Crossing the Finish Line Exchange Funds Push Massachusetts Deal Forward
By Caitlin Jones
4 min read
Tax Credit Advisor, March 2010: For Massachusetts builder Andrew Baker, getting to the finish line with his company’s first tax credit project as a developer has required hope, prayer – and federal credit exchange funds.
The Village at 815 Main Street, a 49-unit affordable rental housing development in Wareham, Mass., has begun construction after a lengthy struggle to fill a funding gap. The transaction, which doesn’t have low-income housing tax credits, is said to be the first exchange program-assisted deal to close in Massachusetts.
Construction is expected to be completed by year-end. Intended for families, the development will include eight townhouse-style apartment buildings, a three-story garden-style apartment structure, and a community building. Five units will be leased at subsidized rents to tenants earning 30% or less of the area median income (AMI). The remaining units will be leased to households at or below 60% of AMI, at initial monthly initial rents of $793 for one-bedroom units, $941 for two bedrooms, and $1,075 for three bedrooms.
The developer is JKS Village LLC, which was formed by John Scanlan, the owner of East Falmouth-based JK Scanlan Co., Inc. The latter is a general contracting company that is the general contractor for the Wareham project.
Stumble After Dry Closing
Baker, of JK Scanlan Co., Inc., said a “dry closing” for the project – where the documents are signed but cash doesn’t flow – was held on a Friday in November 2008. The closing on the tax credit equity was supposed to occur the following Monday – but didn’t. Instead, word came from the syndicator that the equity investor had pulled out, leaving a funding gap.
“We spent the next eight or nine months try to find new investors,” said Baker. “We spoke with probably 30 or so – syndicators or direct placement investors. We provided our numbers multiple times, met with a few, received four letters of intent. And all four fell through.”
Luckily, Congress in early 2009 passed the stimulus act, creating two new programs – TCAP and credit exchange – to provide federal dollars to stalled LIHTC projects to enable them to move forward to construction.
In August, the sponsor applied to the Massachusetts Department of Housing and Community Development (DHCD for exchange program assistance for project. It was notified of an award in October, and closed in December. Earlier, the sponsor returned to DHCD the full amount of the 2008 housing credit allocation that had been received for the project, equal to $856,462 per year.
Funding Sources
DHCD is providing the Wareham project with about $8.5 million in exchange funds, which will cover 70% of the total development cost. The assistance is being provided at zero interest and will be forgiven after 15 years if there is no tax credit recapture event.
Other permanent funding sources are a permanent mortgage from the Massachusetts Housing Partnership (7.6%, 20-year term, 30-year amortization); a subordinate loan (0%, 40 years) from the state Affordable Housing Trust Fund; and a deferred developer’s fee and cash equity.
The Property and Casualty Initiative, a statewide community loan fund, is providing a nearly $3 million construction loan at 6.5% interest.
Boston tax attorneys with the law firm of Goulston & Storrs worked on the transaction and helped save it.
“Out client really looked high and low for a replacement investor…And there was nobody available,” said Elizabeth Lintz.
David Abromowitz, a partner in the firm, noted, “While the deal is in Massachusetts, a relatively strong market compared to some parts of the country in terms of still attracting some tax credit equity, this deal is in a smaller town about an hour outside of Boston. So it wasn’t in a traditional CRA market or other urban market where investors were still going to go during the [LIHTC market] downturn.”
Baker said The Village at 815 Main Street is Scanlan’s first LIHTC project as a developer; it has been the general contractor in the past on a number of housing credit projects. As for future LIHTC development, he says, “We do have plans to do some more.”
