New Maine Seniors Project Moves Forward After Overcoming Financial Setback
By Caitlin Jones
6 min read
Tax Credit Advisor, July 2009: Despite the economic recession and shortage of low-income housing tax credit (LIHTC) equity, some developers have found ways to overcome setbacks to keep their housing credit projects on track.
One such success is Birch Hill Apartments, a 20-unit LIHTC development for seniors scheduled to open in early 2010. Located in Lewiston, ME, the $4.4 million development is being financed mostly by housing tax credit equity. The development is a joint venture of Developers Collaborative of Portland, a for-profit sponsor, and Coastal Enterprises, Inc. (CEI), a nonprofit community development corporation and community development financial institution based in Wiscasset, ME.
Developers Collaborative bills itself as “an association of like-minded independent real estate developers interested in projects that build community.”
Back from the Brink
Birch Street Apartments, which received an award of 2008, 9% housing credits from the Maine State Housing Authority, was on life support several times in the last year while Developers Collaborative’s Jim Hatch, city officials, and financing experts tried hard to find LIHTC investors. The chief problem was that many previous corporate investors in housing credits weren’t profitable enough anymore to need or want more credits.
In fact, the lead syndicator, Northern New England Housing Investment Fund, almost pulled out entirely. But Lewiston-based Northeast Bank stepped in to make a direct investment to provide 40% of the tax credit equity, said Hatch.
Investing in the Birch Hill project was an outstanding opportunity to meet the Federal Reserve Bank of Boston’s requirements for community banks, said Robert Johnson, chief financial officer for Northeast Bank.
“We had the ability to use the low-income housing credits [and] it met our need in terms of complying with the Fed’s expectations for the Community Reinvestment Act,” he said.
Mark McComas, deputy director of the Lewiston city Department of Economic & Community Development, praised Northern New England Housing Investment Fund for holding its credit pricing even as the equity market turned south.
LIHTC equity accounts for roughly 83% of the project’s total development cost. The tax credit equity will provide a take-out of the construction loan provided by CEI. CEI was instrumental in securing the equity commitment from Northeast Bank, after Northern New England Housing Investment Fund told developers it was having difficulty finding investors.
John Eagan, CEI’s director of housing development, said in today’s market, LIHTC developers must make sure their project is “absolutely clean with not one speck of hair on it.” He said investors want 15-year guarantees that a project will remain fully occupied and not have any risk of recapture of tax credits.
In addition to LIHTC equity, other permanent financing sources for the Birch Hill project include a small deferred payment mortgage from the city from federal HOME program funds, and a small deferred payment loan from the Federal Home Loan Bank of Boston’s Affordable Housing Program. The HOME loan is also covering soft costs and some construction costs during the construction period.
Downtown Site
Being built on a downtown city-owned site acquired by Developers Collaborative for $150,000, Birch Hill Apartments will contain 17 one-bedroom and three two-bedroom apartments in a single building, including five fully handicapped-accessible units.
The site is a block from Kennedy Park, three blocks from the Lisbon Street shopping district, and walking distance from churches, hospitals, and other community amenities.
An on-site service coordinator will provide referral services to the property’s residents twice weekly. The development will also provide wireless Internet access and have a community room with a computer for residents who don’t own one.
Lewiston has a very high need for seniors housing, McComas said. Many older residents who worked in mills and textile factories are now retired and have few resources to fall back on, he noted.
Much of the seniors housing in the city is dilapidated, so any new project that is built can charge premium rents, McComas said. To create new affordable housing for seniors is a huge benefit, he explained.
All 20 units will be tax credit units restricted to households earning 60% of less of the area median income (AMI). Ten of the units will have rental assistance from project-based Section 8 vouchers provided by the Lewiston Housing Authority, to subsidize rents so they are affordable to households at or below 50% of AMI. The annual income cap for a one-person household at 60% of AMI is $23,460; for a two-person household, $26,820.
Monthly rents for the Section 8 units will be $578 for eight one-bedroom units and $707 for two two-bedroom units. Monthly rents for the remaining units will be $476 for nine one-bedroom apartments and $552 for one two-bedroom unit.
History of Development
From the very start, Developers Collaborative wanted to do a 9% tax credit project in Lewiston, Hatch said. But the small size of the parcel of land (less than 1 acre), and the overwhelming need for elderly housing in the city, ruled out a family housing development on the site.
Family housing also would have required more parking spaces and a children’s play area. In addition, two- and three-bedroom apartments take up more space, meaning fewer units could be built.
Hatch indicated that getting project-based vouchers was extremely important to the deal, because it gave comfort to investors of a guaranteed rental income stream for the Section 8 units. The vouchers will also permit the project to serve tenants with lower incomes.
The combination of threedifferent compliance requirements for the LIHTC, HOME, and Section 8 programs will make the tenant qualification process a bit complicated, Hatch said. “In effect, we have three different overlays,” he noted. “It’s going to be a little bit of a headache for the property manager.”
Tax Increment Financing
Another boon to the property is property tax relief.
The city created an Affordable Housing Tax Increment Financing (TIF) District that will effectively maintain future city property taxes for Birch Hill Apartments at $5,000 per year à about 30% of the normal bill. McComas said the TIF program will enable the developer to keep the rents as low as possible, since less money will be needed for property taxes.
After getting refunds from the city under the TIF program, the estimated property taxes for Birch Hill over 16 years will be $80,000 rather than $230,000.
– Stephen K. Cooper
