Affordable Housing Finance

REGIONAL REPORT

South Central

Breaking Ground

AFFORDABLE HOUSING FINANCE • March 2009

Louisiana and Texas keep rebuilding without GO Zone tax credits

BY BENDIX ANDERSON

NEW ORLEANS—While a marching band played ragtime and former residents cheered, New Orleans Mayor Ray Nagin cut the ribbon to open 30 rebuilt seniors apartments at Wisdom Manor in January. Affordable housing developer Humanitas even hired a caterer for the event to feed nearly 100 neighborhood residents.

“Before Katrina, ribbon cuttings used to be quiet affairs attended by the developers and a few friends,” says Jeff DeGraff, public information director for the Louisiana Housing Finance Agency (LHFA). But all that’s changed as the first wave of rebuilt projects opens in the parts of Louisiana and Texas hardest hit by the hurricanes of 2005.

Affordable housing demand is high throughout the Gulf Opportunity (GO) Zone hurricane disaster areas. New properties rapidly fill to 100 percent occupancies, according to local experts.

Work to replace housing damaged or destroyed by the hurricanes is far from complete in Louisiana and Texas, but funding is running low. The states have used the extra low-income housing tax credits (LIHTCs) awarded by the federal government in 2006, 2007, and 2008 to help them rebuild housing stock destroyed by the storms. The federal government also will provide new funds to rebuild from Hurricane Ike, which struck both states in September 2008, but the pot is much smaller.

Adding to the dilemma, affordable housing projects already under construction face deep holes in their budgets as LIHTC prices fall and state and local soft funding sources run dry.

The conditions have resulted in some deals not being able to close on their financing. Developers of nearly two dozen projects in Louisiana recently returned their tax credits, which were then reserved to other deals.

The view from Louisiana

Louisiana officials will have far fewer resources in 2009 than the previous year, though the state’s rebuilding needs are still great, according to Brenda Evans, program administrator for LHFA, which expects to reserve just $12.5 million in LIHTCs in 2009. That includes $3.1 million in extra tax credits to repair damage caused by Hurricane Ike. In comparison, the state distributed $172 million in GO Zone credits to planned affordable housing developments from 2006 to 2008.

As of January, developers had finished 2,600 affordable apartments at 48 communities financed with GO Zone credits. That total will climb to 14,000 affordable housing units by the end of 2010, officials say.

To handle the extra business, LHFA officials worked past midnight and into the weekends. The agency hired 13 new staff members and borrowed more staff from other agencies. Thanks to their work, all the state’s GO Zone tax credits have been allocated to projects that have closed their financing—no easy task considering that each year’s tax credits can’t be carried over to the following year.

These developments have been hit by a range of issues. Prices for LIHTCs have fallen from the mid-$0.90s to the low $0.80s, according to officials. Also, some projects needed to be altered in their scope or the population they planned to serve as neighbors realized the scale of what was being built next door and local officials responded.

“Because of the amount of destruction, communities have become much more vocal,” says LHFA’s DeGraff.

In November, the agency reclaimed $15.2 million in LIHTCs from the developers of 20 projects that couldn’t close their financing. These developers will be able to reapply for LIHTCs in the future without any black marks on their records from the failed deals. However, they will have to compete for a much smaller pot of tax credits.

LHFA combined the $15.2 million in reclaimed LIHTCs with another $13.3 million in tax credits that had already been returned or had never been allocated. The agency immediately re-reserved these tax credits in what officials called a “lightning round,” using rules already written into the program’s qualified allocation plan.

The winners of the reclaimed LIHTCs will produce 2,800 units of affordable housing statewide. LHFA’s board announced the winning projects at the same meeting in which it announced that it was taking the credits back.

The new projects all closed their financing before the end of 2008.

Southeast Updates
Many developers in this region prioritized seniors developments, like the $5 million Wisdom Manor in the Carrollton neighborhood of New Orleans, according to state officials. Developer Humanitas rebuilt 30 affordable seniors apartments at the property. “They wanted to make sure that the elders came back,” says Jeff DeGraff, public information director for the Louisiana Housing Finance Agency.	By the end of summer 2009, 91 new Katrina Cottage and Carpet Cottage homes will open at the $13 million Jackson Barracks development in New Orleans. Ranging from 612 to 1,112 square feet, the homes will provide affordable housing to servicemen and will be managed by the National Guard of Louisiana. Baton Rouge-based workforce housing developer Cypress Realty Partners hopes to create more of the homes at at least five other sites.	The single-family Beechgrove Homes are designed to blend into the neighborhood in Westwego, La., just outside of New Orleans. Local developer Caleb Community Development Corp. and Cleveland-based The NRP Group partnered to build the Gulf Opportunity Zone tax credit development. The 100 affordable rental homes are on stilts seven feet off the ground to protect against future flooding.
In November 2008’s “lightning round,” the 160-unit second phase of New Savoy Place in New Orleans received a $2.9 million reservation of low-income housing tax credits that had been reclaimed from developers who could not close their financing. The Michaels Development Co., based in Marlton, N.J., finished the first phase last year as part of New Desire Village, a HOPE VI redevelopment of the once-notorious Desire public housing complex.	“200 Carondelet is one of the more recognizable buildings in New Orleans,” says Jeff DeGraff, public information director for the Louisiana Housing Finance Agency. Developers Reliance Housing Foundation, Inc., and Ellis Diversified, Inc., plan to turn the historic 24-story former American National Bank building downtown into 190 mixed-income apartments with Gulf Opportunity Zone tax credits.	Four of the six public housing developments in Galveston, Texas, were damaged and have been closed since Hurricane Ike came ashore Sept. 13, 2008. The local housing authority has not yet announced plans to rebuild. “Decisions will be made after we have done a complete assessment of the situation,” says Harish Krishnarao, executive director of the housing authority.