REGIONAL REPORT

MIDWEST

Good Samaritan On a Clear Path

AFFORDABLE HOUSING FINANCE • May 2008

BY JERRY ASCIERTO

The Evangelical Lutheran Good Samaritan Society opened its first house in 1922 in Arthur, N.D., as a haven for children with polio.

Today, the organization still provides affordable housing for those in need, with an exclusive focus on continuum- of-care housing for seniors, including independent and assisted living, and skilled-care services.

But until recently, the society’s housing development plan was more of a zigzag than a straight path. “In the past, there really wasn’t a defined growth strategy,” said Dustin Scholz, the Sioux Falls, S.D.-based organization’s director of housing. “We really grew by being invited into communities to provide services.”

The organization is now more proactive than reactive and has drafted an aggressive plan to develop between 200 and 400 housing units per year, half of which would be affordable to very low income seniors.

As part of that strategy, Good Samaritan created a new position to oversee affordable housing development, began to move away from the Department of Housing and Urban Development’s (HUD’s) Sec. 202 program in favor of low-income housing tax credits, and struck up a partnership with the National Affordable Housing Trust, which will serve as syndicator in all of the organization’s future tax credit developments.

New plan

The society’s housing efforts have grown steadily throughout the Midwest, though its footprint extends all the way from Washington to West Virginia and down to Texas.

Good Samaritan has developed Sec. 202 properties since that program was first introduced by HUD more than 45 years ago. The nonprofit now manages 28 Sec. 202 properties, and three more are in development.

In the past, Good Samaritan outsourced the job of affordable housing project manager to outside development consultants. Now, the society’s affordable housing development manager, Shannon Clark, coordinates the development team, which includes the organization’s internal construction, design, and marketing groups, and acts as lead project manager.

The decision to bring the position in-house was both tactical and financial. “Sometimes we reinvest the developer fees back into the project as soft funding,” said Scholz. “Having the development manager consulting as a staff member frees up some of those funds to be used in that way.”

Clark, a CPA who audited the organization’s HUD statements for the past eight years, joined the organization in July. Her first project, a 59-unit mid-rise called Creekside Apartments, broke ground in October. The $6.3 million development is just a stone’s throw from Good Samaritan’s corporate campus in Sioux Falls.

The Sec. 202 program provided $6 million for Creekside, while the rest of the funding came in the form of a Demonstration Planning Grant, a HUD program that provides for pre-development funds.

Creekside Apartments is part of a larger seniors housing campus called Prairie Creek, which features a 70-unit market-rate building, as well as 44 twin homes that were built two years ago. Creekside Apartments is slated for completion in August, but all 59 units have already been reserved for qualified residents, underscoring the need for lowincome seniors housing in Sioux Falls.

In all, Good Samaritan manages about 8,000 units, 1,357 of which are affordable to very low income seniors. The rest of the portfolio is technically considered market-rate, though the units are often subsidized by Medicaid assisted- living funds, as well as Sec. 8 vouchers.

Tax credit focus

After developing Sec. 202 projects for more than 45 years, the organization began bumping up against that program’s limitations. HUD’s Sec. 202 program provides interest-free capital advances to finance the construction, acquisition, and/or rehabilitation of housing for very low income seniors. The program also provides rental subsidies.

But the program’s limitations were keeping Good Samaritan from executing on its growth plan. Procuring Sec. 202 funds is a highly competitive process, and the program’s funding only allows for a set amount of units to be financed in each state each year. For instance, the Denver HUD field office administers Sec. 202 funding for not only Colorado, but South Dakota and Iowa as well. Nebraska was allocated funding for only six to eight units in 2008, for example.

“The 202 program limits the size of projects that we could build,” said Clark, the affordable housing development manager. “There are some campuses we have in larger metro areas where we would want a larger complex, and it’s just not possible with the HUD funds.”

And the funds are shrinking. While funding for the program has stayed steady at $735 million since 2006, the rise in construction costs since then translates to fewer units being built, Clark said.

The program’s limitations are also apparent in the rural areas, where maintaining occupancy for the compliance period becomes difficult. “It’s really difficult to make a 10- or 15-unit apartment building in a rural community come together,” said Scholz. “And if you don’t sustain 95 percent occupancy, there’s a good chance that the project will be significantly at risk. To do that for 40 years is a real challenge.”

The organization would typically supplement its Sec. 202 financing with other federal funds, such as those from the Federal Home Loan Bank’s Affordable Housing Program, as well as the HOME program.

Sometimes, when the Sec. 202 funding wasn’t enough to make a deal pencil out, the organization would catch a break. Two years ago, Good Samaritan began planning a development called Inver Grove Heights, a skilled nursing care facility about 15 minutes southeast of the Twin Cities metro area.

But the high cost of land almost scuttled the deal. Then a local “founding father” of the Inver Grove neighborhood, E. Leland Lindeberg, agreed to sell the three-acre parcel that Good Samaritan was seeking for a price significantly below its appraised value. “Because of his generosity, we were able to make the project work,” Scholz said.

Still, Good Samaritan can’t always bank on the kindness of strangers, so it has turned its focus to tax credits.

The society finished its first tax credit project, the 172-unit Olathe Towers and College Way Village, in December.

The development, a $14 million rehab of an existing Sec. 202 development in Olathe, Kan., used 4 percent tax credits. All of the units are affordable to seniors earning up to 60 percent of the area median income. The tax-exempt bonds that accompanied the tax credits raised $6.1 million, and the project received $4.5 million in 4 percent tax credit equity. The credits were syndicated by Enterprise Community Investment, Inc.

Good Samaritan also recently applied for $4 million in 9 percent tax credits to rehab Hobbs Village, an 83- unit Sec. 202 development it owns and operates in Hobbs, N.M. “If we’re going to grow our affordable housing program aggressively, the HUD 202 program just doesn’t allow for that to happen,” said Scholz. “The tax credits open up a lot of doors for us to do that.”

With an expected tidal wave of baby boomers entering the seniors housing market over the next decade, the time is ripe for the society’s newfound plan to flourish throughout the Midwest and beyond.