Georgia: 1300 Unit Greystone Rural Portfolio
By Mark Fogarty
6 min read
State Housing Credits Flesh Out Bond Deal
When tax-exempt bonds fund an affordable housing project instead of nine percent Low Income Housing Tax Credits, state tax credits can be a real dealmaker.
Campbell Brown, senior vice president of operations at Raleigh, NC-based Greystone Affordable Development, told the annual meeting of the National Housing & Rehabilitation Association that state credits were indispensable to getting the huge, 23-site multifamily/senior Georgia 2018 Preservation project done.
“That’s a huge gap filler for this deal, the only reason this deal was financially feasible,” he says. “It let us bring in $2 million in investment earning and offset $2 million in bond interest.”
The ability to use state tax equity credits with the bonds, “really gave us a 50 percent boost on our pricing if not a 60 percent boost. That’s a huge, huge impact on getting these deals done.”
Greystone Senior Vice President Will Eckstein says he thinks the development consultant company got a lot right with the 15 family residences and eight senior/disabled residences preservation/modernization portfolio.
“We think this is a replicable model across the country,” he says of the $168 million portfolio.
Affordable at Risk
The projects are in 17 counties throughout rural Georgia. About 47 percent (622 units) have USDA Section 521 rental assistance. Average age of the buildings is 32 years. At risk of losing affordability: 96 percent of the projects.
“A lot of it was at risk of being turned into market rates,” Eckstein says.
He says the rehabs, currently underway, should be finished by November of this year, about an 18-month turnaround. They involve accessibility issues, roofing and interior upgrades to things, like mechanical systems and countertops and new appliances.
Brown says the state credits were just one of the pros of the project. Others included the large (1,310 unit) scale of the preservation deal, which enabled economies of scale, the economic benefits the rehabs are bringing to small rural towns and, in the bigger picture, adding to Georgia’s affordable housing stock.
Brown notes that financing preservation in rural areas of Georgia with bonds instead of nine percent LIHTCs frees up those credits to be used on other projects.
“Utilizing this structure, we’re pulling these properties out of the nine percent round and giving the states more resources to allocate those dollars elsewhere, ideally to increase the supply of units across the state,” says Brown.
Economies of Scale
Greystone’s Georgia 2018 Preservation Portfolio is a huge rural housing effort to acquire and rehabilitate more than 1,300 affordable units in that state. It used $54 million in tax-exempt bonds as part of a total financing of $168 million.
No competitive tax credits were in the mix, but the deal had four percent credits, both federal ($33 million) and state ($21 million).
That enabled a huge preservation that is keeping 100 percent of those units affordable.
The size of the portfolio brings its own economies. “It’s large scale,” notes Brown. “Thirteen hundred is a lot of units under one transaction. With that large scale, we get economies of scale. When you cut it down to each of the individual properties, per-property cost is significantly lower than if you were doing one-offs,” Brown tells the NH&RA meeting, held in Miami Beach.
The positives trickle down to the small communities the rehab work is done in.
“These are 3,000 to 5,000 person towns,” Brown says. “We bring in a whole construction crew to rehab a property for a matter of months, they’re staying in hotels, they’re eating in the local restaurants, they’re going to local gas stations. It’s a big cash infusion into these towns that they wouldn’t otherwise see.
There were a few cons as well. Brown tells the NH&RA meeting, “They’re expensive. Bond issuance can be anywhere from $300,000 to well over $1 million. It was definitely on the high end in this transaction.”
Reduced pricing from a lack of Community Reinvestment Act properties is another. And the deal was complex. Required resources included predevelopment on each of 23 projects. “That was a lot of money, a lot of sales negotiations,” says Brown. “We run these as in place rehabs. We try to come in in the morning, take the residents, set up activities in the community room, then let them come back at end of day and the bulk of work is done. It takes a lot of coordination, it’s difficult to manage.”
19 Partners
A fact sheet from Greystone lists 19 separate partners for the deal, from A (Architect Wallace Architects LLC of Columbia, MO) to Z, or at least to T (Trustee’s Counsel Smith, Gamble & Russell LLP, Atlanta).
Some of the biggest players are The Housing Authority of Macon-Bibb County, Macon, GA, which issued the $54 million in tax exempt bonds; developer Hallmark Development Services LLC of Atlanta; general contractor Great Southern LLC, Valdosta, GA; permanent lender Greystone Servicing Corp. Inc., Warrenton, VA; subordinate lender USDA Rural Housing Service, Washington, DC; and tax credit syndicator Boston Financial Investment Management LP, Boston.
Eckstein says one of Greystone’s biggest responsibilities was to bring all those parties together. “Our job was to make sure everyone sings off one sheet of music,” he says.
The other biggest pieces of the debt/equity financing were USDA senior/subordinated sections 515 and 538 loans of about $55 million, and federal and state four percent LIHTC equity of about $54 million. Greystone did not release the uses of the money, but Eckstein says in general they were for acquisition, rehab and to cover development expenses.
This is the third deal Greystone has done with Hallmark, which owns and manages 11,000 affordable rental units around the country.
Eckstein says this portfolio is having a big impact on the state’s affordable housing landscape, and the president of Greystone Affordable Development agreed.
“With only 38 affordable rental homes available for every 100 extremely low-income households in Georgia, a large percentage of the state’s income-restricted households are severely rent overburdened. New affordable housing stock just isn’t being created fast enough to meet the demands, thus preservation of the aging stock is absolutely essential,” says Tanya Eastwood. “We are able to not only preserve, but also modernize this vital housing stock. It is important to note that this unique and complex process would simply not be possible without housing credits and private activity bonds.”
Sources
Gross Tax Exempt Bond Issuance………………………… $54,265,000
Senior Debt–USDA 538 MBS………………………………. $27,329,000
Senior Debt-USDA 515 Direct (new)…………………………. $368,000
Subordinated Debt-UDA 515 Direct (assumed)………. $27,601,007
Federal LIHTC Equity (4%)…………………………………… $33,123,114
State LIHTC Equity (4%)……………………………………… $20,901,257
Other- Surplus RR Cash………………………………………… $2,403,332
Investment Earnings…………………………………………….. $2,218,300
DDF……………………………………………………………………….. $412,709
Total Sources………………………………………………………$168,621,719
