From Hotel to Housing

AFFORDABLE HOUSING FINANCE • June 2010

Developers convert a Portland inn

BY DONNA KIMURA

PORTLAND, ORE.—Five years, 23 sources of funding, and about 6,000 pages of documents. That and more went into creating a new affordable housing development serving many of the city’s neediest residents.

There’s very little that’s routine about Madrona Studios, which opened in March after years of work by two nonprofits, Central City Concern (CCC) and the Housing Development Center (HDC).

An extensive financing package is only one of the ways in which the development—one of the most prominent rehabilitation projects in Portland—stands out.

Urban renewal

Madrona Studios is the creative reuse of a tired Ramada Inn built in 1965.

The five-story inn, which had 184 rooms, a restaurant, and meeting spaces, has been transformed into 176 affordable studio apartments, with the ground floor becoming the new expanded home for the Hooper Detoxification & Stabilization Center. Eighty units are set aside for permanent supportive housing.

Located in a prime location near the city’s center, the development is probably the most watched rehab project that HDC has done, says Robin Boyce, executive director of the group, which has been bringing construction management skills and financial expertise to affordable housing deals since 1994.

The project is expected to be a catalyst for other urban renewal activity in the neighborhood.

It was a difficult rehab because the hotel had been built and remodeled in five separate phases, resulting in a mix of building materials and systems with each remodel. Developers had to mitigate a number of problems, including mold and materials that contained asbestos.

At the same time, they updated or added new green features, including upgrading a solar heating system to heat much of the development’s hot water and adding energy-efficient lighting and appliances.

Madrona Studios is also transitoriented, with residents in close proximity to bus lines and other transit systems.

The rehab cost about $110,000 per unit, says Ed Blackburn, CCC executive director. A new construction project would have likely cost twice as much.

Three types of affordable housing are found at Madrona Studios. On the second floor, there are 44 alcohol- and drug-free units. On the third through fifth floors, there are 36 units of permanent supportive housing for formerly homeless individuals or couples. The top three floors also have studio apartments that provide workforce housing for low-income residents who are able to be more independent.

All the units have rents restricted at 40 percent of the area median income, with monthly rents ranging from about $400 to $490.

Complex financing

To pay for the roughly $25 million project, developers had to put together a complex financing package.

Developers originally secured bond financing in expectation of doing a moderate rehab.

However, the life-safety issues were more extensive than expected, so they secured low-income housing tax credits (LIHTCs).

The bond financing then became essentially incompatible with the LIHTCs. The project would have had to subtract the bond from the LIHTC eligible basis or take it as 4 percent bond and credit project, which would have left a sizable hole in the budget.

The deal was then structured as two condominium packages.

The first condominium entity covers 132 units of housing on the top three floors. It uses $7.1 million in LIHTCs from U.S. Bank, $5.2 million in tax increment financing (TIF) from the Portland Development Commission, and a $790,000 permanent mortgage from the Network for Oregon Affordable Housing with interest-rate subsidy from the Oregon Affordable Housing Tax Credit.

The second condo package includes the ground floor detox center and the 44 alcohol- and drug-free units on the second floor. The project has allowed the Hooper Center to expand from 54 to 70 beds, says Blackburn.

The facility also has a commercial kitchen that is shared by the center and Volunteers of America, which uses it for its meal programs.

Key financing includes $2.8 million in New Markets Tax Credit (NMTC) equity from Wells Fargo Bank, $3.7 million in Housing Opportunity Bond financing from the Portland Housing Bureau, and $1.6 million in TIF from the local development commission.

The deal shows that NMTCs can be used for mixed-use developments that have a rental housing component. However, there is an important condition— at least 20 percent of the gross income has to derive from the nonresidential use.

Critical financing for Madrona Studios came from a number of other sources, including Oregon Housing and Community Services, the city of Portland, and Multnomah County.