REGIONAL REPORT: NORTHEAST
Nightmare at Pond View Village
BY BENDIX ANDERSON
AFFORDABLE HOUSING FINANCE • JANUARY 2008
GLOUCESTER, MASS. - Bob Gillis has learned the
hard way about the risks of
building and selling highend
condominiums. “It’s a
tough business, and you
have to have the nerves for it,” he said.
Over the last year, Gillis’ development
company has cut prices on its condominiums,
defaulted on its construction loan,
and been sued by its general contractor
and subcontractors for nonpayment.
All to build affordable housing.
Gillis is the treasurer and director of
Cape Ann Housing Opportunity
(CAHO), a nonprofit created in 2002 to
redevelop the vacant LePage Glue factory
here into affordable rental housing and
moderately priced workforce condominiums.
Pond View Village, the new name of
the development, also includes 26 highend
condominiums to be sold at market
prices. The sales were supposed to help
cover the cost of infrastructure and land
for the whole community, in addition to
providing CAHO with seed money for
future developments. That didn’t happen.
Housing experts across the country
promoted market-rate housing at mixedincome
developments as a way for affordable
housing developers to earn enough
income to help pay for high land prices
and out-of-control construction costs. A
graduate student at the University of
Pennsylvania even dedicated a quarter of
her master’s thesis on mixed-income
housing and historic preservation to a
glowing description of Pond View Village.
Pond View was meant to include
three phases. The 43 affordable rental
apartments in the first phase are now fully
occupied. A second phase includes 15 permanently
affordable condominiums and
another 26 condos that can be sold at any
price homebuyers are willing to pay.
CAHO also planned to build another 40
condominiums in a third phase.
Missing the market
By August 2006, realtors were showing
the finished condominiums to potential
buyers. At the same time, newspapers
from the Boston Globe to USA Today were
warning of falling condo prices.
“It was about the perfectly wrong
time to go to market,” Gillis remembered.
Over the following two months, 400
potential buyers visited the market-rate
condominiums, said Ruth Pino, a branch
executive of Carlson GMAC Real Estate in
Gloucester, which continued to show the
condominiums until they were taken off
the market in late spring to be repriced.
Not a single market-rate unit sold.
Only eight of the 15 affordable condominiums
sold. As the condominium market
softened, “even the affordable units
became unaffordable to some people,”
Gillis said.
It also didn’t help that Pond View
Village was the first mixed-income project
in the area. Some locals worried that
low-income households would make bad
neighbors.
“They are not as apt to maintain or
take care of their living space or be as considerate
of their neighbors as an owner,”
said one commenter on Cape Ann
Online’s community message board.
Taking the hit
It cost $12.1 million to develop the
second phase of for-sale housing at Pond
View. The developer raised some of that
capital through soft financing and a
Community Development Block Grant
from the city of Gloucester. The remaining
$9.7 million came from a construction
loan provided by a consortium of
banks and arranged by the Massachusetts
Housing Investment Corp. (MHIC), a
major investor in both phases of Pond
View.
The loan was to be paid off with
money from the sale of condominiums. By
late spring, it was in default. CAHO’s contractors
had also sued the developer for
nearly $200,000 to pay for cost overruns.
Over the summer of 2007, state officials
turned down a request for $1.5 million
in additional resources, or $46,410
per unit, to make all of the condominiums
affordable to buyers earning up to 110
percent of the area median income. The
new prices would have ranged from
$175,000 to $225,00, reduced from the
original asking prices of $265,000 to
$359,000. Even if this plan had worked,
MHIC would have had to write off nearly
$1 million.
New prices
In September, CAHO and its
investors dug deeper, writing off more
than $2 million to make the condos marketable
without the benefit of new subsidy.
The condominiums came back on
the market at prices starting at $165,000
for a one-bedroom condominium and
$259,000 for a three-bedroom unit.
Even with the newspapers full of stories
about foreclosures and collapsing
prices in for-sale housing, the realtors at
Carlson GMAC showed the condos to 200
to 300 potential buyers over the following
10 weeks. On Nov. 16, the first market-rate
condo sale since the repricing closed for
$205,000, only slightly less than the lowered
asking price of $210,000.
By the end of November, two more
condos were under contract, and Pino
expects a steady trickle of sales to continue
through the winter.
Still, Pond View’s investors may have
more losses depending on how long the
condos take to sell—and that’s not including
the $2.4 million CAHO has already
spent preparing the site for Pond View’s
third phase, which may never be built.
“Our future is up in the air,” Gillis
said.
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