Historic Former Brewery Renovated Into Mixed-Use Project in Louisiana
By Caitlin Jones & A. J. Johnson
7 min read
BEER, FALSTAFF IN PARTICULAR, is the story behind a new $28 million historic rehabilitation project in New Orleans.
Utilizing the federal historic rehabilitation and low-income housing tax credits, a local developer has renovated an historic multiple-building industrial complex once used to brew Falstaff beer into a mixed-use, mixed-income residential/commercial property set to open soon.
But before getting to the current point, New Orleans developer David Miller and his partner, Thad Mondale, nephew of former U.S. Vice President Walter Mondale, encountered a series of obstacles that they had to overcome, among them a sharp drop in housing credit pricing and a sudden apparent loss of federal HOME funds.
The new development, called The Falstaff Apartments, is located in the Mid-City section of New Orleans, a designated historic district that was battered by Hurricane Katrina in 2005. Mondale had a contract to purchase the property when the hurricane struck.While the buildings flooded, because of their sound construction they survived with little damage, according to Miller. “Because of the type of construction being steel, concrete, and heavy masonry,” he noted, “it had not sustained any wind damage to speak of, and, really for the same reasons, the flooding didn’t have much impact on it.” Miller said the footings are deep and made of steel-reinforced concrete, while the masonry walls are five to six bricks wide.
The hurricane, in fact, turned out to be the silver lining that made the current project possible. Miller, of Renaissance Property Group, said the hurricane spurred the enactment of the federal Gulf Opportunity (GO) Zone Act, which authorized additional housing credits for GO Zone areas within Louisiana, Alabama, and Mississippi, a 26% historic tax credit rate rather than the standard 20%, and additional tax incentives. As a result of the extra housing credit authority, the Louisiana Housing Finance Agency (LHFA), said Miller, increased the size of its per-project cap on housing credit allocations — once $300,000 in annual credits — “by factor of four or five.” According to Miller, the project received an allocation of 9% housing credits from LHFA in the amount of $1.21 million per year.
Miller, when interviewed by the Tax Credit Advisor on 1/16/08, said construction was 80% complete and “we’re beginning the marketing effort right now.”
The Falstaff Apartments will contain 147 one-, two-, and threebedroom apartments, with half rented to households at or below 60% of area median income, and half leased at market rents. Miller said initial monthly market-rate rents will be $750 for a one-bedroom, $975 for a two-bedroom, and $1,125 for a three-bedroom unit. Miller said these rents equate to 90 cents to $1 per square foot, significantly below the average of $1.40 per square foot at comparable rental properties his firm identified. Miller indicated he and Cochran set the initial rents at levels they were confident would enable them to lease up all of the market-rate units in a 50-50 mixed-income property, and sustain the development over the long term.
Miller, on his own, earlier developed a separate historic rehabilitation residential project in New Orleans — the conversion of the former Handelman department store building into apartments. That project was fully leased up in the spring of 2006, before con struction even began. Miller noted the success of that lease-up demonstrated the acute affordable housing crisis that existed in New Orleans.
Origin as Brewery
Miller and Mondale took title to the Falstaff property in June 2006. Miller said the property was mostly vacant at the time, and saddled with tax liens and a few lawsuits.
He noted the complex consisted of multiple buildings, the oldest dating from 1911, that were originally constructed by the St. Louis, MO-based National Brewing Company. The Falstaff trademark and logo — the product’s name that of the Shakespearean character of Sir John Falstaff — was registered in 1903. Prohibition, stretching from 1919 to 1933, crimped production. When it ended, in 1933, Falstaff Corporation became the Falstaff Brewing Corporation and received federal permit No. 1 to resume brewing beer. In 1936 Falstaff purchased National Brewing Company, a New Orleans brewer, as its fourth plant. Falstaff later expanded the New Orleans facility several times, and continued to brew Falstaff beer at the site for decades to come. By the 1960s, Falstaff had become the third largest brewer in the U.S. by volume. But by the 1970s, sales had begun to slide, and in 1978 the New Orleans plant was closed after a lengthy strike. Falstaff as a national brand limped along until it was discontinued in 2005 by Pabst Brewing Company, which had acquired the brand.
Miller said the complex, when acquired for the current project, consisted of seven buildings, ranging from two to seven stories each. He noted four of the buildings have been renovated into apartments, and one houses the mechanical rooms. Miller said the remaining two buildings, which are functionally being treated as one building, will host commercial space on the ground floor, with the upper floors held for future development as residential.
Funding Sources
Miller said the total development budget for the current project — both the residential and commercial components — was $28 million.
The largest single source of funding was about $17.3 million in tax credit equity generated by the sale of the federal historic and housing credits, which were purchased by a direct investor, AEGON. Other funding sources, according to Miller, included a $7.6 million 18-year permanent mortgage, a deferred developer fee of $2 million, and a soft second mortgage of $1 million from the city of New Orleans capitalized with federal HOME program dollars.
The permanent mortgage is to be funded by Freddie Mac, which in October 2007 announced that it had, in coordination with private lender Column Guaranteed, issued an unfunded forward commitment for the project.
Miller said the eligible basis of the project for purposes of the housing credit was boosted by 30% by virtue of the project’s location in the GO Zone. In addition, he said the property qualified for the 26% historic credit rate, as well as for special federal expensing of environmental remediation costs. He said about $2.5 million was spent to clean up the site, which took about five months to complete.
Miller said he and his partner also expect to receive local tax abatement from the city, noting eligible properties generally are given five-year abatement.
The complex has been classified for purposes of the historic credit as a set of “contributing” buildings in the Mid-City Historic District.
Development Challenges
Miller said The Falstaff Apartments project was jeopardized by several events that he and his partner had to overcome.
Perhaps the most challenging was a sharp drop in the pricing for the tax credits for the project.
Miller said he had a letter of intent quoting a price well above $1 for the housing credit in the fall of 2006, at a time when housing credit prices were falling and construction costs were rising. He said his firm eventually closed for a price of 94-1/3 cents per credit dollar for both the housing and historic credits. To close the funding gap, he said several compensating steps were taken, including to reduce the size of the project, increase the deferred portion of the developer’s fee, and other measures. Part of this, he explained, “was really just taking on more risk — stripping out some reserves, reducing the contingency, just taking some gambles with the development budget.”
Another struggle was fighting to keep a commitment of $1 million in federal HOME Investment Partnerships (HOME) program funds. Miller said the city had made a conditional commitment to provide $1 million in HOME funds to the project as a soft second mortgage. However, after the individual who had made this commitment left the city’s housing division, the Nagin Administration sought to rescind the commitment, Miller noted. “It was kind of a moment of high anxiety for the deal,” he said. In the end, though, after intervention by the city council person in whose district the project is located, the city reaffirmed the funding commitment for the project.
