Case Study

Resuscitating the Heart of the Commonwealth

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8 min read

Worcester Courthouse Converted to Affordable Housing

Throughout its history, Worcester, MA has experienced more than its share of ups and downs. Settled and abandoned twice before it was finally resettled in 1713, it became a center of radical activity leading up to the American Revolution. By the mid-19th century, the city had become one of the largest manufacturing centers in the Northeast, churning out textiles, clothing, shoes and power looms, leading Worcester to become the second largest city in New England. After World War II, it began to lose its manufacturing base and with it, some of its population. Large retailers, like Filene’s and Jordan Marsh, moved from downtown out to the suburbs. Restaurants and entertainment venues closed. Biotech, healthcare and institutions of higher learning partially offset the drain, but the area still had difficulty attracting investment capital.

But lately, the city known as “the Heart of the Commonwealth” due to its central location 40 miles west of Boston and north of Providence, RI, and 50 miles east of Springfield, is undergoing something of a resurgence. “It’s got great potential and opportunity,” says Peter Sargent, director of capital development for the Massachusetts Housing Investment Corporation (MHIC), the private, self-sustaining 501(c)(3) involved in community development, Low Income Housing Tax Credit (LIHTC) syndications and New Markets Tax Credits. “In the last 24 months, there has been tremendous interest in putting capital into the Worcester market.”

Among the signal projects is the historic former Worcester County Courthouse, currently being redeveloped into a 117-unit mixed affordable, workforce and market-rate housing community that Sargent calls a “major puzzle piece” and a “significant step forward” in stimulating further development in the historic Lincoln Square district and tying neighborhoods together. And, he adds, “It has just about every type of financing available!”

The project, with expected completion in July 2020, includes $56.9 million from MHIC that breaks down to $21.4 million in Federal LIHTC and Historic Tax Credit financing and $35.5 million in debt financing; another $35.8 million from MassHousing, the quasi-public affordable housing lending agency, in the form of a $12.2 million permanent loan, a $19.1 million bridge loan and separate $4.5 million Workforce Housing Initiative subsidy; the Massachusetts Department of Housing and Community Development’s $1 million in Commercial Area Transit Node Housing Program (CATNHP) bonds, $2 million from the Affordable Housing Trust Fund (AHTF) and $3 million from the Housing Stabilization Fund (HSF); $16,150,000 in State LIHTCs and Historic Tax Credits that are generating $13,142,500 for the deal, also syndicated by MHIC; and $1.15 million from the City of Worcester.

An Incredible Building
The white stone and masonry courthouse at 2 Main Street and listed on the National Register of Historic Places, was built in the Greek Revival style in three stages, 1843, 1898 and then an annex in 1954. The 4.47-acre site has been vacant and increasingly dilapidated since 2007, when court operations moved to a new location and larger premises and the state deeded the property over to the city.

“It’s an incredible building, built over multiple phases,” says Michael “Mike” Lozano, vice president for development at Trinity Financial, the Boston-based, community-driven real estate firm. “We had been looking in Worcester for quite some time and had never quite found the right fit. As soon as we toured the building, we fell in love with it. There were a tone of original details and the city was keeping the important fabric of the building intact.”

The city of Worcester looked for the right redevelopment partner and put out a request for proposal. In 2017, the project was awarded to Trinity.

“Worcester is an up-and-coming place with a lot of hype surrounding it, the downtown has come alive and it all came together for us at this location,” Lozano continues. “This location is the northern gateway to downtown, near a number of monumental civic buildings that have been underutilized. The courthouse project should be a catalyst for redevelopment of that section of downtown.”

“This is a connection to several neighborhoods in the city,” notes Christine “Chrissy” Vincenti, MHIC’s senior investment officer. “It will draw development out from Main Street to surrounding areas.”

While the courthouse was an obvious focus for historic credits, Lozano concedes, “It was a challenging building to work with and convert.”

“Trinity is extremely well-known and highly regarded,” says Sargent, who says that Lozano “lived and breathed the project. We provided them with a relatively small acquisition loan of $1.8 million to buy the property, which was extremely significant at the time because it grandfathered the Historic Tax Credits that were at risk as a result of tax reform.”

“One reason Trinity came to us was our ability to get all the moving parts to work together,” says Vincenti.

“Our experience and knowledge in the Massachusetts market helped fast-track the process. And we were the logical partner to syndicate Federal and State LIHTCs and Historic Tax Credits,” Sargent notes. He has high praise for MassHousing and all of the partners. “Our allocating agency [Massachusetts Department of Housing and Community Development (DHCD)] is very savvy in making the best use of scarce resources.”

MHIC already had a track record in Worcester. “One of our early New Markets investments was the Hanover Theatre for the Performing Arts. We financed the renovation in 2007, and that really started things going. It has been a wildly successful development,” Sargent says. The Worcester Courthouse apartments are expected to have a similarly stimulative effect.

Of the 117 units, 23 will be studios, 52 one-bedroom units, 31 two-bedrooms and 11 three-bedrooms. Thirteen LIHTC units will be reserved for households earning no more than 30 percent of area median income (AMI), 37 at 60 percent or below, 16 at 80 percent or below, 45 are classified as workforce housing at or below 110 percent, and six apartments are market-rate. The building will feature a fitness center, clubhouse lounge, gallery space, interior bike and resident’s storage areas, landscaping restoration and outdoor gathering spaces. The exhibition

space is being named for Marshall “Major” Taylor, the “Worcester Whirlwind,” the first African American world cycling champion in the late 19th and early 20th centuries. The Worcester Courthouse is adjacent to the Worcester Art Museum, Worcester Polytechnic Institute, Worcester Memorial Auditorium and the Massachusetts College of Pharmacy and Health Services. The property also has access to public bus service and is less than a mile from the MBTA Commuter Rail at Union Station.

A Compelling Vision
Chrystal Kornegay, MassHousing executive director, and 2017 NH&RA Vision Award recipient, declares, “The transformation of the vacant former Worcester Courthouse into a new, inclusive housing community will be a major building block in Downtown Worcester’s renaissance. Trinity Financial had a compelling vision for this property, transforming a historic structure into new homes for families of all means, from extremely low-income families, to workforce housing and market-rate households. MassHousing is proud to be a partner in helping to make that vision a reality.”

One of the key factors in the residential mix is the use of income averaging, a new option for developers of LIHTC properties. While the particulars can be as complex and daunting as figuring out NFL salary caps, Vincenti says it widens the spectrum of income ranges we can deal with.

“It takes a very deep dive of underwriting analysis and new challenges in the world of compliance for this to be successful,” Sargent states, calling income averaging, “an exciting new way of broadening bandwidth and capturing a larger audience.” Basically, he says, “At the end of the day, the average AMI can be no higher than 60 percent.”

No Separate Entrances
One issue that always seems to be part of the mixed-income dialogue is how the residents will relate to and get along with each other. “It’s the wave of the future,” Sargent states definitively. “Agencies and investors are getting more comfortable with it, and at certain levels, this is how you get deals done, particularly in a place like Massachusetts where housing at all levels is scarce. We’ve been financing mixed-income for quite a while and there haven’t been any brushfires.”

“Is there a problem?” Lozano poses. “The simple answer is no. We’ve done many housing projects that are mixed-income. They’ve all been successful, and the residents are happy. We believe in everyone experiencing the same facilities and benefits, regardless of their income.”

Was consideration ever given to a separate entrance for the highly subsidized residents, as has been done in places like New York? “That is unimaginable in our market,” Sargent insists.

“This is What We Like to Do”
One of the factors that made the project work would seem to be the participants’ willingness—even eagerness—to take on complex challenges. “This is what we like to do,” Sargent comments. “Complicated investment opportunities that represent transformational change in markets that have excellent potential for improvement. And this was an opportunity to make downtown Worcester more attractive not only to work in, but to live in.”

“This is our specialty,” says Lozano. “We like to take on challenging projects that sometimes require complex financing schemes. We take pride in taking on the tough ones and seeing them through. We don’t often do easy projects!”

Story Contacts:
Michael Lozano, [email protected]
Peter Sargent, [email protected]
Christine Vincenti, [email protected]