Affordable Housing Finance

REGIONAL REPORT

SOUTH CENTRAL

Pains and Gains

AFFORDABLE HOUSING FINANCE • September 2008

Missouri Housing Development Commission faces questions, while a South Central developer preserves affordable housing stock

BY DANA ENFINGER

Gains made by affordable housing developers in the South Central region have been overshadowed by controversy over a state auditor’s report regarding the performance of the Missouri Housing Development Commission (MHDC).

State Auditor Susan Montee found that just 35 cents of each state dollar spent for low-income housing through the state tax credit program was actually used for housing construction. The audit also raised questions about the perception of a conflict of interest between members of the MHDC and developers.

“MHDC does not provide the public with adequate detail of the project selection process, leading to perception of political influence over project selections,” Montee wrote in a letter to the governor that accompanied the audit.

The audit found that appraisals for three out of 20 properties donated through the state’s Affordable Housing Tax Credits revealed inconsistent methods for calculating property values.

MHDC responds

Pete Ramsel, MHDC’s executive director, made the following comment on the audit’s findings, after being contacted by AFFORDABLE HOUSING FINANCE:

“We tried to help the auditor’s staff understand the financial structuring of a tax credit syndication, the time value of money and the loss of deductibility of the state income taxes paid with the credit from the federal income tax return. We even spent more time telling the story of what the credit has meant to the state and the people that we service. Very little was written in the report in regards to the benefits of the state credit. The state credit allows for the feasibility of the transaction, which directly relates to affordability. Without state tax credit equity, rents would increase on average $155 a month. If we can break the poverty cycle and help seniors avoid the nursing home, we save the tenants we serve and the state millions of dollars in the long run.”

The MHDC has pledged to have a staff member review estimated property values.

In response to the audit’s findings, Senate Bill 1183, sponsored by Sen. Joan Bray (D), would change the membership on the commission from 10 to 13 members and would also require the governor to appoint nine members to the MHDC instead of six. The legislation would also prohibit any state politician from serving as an officer on the commission. Currently the governor, the lieutenant governor, the state treasurer, and the attorney general serve as voting members. The bill would require the MHDC to adopt rules requiring public disclosure of all finances between commissioners and developers and develop a strategy for handling any conflicts of interest.

Preserving affordability

The sunnier side of South Central news is that a housing developer is focused on preserving affordability across five states: Arkansas, Kansas, Missouri, Oklahoma, and Texas. Belmont Development Co., LLC, an affordable housing developer based in St. Petersburg, Fla., and Fort Smith, Ark., recently acquired a portfolio of 101 properties across these states. The roughly 4,500 units in which the firm acquired a general partner interest were Rural Development (RD) properties that are exiting their affordability compliance periods.

Belmont President Derrick Hamilton and Principal Ryan Hudspeth plan to assess which properties are in need of rehab and use tax credits to fund between 50 percent and 75 percent of rehab costs. At press time, three of the properties in Arkansas had been reserved low-income housing tax credits (LIHTCs). The firm is also finalizing syndication for two projects in Oklahoma: the 96-unit Garden Walk in Broken Bow and the 56-unit Cross Creek I and II in Oologah, a rural town located about 30 miles north of Tulsa. Both developments are RD properties that Belmont is renovating. The former property received a reservation of approximately $451,000 in LIHTCs and the latter received a reservation of about $272,000.

“We figure we’ll rehab at a cost of about $35,000 a unit,” said Hudspeth. “Our primary focus is on preserving affordability, and our work on these projects is in keeping with what we’re trying to do.”

“[Ryan] and I grew up together in a town not far from the Oologah property,” added Hamilton. “So working on this project has a lot of meaning for us.”

The duo said that with the increasing competition for 9 percent LIHTCs, they are looking to use tax-exempt bond financing, which comes with an automatic award of 4 percent credits, to get deals done. Hudspeth said the firm is looking to do more deals in Kansas, since that state has a much higher bond cap than Oklahoma.

But wait, there’s more

A lot more is brewing in South Central. Check out what’s going on with the redevelopment of public housing in New Orleans on page 44, and read a spotlight on two affordable developments in Texas on page 48.