Properties in New Mexico

One of the challenges of housing finance in rural areas is that properties are so spread out, it sometimes is hard to achieve the kind of numbers you need to make a project work. Community Preservation Partners (CPP) and J.L. Gray, though, have teamed up to structure 20 properties in New Mexico into three portfolios, in the process qualifying for the biggest four percent Low Income Housing Tax Credit award in state history.

The most recent portfolio to close, the central, comprises six properties of the 20 done to date by CPP and J.L. Gray. These six have a total of 218 units across four family and two senior properties in the municipalities of Las Vegas, Portales, Artesia, Belen and Ruidoso Downs.

That makes the total, including the northern and southern portfolios, 654 units in 20 properties across ten counties of The Land of Enchantment.

The northern developments are in the municipalities of Gallup, Bloomfield and Bernalillo, while the southern ones are in Anthony, Columbus and Deming.

According to Karen Buckland, CPP’s vice president, development, the U.S. Department of Agriculture Rural Development properties will be rehabbed at a cost of about $32,000 per unit. Originally Rural Housing Service section 515 loans, they have been restructured into RHS section 538 guaranteed loans for rural rental housing, with affordability extended for 35 years.

The properties were purchased for $7.3 million using four percent tax credits and bonds issued by the New Mexico Mortgage Finance Authority. Bonneville Multifamily Capital, Salt Lake City, is the section 538 lender, and Stifel, St. Louis, is the bond underwriter.

“In New Mexico, it is extraordinarily difficult for affordable housing communities in rural areas to secure the financing they need to address maintenance and rehabilitation,” commented Anand Kannan, president of CPP, at the central portfolio closing in November. “With our experience in rural development, CPP was able to arrange the smaller communities into portfolios that would meet both the mortgage finance authority and the Rural Development requirements to make a reinvestment possible.”

“Construction is starting in January and we’re targeting completion for August,” Buckland says. CPP, which has offices in Irvine, CA and Reston, VA, is doing the development, while J.L. Gray will be the owner and operator.

Very Small Rural NM Towns
All of the properties are in very small rural towns of 10,000 or less, she says. None of them is a farming community, and none of them are inside the borders of the state’s many rural American Indian reservations, though some of them are adjacent to tribal lands.

“J.L. Gray gave us access to its portfolio of projects, and we went through them and identified these 20 assets and did our best to try to group them according to location, north, south and central. Then we approached the state agency with our plan on refinancing these and extending their affordability and looking to get a bond/tax credit on them.

“They’re all existing 515 deals, so we also had to work with Rural Development on them, and we also ended up getting Section 538 financing on them as well for the debt takeout terms,” Buckland says.

Income limitations on the central portfolio are 60 percent of area minimum income (AMI), but there are also some HOME units at one of the senior projects at 30 percent of AMI, Buckland says.

Total construction costs per unit are expected to be $40,000, with at least $32,000 in hard costs. Total development cost for all three portfolios comes to $22.6 million, she says.

“We’ll address significant energy efficiency, roof replacement and window replacement. Interiors will get fully new cabinetry and appliances. Family projects will be receiving new playground and other outdoor amenities and senior projects will get outdoor congregation areas.”

Senior units will vary from studios to two-bedrooms, while the family units are from one- to three-bedrooms.

The configuration of the projects varies considerably. One has 26 units in a single building, while another has 13 units in three buildings.

Buckland says CPP is under contract to do another rural New Mexico transaction next year.

Kathryn Turner, assistant director of housing development at NMMFA, says the authority had made three allocations and bond issues, one for each of the portfolios. With more than 200 units in each of the portfolios, “it’s a really extensive rehabilitation project across the state,” she says.

Nine Percent LIHTCs Also Possible
While these portfolios used four percent LIHTCs, Turner says there is a scattered-site option that makes nine percent LIHTCs potentially viable for this kind of project in the state.

“It’s trickier because you’re dealing with scoring and there’s actually competition. Each bundled project would have to score equally in each of the sections, but it is an option. When you’re dealing with these very small properties that serve a very high need population, it’s a potential area we hope people take advantage of.”

Turner says she thinks there will be more projects like the CPP-J.L. Gray deal.

“As difficult as these projects can be, and as complicated, I think the impact has been pretty amazing. I’m hopeful this is a way we can try to get capital to these very small, rural communities.”

Turner points to the use of Section 538 funding as an interesting feature of these portfolios.

“A lot of rural projects have this relationship with USDA, so that was an additional layer to this, which was both complicated and great, because there are rental subsidies available for some of the properties as well.”

CPP has done family and senior projects in some 15 states, including the New York-New Jersey-Connecticut Tri-State area, the West and a few southern states, like Virginia and Tennessee. It says invested totals of $2.6 billion have helped more than 35,000 residents.

Tax Credit Advisor featured a rehab project CPP collaborated on in East Orange, NJ, in the September 2021 issue. Senior project Norman Towers saw enough money raised for $70,000 in rehab work to be done on each of its more than 400 apartments.

Owner/manager J.L. Gray Co. specializes in RHS properties, managing more than half of USDA Rural Development projects in New Mexico. Its offices span the state, from Farmington to Albuquerque to Las Cruces. Bobby C. Griffith is the chief financial officer and director of acquisitions for the company.