Affordable Housing Finance

GREEN SCENE

HUD Project Goes Solar

AFFORDABLE HOUSING FINANCE • September 2008

BY BENDIX ANDERSON

RICHMOND, CALIF - The 378 affordable apartments at Crescent Park here were mold-ridden, water-damaged, and inefficient. ‘“We had extreme operating expenses,” said David Kiddoo, project manager for the development’s owner, San Rafael, Calif.- based EAH Housing. Before the renovation, the complex racked up as much as $750,000 a year in gas and electricity bills to PG&E, the local utility. That’s nearly $2,000 per apartment.

EAH is halfway through a renovation to fix the property’s problems. When work is finished in August 2009, the rehabbed townhouses will produce their own electricity from scores of solar panels arrayed on the rooftops and capable, all together, of producing nearly a megawatt of electricity, giving Crescent Park the largest solar panel installation on an affordable housing property in the country, according to the developer.

Built in 1968 with financing from the Department of Housing and Urban Development (HUD), Crescent Park has been starved for cash for years. When EAH bought the property in the mid-1990s, the local nonprofit agreed not to refinance it for 10 years in exchange for a small capital grant from HUD. “It was about enough for a coat of paint,” said Kiddoo.

The developer spent $100,000 of its own money to improve the property, including creating a computer learning center for residents, said Kiddoo.

The developer also improved the management of Crescent Park to make the property a safer place to live. Staff members now live on-site, and EAH instituted rigorous screening of applicants, as well as close monitoring of the weekly logs of police complaints. On occasion, the developer even hired undercover police officers to move into the community to fight illegal activity.

“It’s constant vigilance,” said Mary Murtagh, president and CEO of EAH.

In 2005, EAH began to prepare for renovation. The developer stopped filling vacancies to clear out about a quarter of the apartments so that work could begin. But turnover at Crescent Park is so low that the developer had to offer $1,500 payments to get enough families to move.

Work began in September 2007, after HUD’s restriction on refinancing expired.

“There was no way we could retrofit this building to a green standard without ripping it down and building it back,” said Kiddoo. Instead, the developers are concentrating on simpler fixes such as installing efficient windows, putting in new flashing around the windows, and sealing gaps to prevent further water damage.

“It’s hardly glamorous, but it’s what is going to allow the building to stay standing for another 55 years,” said Kiddoo.

EAH is also making upgrades to the heating and air-conditioning systems. The most expensive part of the renovation is tearing out and replacing sections of walls damaged by mold and rot, said Kiddoo.

The solar panels, which have 908 kilowatts of rated capacity, were a bargain in comparison, costing $7 million to purchase and install.

To cover the cost, EAH received a $1.4 million rebate from PG&E and $600,000 in equity from the sale of federal energy tax credits. Also, Crescent Park raised more low-income housing tax credits (LIHTCs) because the solar panels were included in the property’s eligible basis; $5 million from the sale of the credits covered the remainder of the panels’ cost.

The renovation racked up $55 million in hard construction costs, or $146,000 per 40-year-old apartment. The total development cost was $114 million, though most of the soft costs included in that number represent the price of the sale of the property at its appraised value by EAH to a development partnership including EAH and Crescent Park’s tax credit investors.

The development received $46 million in equity from the sale of 4 percent LIHTCs to the National Equity Fund, Inc.; a $31 million mortgage funded with taxexempt bonds; and $37 million in reserves, operating income from the property, and loans provided by EAH in its role as the seller of the development to the partnership.

HUD didn’t have to contribute a nickel to make the financing work, said Murtagh.