Affordable Housing Finance

SPECIAL FOCUS

Stimulus One Year Later

Harlem Renaissance

AFFORDABLE HOUSING FINANCE • January/February 2010

NYC project receives stimulus funds

BY DONNA KIMURA

The Hobbs Court and The Ciena project is expected to be completed in 2011.

NEW YORK CITY
The Phipps Houses Group is building 259 new affordable apartments and renovating another building with 81 units in Harlem, with the help of the Tax Credit Assistance Program (TCAP).

About $26 million in these stimulus funds are behind the project, providing about 18 percent of the $143.5 million development costs.

Developers say they closed and funded the deal in June, making it the first TCAP project in New York and likely the nation.

Phipps Houses, one of the nation’s oldest and largest nonprofit developers, was awarded the project under a “request for proposal” by the city in 2007. Between then and the time the project was ready to close, the financial markets had turned upside down.

“The TCAP funds are extremely important,” says Vice President Matthew Kelly, explaining that they fill a budget gap caused by escalating costs and a drop in low-income housing tax credit (LIHTC) prices.

Created under the American Recovery and Reinvestment Act of 2009, the $2.25 billion program aims to help stalled tax credit projects and spur economic development. Of the $250 million allocated to the state, New York City received $85 million.

Inside the deal

For many developers, including Phipps Houses, one of the challenges was working to finalize deals as the rules for the new program were still being established.

Another issue that’s surfaced is that TCAP can trigger Davis-Bacon prevailing wage requirements on some projects, adding another twist, not to mention costs, to these developments.

In this case, hard costs increased by roughly 19 percent. A significant portion was covered by additional tax credit equity, with the balance covered by other sources, including TCAP.

Although the deal is structured as one project, two sites are involved. On East 102nd Street, 12 deteriorated walk-ups are being replaced by a nine-story building that will be called Hobbs Court. It will have 259 new apartments, community space, and underground parking.

On nearby East 100th Street, five vacant six-story buildings are being substantially rehabilitated and combined into one building that will be called The Ciena. It will have 81 new apartments, elevators, and landscaped open space for residents.

The sites were Federal Housing Administration-foreclosed properties that were transferred to the New York City Housing Authority in the late 1980s. Since then, they have operated as project-based Sec. 8 housing. In 2003, the housing authority began the voluntary relocation of residents in preparation for redevelopment, according to city officials.

The buildings are being developed through a joint venture between Phipps Houses and Urban Builders Collaborative.

The New York City Housing Development Corp. (HDC) is contributing $21.7 million and a $72 million loan for the construction of the project, supported by a letter of credit from JPMorgan Chase and Bank of New York Mellon.

“This transaction was a great opportunity to work with our colleagues in JPMorgan Capital Corp., Phipps Houses, and New York City’s housing agencies to provide construction financing for development projects, such as Hobbs-Ciena, that provide affordable housing and help our communities thrive,” says Charles Gatewood, senior vice president at Chase Community Development Banking.

JPMorgan Capital Corp., acting through a placement by Richman Housing Resources, LLC, a member of The Richman Group of Cos., is investing $38.8 million in LIHTC equity.

“The TCAP funds, while generally geared to cover acquisition and construction costs and to be spent quickly, fit perfectly within the overall capital structure of the project,” says William Traylor, president of Richman Housing Resources, which has closed on seven TCAP deals just in New York City and eight other deals using stimulus funds outside of the area.

He and others noted how different housing agencies worked together.

“In addition to New York City being a key market for JPMorgan Chase, the Hobbs Court and Ciena transaction offered us an opportunity to expand our relationship with Phipps Houses and collaborate with agencies, including the Department of Housing Preservation and Development, HDC, and the housing authority,” says Sean Dwyer, executive director at JPMorgan Capital Corp. “In fact, our successful closing of the Hobbs transaction led to our involvement in Via Verde, another high-profile development in the Bronx with many of the same stakeholders.”

Phipps Houses is investing $1.9 million of its own funds as equity and will advance $700,000 provided by the New York State Energy Research and Development Authority to make energy-saving enhancements.