Norman Towers in East Orange, NJ

Where there’s a will there’s a way. A big senior affordable housing tower for sale near New York City and Newark, NJ generated a lot of interest in turning it into a market-rate project in a gentrifying neighborhood. But two general partners, a lender and equity investor, and a state housing agency made the acquisition/rehab of Norman Towers in East Orange, NJ a priority and the effort to get the job done has come together at lightning speed, going from site control to start of construction in just seven months.

Seth Gellis, senior vice president of co-general partner Community Preservation Partners (CPP), Reston VA, says that the timing was especially sharp considering the closing was done “right in the heart of COVID, when it was most difficult to get people onsite for tours, to get lenders and investors out to see the property, and to start renovations – so it was more than just a difficult execution with a tight timeframe.”

How it came together was “in leveraging our relationships” especially with co-general partner L+M Development Partners of Larchmont, NY, which had a history with New Jersey’s state housing agency, had been underwritten and reviewed by the agency, had done a previous deal in Newark, and had its own construction and management company.

“We went in with our eyes open. We knew we had to execute for the seller in very specific timeframes,” Gellis says. Though New Jersey sometimes gets a bad rap for being a challenging state to work in, “it was actually a pleasant experience to work with New Jersey Housing and Mortgage Finance Agency (NJHMA),” he says, noting this is the company’s first deal in the Garden State. “When we laid everything out front, we got the buy-in from everybody from the chief executive on down.”

There was general agreement between developer and state agency, Gellis explains, that this large (400 plus units in a 16-floor tower) and valuable piece of affordable housing needed to be preserved and protected, “and they made sure they got it done.” Working with the city went smoothly as well.

The property was still in the family of the original owner and was being sold for economic reasons, Gellis says, but the family was concerned about leaving a legacy, which the new partnership will continue, he adds. Gellis says he was, “100 percent certain” the property would have gone to a market-rate developer if this deal hadn’t been struck.

Retaining the Staff
“We were able to keep all staff in place, enhance resident services, enhance resident space, completely revitalize the outdoor space and create an indoor-outdoor space,” he says.

He says the project has traditionally been used as a community space by city groups, as well as residents, and that is set to continue. “It’s just a prominent space, so we want to enhance its use not only by our residents but sometimes by others.”

Extensive apartment renovations will include: new kitchen cabinets and stone countertops; new energy star kitchen appliances; new kitchen sinks and faucets; the addition of microwaves with vent over stove; new vinyl plank floors and cove base throughout entire unit; the addition of kitchen bar countertops; new bathroom faucets and supply lines; and new flooring in the bathroom.

Additional amenities will include: new bathroom vanities and medicine cabinets; new low-flow toilets and shower heads; valves and trim kits; installation of new tub surrounds and tub liners; new intercoms; updated electrical breakers as needed; new LED light fixtures in the kitchen, living room and bathrooms; the addition of ceiling fans in the living room; replacing or repairing windows as needed; new vertical blinds; duct cleaning and sealing; programmable thermostats; new register grills; paint in the kitchens and bathrooms and full unit, as needed; and bringing units up to current Uniform Federal Accessibility Standards.

“The current tenants are all in place,” Gellis says. The partnership used vacancies to move people out of their units temporarily while work was going on. Some tenants decided to relocate to those units, but “it was up to them,” he adds.

The rehab is 80 percent complete now, with completion anticipated for January 2022. And with COVID-19, the construction “has been a challenge for the contractor and the management team,” he says, but has been progressing smoothly.

The financing includes a Freddie Mac TEL (tax exempt loan), as both partners have worked with Freddie Mac before.

The permanent loan is just shy of $100 million, he says, with the tax credit equity (just under $43 million) supplied by Wells Fargo, which also originated the Freddie TEL.

“It was done under a forward, so there was a true construction to permanent” done by Wells Fargo.

The Low Income Housing Tax Credits are four percent and will be accompanied by bonds issued by NJHMFA.

$70,000 Per Unit
Rehab cost will come to about $70,000 per unit.

“We were able to address all the building and mechanical systems, address accessibility as we could, and also address some aesthetics on the exterior that will be very cool,” Gellis says.

He described this development as “a very accelerated process, with no room to breathe. We were able to obtain site control at the end of 2019, just before anybody knew anything about COVID-19. The first HUD rent and financing commitments happened in April.” HUD has a 20-year Housing Assistance Payment (HAP) contract in place, which subsidizes all 406 senior units.

“So in four months we were able to get everything in place, from our declaration of intent to our financing commitment, and then move to a closing in July.

“That’s impressive in any time period but considering that people couldn’t get out there to validate and get into the units, that’s really the story.”

Despite the complexity of this project, the affordable housing mission-driven CPP is open to doing another project in the Garden State.

“We would love to,” Gellis says. “It’s all about finding the right community. We look for those (preservation projects) and those are the prime opportunities, and if you have a seller that’s motivated to give you a reasonable shot, then we would definitely do another deal in New Jersey.”

CPP has done partnerships with L+M Development in California, but this is the first joint one in New Jersey. “They bring a lot of value in the New Jersey area, because they are one of the larger contractors and managers in New York and New Jersey,” Gellis notes.