Grand Living Midwest Office Tower is Reborn as Affordable Housing
By Caitlin Jones
5 min read
Tax Credit Advisor, February 2010: Sherman Associates, Inc. had a vision for downtown Kansas City: They intended to convert a 17-story office building that had been a blight for ten years into the Grand Boulevard Lofts, an affordable housing project.
Closing on the 134-unit apartment project was originally scheduled for late 2008. But the financial crisis that rocked the affordable housing market made that impossible and delayed the job.
But Sherman didn’t give up. An intense, year-long effort by the Minneapolis developer to shore up the financing for the $33 million low-income housing tax credit project, including a soft loan of federal Tax Credit Assistance Program (TCAP) funds from the Missouri Housing Development Commission, has enabled the project to move forward.
Ryan Sailer, Vice President of Development for Sherman Associates, said the deal was the second most difficult financing in his firm’s 30-year history, due to the complex mixture of affordable housing programs.
“We closed financing literally the week before Christmas. I think we made a lot of people’s Christmas,” he noted. “People have been working in the building since about December 15th or 16th.
Completion By Year-End
Sailer said that environmental abatement for the project is about halfway complete and that the layout of the frame for the top floors has begun.
The project is expected to be completed by December 31st. Once finished, the building will be occupied by residents living in affordable housing convenient to local jobs.
Grand Boulevard Lofts will include 64 one-bedroom apartments, with monthly net rents from $566 to $620; and 70 two-bedroom apartments, with monthly net rents from $670 to $775. Five units will have rents affordable to households at 50% or less of the area median income (AMI), while the rest will have rents affordable to tenants at or below 60% of AMI. Sixty percent of AMI for a four-person household in the Kansas City area is approximately $41,040.
Like many major metro areas, Kansas City has a need for housing of all types, but especially affordable housing in the downtown area, says Janell Thome, Director of Rental Production for the Missouri Housing Development Commission. MHDC approved the Grand Boulevard project for LIHTC financing because the development fit into Kansas City’s effort to revitalize its downtown with retail, entertainment, and employment opportunities, she noted.
Architects were ready to pull the building permits for the project about a year ago just as the housing credit equity market was heading south, said local architect Donald Rosemann, of local firm Rosemann & Associates, P.C., Architects, which designed the project.
LIHTC pricing dropped about 30 cents per dollar of credit and Sherman Associates was forced to seek TCAP funding from MHDC. The financing package had to be reworked to meet different regulatory requirements. For example, the pro forma had to be revised to provide for payment of federal Davis-Bacon prevailing wages, a requirement under the TCAP program.
Financing Package
The ultimate financing package for the $33 million project is multi-layered.
It includes equity generated by the syndication of federal and state low-income housing tax credits and
historic tax credits, a HUD-insured Section 221(d)(4) mortgage loan (5.67% interest, 39 years), a TCAP subordinated soft loan (0%, 40 years), a small soft loan from the city capitalized from federal Community Development Block Grant funds (0%, 40 years), and a deferred developer’s fee. The project, which is funded in part by tax-exempt bond proceeds, will also receive local tax abatement. The syndicator of the federal tax credits was Stratford Capital Group; for the state tax credits, Sugar Creek Realty.
Sailer said that because the deal included the HUD loans, other debt had to be structured as surplus cash loans in a second position. To accomplish this, Sherman Associates had to get the blessing of city officials for the CDBG loan and state officials for the TCAP funding.
“We made lots of calls to HUD in Washington to get guidance,” Sailer said. “It takes a lot of back and forth. We worked with lots of great people from the city to the state to the federal government.”
Building History, Issues
Grand Boulevard Lofts will represent the productive resurrection of a structure originally constructed in 1909 with five stories called The Gates Building. Additions over the next 20 years expanded the structure to 17 stories. Over time it has also been known as the Home Savings Association Building, Dierks Building, and 1006 Grand Building. The roughly 175,000 square-foot, steel-frame, brick-clad office building, which had been vacant for the past 10 years, is listed on the National Register of Historic Places.
Rosemann said his firm’s design for the residential use of the building was complicated because the first eight floors were constructed in a rectilinear shape and the remaining nine floors were built in a U-shaped configuration with lots of light.
Converting the office space into functional apartment layouts, and retaining the historic character of the hallways where residents will exit elevators, was very challenging.
The building’s most impressive feature will be the renovated lobby entrance, Rosemann indicated. “When you first enter into this building, it’s going to be an eye-opening experience. So much stuff had been covered up. So many things had been totally destroyed and we’re restoring them back to their original character.”
The building will also have an exercise room, community room, storage space, and nearby secure off-site parking for residents.
Grand Boulevard Lofts
Source and Uses Summary
Sources |
|
| Federal/State Housing Tax Credit Equity | $8,039,105 |
| Federal/State Historic Tax Credit Equity | $8,879,041 |
| HUD Sect. 221(d)(4) First Mortgage | $8,875,000 |
| MHDC TCAP Soft Loan | $6,850,000 |
| Kansas City CDBG Loan | $190,000 |
| Deferred Developer Fee | $471,438 |
| Total Sources | $33,304,584 |
Uses |
|
| Construction Costs | $18,787,738 |
| Acquisition Costs | $5,030,008 |
| Architect/Engineering Fees, Survey | $666,000 |
| Developer’s Fee | $2,750,000 |
| Miscellaneous Fees & Costs/Reserves | $6,070,838 |
| Total Uses | $33,304,584 |
– Stephen K. Cooper
