FINANCE

SEC. 202

Viewpoint Beats the Odds

BY BENDIX ANDERSON

AFFORDABLE HOUSING FINANCE • SEPTEMBER 2007

SANDUSKY, OHIO - The deal to rehabilitate Viewpoint Apartments, closed by National Church Residences (NCR) at the end of July, shows how affordable housing developers can recapitalize the oldest Sec. 202 properties for seniors.

The oldest properties built under the Sec. 202 program are notoriously difficult to rehab and preserve as affordable housing. In large part that’s because these properties, built before 1974, have tiny apartments, very low income elderly tenants, and little or no rental subsidy. The income from these properties is often too small to support a loan to help pay for renovations.

Roughly 350 of these large projects are scattered around the country. The affordable housing experts and advocates interviewed for this story could name only one that has been refinanced and rehabbed in the last 10 years: Kirby Manor in Cleveland. Now there’s another example for the industry to follow. NCR was able to attack two problems: expanding small units that were hard to market and finding the equity to rehab the property. Viewpoint shows other developers that they can work with the Department of Housing and Urban Development (HUD) to improve the size of their apartments and with tax credit allocating agencies to get enough equity to pay for deals that cannot support debt.

The Viewpoint rehabilitation works in part because HUD, which administers the Sec. 202 program, allowed NCR to remake floor plans, turning studios as small as 300 square feet in size into larger one-bedroom apartments.

NCR, a Columbus-based nonprofit developer, also received generous support from the Ohio Housing Finance Agency (OHFA), including a $10 million reservation of 9 percent low-income housing tax credits (LIHTCs), plus a $750,000 Housing Development Assistance Program grant from the agency. The deal has no debt.

“It’s a template,” said Bill Kelly, president of Stewards of Affordable Housing for the Future, an association of nonprofit affordable housing developers. He thinks the deal can be replicated at other Sec. 202 properties.

However, NCR and its partners had to make some concessions to make the deal work. Viewpoint’s original owner, Sandusky Bay Kiwanis Senior Citizens, Inc., had to give up any profit from the sale to win HUD’s approval. The organization had planned to start a scholarship fund with the proceeds.

“They got nothing after more than 40 years of trying to take care of this building,” said Michelle Norris, senior vice president of development for NCR. Dozens of other nonprofits like the Kiwanis are now being asked by HUD to make similar concessions, with mixed results (see preservation story, page 48).

HUD also refused to allow NCR to assume the $1.3 million balance of the original Sec. 202 loan on the property, forcing the nonprofit to defer much of its developer fee to prepay the mortgage. The agency also took nine months to come to its decision, squeezing the development timeline to a scant 17 months. If the project isn’t completed by December 2008, it will lose its tax credits.

Construction started in August. All but nine of the 117 apartments overlooking Lake Erie in Viewpoint’s downtown highrise will be one-bedroom units. The remainder will be studios. Most will be affordable to tenants earning incomes maxing out at between 35 percent and 60 percent of the area median income, though five apartments have no income restrictions and 54 will continue to receive project- based Sec. 8 rental assistance from HUD.

NCR will pay for most of the $13.2 million rehab with $9.5 million in equity from the syndication of the project’s LIHTCs to the National Affordable Housing Trust, based in Columbus, Ohio. NCR paid the rest of the costs with the OHFA grant, project reserves, and a deferred developer fee.