MARKET OPPORTUNITIES
PRESERVATION
HUD Projects Get Green Rehab
By Bendix Anderson
AFFORDABLE HOUSING FINANCE • APRIL 2007
Historic HUD Property Gets Green Treatment
RICHMOND, VA.—
Even a schoolhouse built in 1896 can benefit from a “green” rehab to become more energy-efficient and a healthier place to live.
Randolph Place was turned into 48 affordable seniors apartments in 1985. The contract inked back then with the Department of Housing and Urban Development (HUD) provided project-based Sec. 8 rental subsidy that won’t expire until 2015, but the property needed significant work by 2005, starting with a new roof.
The Better Housing Coalition, a local affordable housing developer, also needed to cut the cost of operating the property. That’s because the rent increases HUD approved for the building have not kept pace with the project’s operating expenses. The development has run in the red for years. The project also carries a high-interest loan that can’t be refinanced without losing the project’s Sec. 8 subsidy.
Reducing the amount of energy used at Randolph Place not only helps close that gap in the operating budget, but also will help protect the project from energy cost increases in the future.
The rehabilitation cost totaled $5 million, although most of that was spent to create a large reserve that will compensate for HUD’s low rents until the Sec. 8 contract runs out in 2015. The coalition paid the bill from sources that included $3 million from the sale of historic and low-income housing tax credits.
Another $1.8 million, or about $36,000 per unit, went toward hard construction costs. That’s all it took to fix up Randolph Place to the high EarthCraft Multifamily “green” standard for rehabilitation.
“One of the great things about this building is it has great bones,” said Bob Newman, associate director of operations for the coalition.
After the rehab, the apartments at Randolph Place had so few places where cold air leaked into the living space that the property comes close to the tougher EarthCraft Multifamily standard for new construction projects, according to the developers. Work at the building should be finished by late May.
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Washington, D.C.—
They say no good deed goes unpunished: That’s how it felt at Galen Terrace when developers tried to make this old project-based Sec. 8 development more energy-efficient and a healthier place for residents to live.
The National Housing Trust/ Enterprise Preservation Corp. planned a renovation of the building, in partnership with Somerset Development Co. and the Galen Terrace Tenants Association, that would keep this property’s 84 apartments affordable to very low income tenants for years to come.
Deep in the planning process, the developers decided to raise their standards. They accepted a $50,000 grant from the Enterprise Green Communities Initiative to make Galen a “green” project that would use less energy and be healthier to live in than conventional apartments.
Green building experts say that their techniques don’t have to add more than 2 percent to 5 percent to the cost of a project, if developers start early and plan carefully.
But the developers at Galen Terrace had already accepted bids and chosen their contractors. The development team now asked these contractors how much extra it would cost to change the work at the $12.5 million project to meet green building standards.
The painters said they would be happy to use the special paints recommended by green building experts—for an extra cost of $122,000, almost doubling their original bid of $191,000 for the project’s three mid-rise buildings.
Cost increases like this could have forced the trust to abandon its green building plans for Galen and return the $50,000 grant, some of which the developer had already spent.
“It would have come out of our fee,” said Rob Richardson, assistant vice president for the trust.
Richardson knew that his contractor had little motive to push for a lower price for the paints from its vendor because the contractor had already won the job.
So Richardson got on the phone himself, calling paint manufacturers and getting quotes. He found a company selling the special paints at no extra charge, and armed with this information, he and the subcontractor convinced McCormick Paints, the manufacturer they had been working with all along, to lower its price for its own environmentally sensitive line of paints.
Most conventional paints contain chemicals like formaldehyde that escape into the air and can cause cancer in animals and possibly in people. But even after he found a cost effective line of paints that had none of these additives, Richardson remained skeptical.
“I’d heard the products weren’t going to be as good,” in addition to being more expensive, Richardson remembered. In particular, the paints were rumored to be thin, requiring an expensive extra coat or two to finish the job.
But the developer was pleasantly surprised. The special paints had the same quality as conventional paint, and the only cost to the project was the time spent negotiating.
“You can spend a lot on green products if you want,” Richardson said. But the green rehabilitation at Galen, including efficient, Energy Star-rated appliances, light fixtures, and heating and cooling systems, added only $25,000 to the cost of the $12.5 million project.
The tenants themselves began the process of preserving Galen Terrace when they exercised their right to match the offer of a third party to buy the property for $2.8 million. They then enlisted the National Housing Trust and Somerset to help with the purchase and the rehabilitation of the complex, which was built in the late 1960s.
It’s typically very difficult to bring an old development like Galen up to a green building standard. Fortunately, Enterprise’s program is flexible, and only requires projects to undertake upgrades likely to pay for themselves within 10 years. That immediately helped rule out features like solar panels or a planted or “green” roof.
Instead, Galen received new energy-efficient windows and individual electric meters in all units.
The developers used a $4.5 million tax-exempt bond mortgage and $4.6 million in equity from the sale of 4 percent low-income housing tax credits. The project also received a $3.2 million loan from the city and, of course, the $50,000 grant from Enterprise.
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