital, New York City
[email protected]
