Historic Former Tobacco Warehouse Converted to Mixed-Income Apartments
By Caitlin Jones & A. J. Johnson
6 min read
Even in small, rural towns like Mount Airy, NC, the shortage of affordable housing for low-income residents is a pressing issue.
In Mount Airy, the issue was addressed and solved, according to developer Jim Sari, of The Landmark Group, based in Winston-Salem, NC, through the conversion of a vacant historic former tobacco warehouse into apartments using a combination of state and federal low-income housing tax credits and historic tax credits.
Completed in December 2007, the 43-unit Globe Tobacco Lofts was developed by Landmark to maintain the historic character of the warehouse and meet the needs of town residents while staying within budget, Sari explained. Globe Tobacco Lofts, which cost $8.4 million to develop, achieved 98% occupancy by mid-July 2008.
“Small towns have a lot of issues to deal with,” Sari explained. He noted that some municipalities in North Carolina don’t have large tax bases or housing budgets and are seeing businesses leave and old mills and warehouses close down, leaving residents jobless.
“We felt like the [Mount Airy] market was underserved, and found a building than met more than just housing needs,” said Sari. The Landmark Group specializes in downtown redevelopment and rehabilitation of historic buildings, and has extensive experience in mill conversions.
According to The Landmark Group, the original Globe Tobacco warehouse was built around 1887, when the local tobacco industry was flourishing. By 1916, however, the building housed a barrel-making shop, and from the 1920s until the late 1980s was used by the textile industry. With the decline of the textile industry in North Carolina, the building stood vacant as the region worked to reinvent itself as a center for high-tech manufacturing and biotechnology. In the context of the region’s economic development, the vacant building became attractive again.
Mount Airy is also part of American pop culture. The childhood home of actor Andy Griffith, Mount Airy was the model for the fictional town of Mayberry in The Andy Griffith Show, popular on television in the 1960s.
Favorable Configuration
Sari noted that tobacco warehouses make excellent loft apartments, once environmental concerns with the original building materials are addressed. “Generally, in an old tobacco warehouse,” he said, “you have lead paint, you may have some asbestos from pipe wrapping.” Sari said the structure has exposed brick and wood frame with heavy timber support.
According to Sari, after Globe Tobacco Lofts was completed, the new tenants didn’t have any environmental or health concerns about the building’s former use – especially since the warehouse space was used to dry tobacco, not manufacture cigarettes.
Sari said one of the more challenging aspects of the financing was working with the National Park Service to get approval of the rehabilitation plans for the building to qualify for the federal historic rehabilitation tax credit. He said federal historic preservationists were concerned with the historical components of the warehouse, but their concerns sometimes ran afoul of practical concerns for the building’s renovation.
“The Park Service – they want what they want,” he noted. “It doesn’t always necessarily convert into what the market wants,” Sari said. “The biggest challenge was agreeing with the Park Service on what was truly historic.”
According to Sari, the building had metal structures and other additions that were removed. The wooden window frames had to be retained, even though more energy-efficient materials are currently available. Also, Sari said the wooden flooring was retained, as were the ceilings and walls, but special insulation was needed to keep unwanted sounds from traveling through the units.
Other energy-efficient additions to the building include energy-efficient lighting, heating and air conditioning units, and appliances. Sari said these and other improvements generally offset the less efficient windows.
The building is located in the Mount Airy National Historic District.
Funding Sources
The major funding sources for the $8.4 million project included $3.6 million in federal housing tax credit equity, $1.2 million in federal historic tax credit equity, and $1.3 million in state historic tax credit equity. Community Affordable Housing Equity Corporation, a Raleigh, NC syndicator, purchased the tax credits.
The state historic tax credit is the North Carolina mill rehabilitation tax credit, which is equal to up to 40% of the qualified rehabilitation costs for certified historic structures or contributing structures in historic districts. To qualify, a building must have been used for manufacturing or ancillary purposes, as a warehouse for agricultural products, or as a public or private utility. In addition, the structure must have been at least 80% vacant for at least two years immediately preceding the date of eligibility certification of the building.
“The beauty of North Carolina and some other southern states that were heavily textile based, is that they’ve created additional state incentives to help bridge the redevelopment gap,” Sari explained.
Landmark also raised $1.5 million in state housing tax credit equity for the project, in the form of a no-interest, 30-year deferred payment loan from the North Carolina Housing Finance Agency (NCHFA), the state housing credit agency. Scott Farmer, director of rental investment for NCHFA, said Landmark also received a $645,000 below-market loan for the project (2%, 20 years) from the city of Mount Airy. Sari indicated that the city loan, as the only hard debt on the property, allowed the rents to be kept at affordable levels.
Globe Tobacco Lofts includes 34 housing credit apartments and nine market-rate apartments. The affordable units consist of 11 one-bedroom units with monthly rents of $325 and $425, 19 two-bedroom units renting for $440 and $500), and four three-bedroom units renting for $500 and $600. Household income limits for these units vary but range as high as 60% of the area median income. The nine market-rate units – two one-bedrooms, six two-bedrooms, and one three-bedroom – have monthly rents of $500, $600, and $700, respectively, according to information supplied by Landmark.
Growing Trend
Converting unused warehouses and mills into affordable housing is a growing trend in many industrial towns and cities throughout the south and northeast, according to John K. McIlwain, the Senior Resident Fellow/J. Ronald Terwilliger Chair for Housing at the Urban Land Institute in Washington, D.C.
Mount Airy is following in the footsteps of cities like Durham, NC and Lexington, KY, which have also seen the conversion of former warehouses into affordable housing and business centers. The trend has been occurring for at least two decades in New England and New Orleans, said McIlwain.
Often located in the heart of a city, these oft abandoned properties only become economically viable again when revitalized using both housing tax credits and historic credits, he said. Without these financial incentives, cities and towns are left with the choice of either tearing down properties or leaving them vacant.
Farmer said NCHFA sees two or three housing credit applications from developers each year proposing to convert vacant schools, hospitals, or warehouses into affordable housing.
“It’s not that common,” he noted. “There are very few developers that do it as a course of business. It’s a kind of a specialty area.”
Globe Tobacco Lofts just received a 2008 Timmy Award from the National Housing & Rehabilitation Association as an outstanding historic rehabilitation project, in the category of Mixed-Income Housing. (See related article on p. 15). – Stephen K. Cooper
