PITTSBURGH, PA. - Last year, HUD was set to foreclose on Second East Hills, a very low income apartment community built in the East Hills section in the late 1960s, which at the time was only 30 percent occupied and experiencing an annual turnover rate of 25 percent. Enter Telesis Corp., a New York City-based developer, which bought the complex. The firm not only turned the development around, but its actions have stirred renewed interest in the area from other developers.

“We want to have a communitywide impact and affect a neighborhood,” said Laura Lazarus, senior vice president for Telesis. “We won’t go into a project without considering the rest of the neighborhood. We have more interest in being in a community for a long period of time.”

Telesis was able to preserve 200 Sec. 8 units, safeguarding a limited resource for affordable housing. Without the intervention of Telesis, HUD would have foreclosed on the property and handed vouchers to qualified residents. In 2001, HUD completed its mark-to-market process in which the Sec. 8 rents, which had been above the fair market rent levels in Pittsburgh, were reduced substantially and the existing debt restructured. Since the operating income would not provide for the repairs needed to rehabilitate the property, according to Lazarus, Telesis looked for other ways to secure the necessary funding.

Telesis received an allocation of 9 percent LIHTCs for the 200-unit project. The syndicator, PNC MultiFamily Capital, provided $2.8 million in equity. The project also received $2.1 million in PennHOMES funds from the Pennsylvania Housing Finance Agency, and Telesis secured more than $2.6 million combined from the city of Pittsburgh, Allegheny County, and the municipality of Penn Hills. The first phase—117 units and a community center and substantial changes to landscaping—was completed in 2006. The remaining 83 units are expected to be completed before the end of this summer.

All 200 units at Second East Hills are available for households earning incomes maxing out at between 20 percent and 60 percent of the AMI. The bulk of the units, 159, are reserved for households with incomes topping out at between 50 percent and 60 percent of the AMI.

Families in East Hills are in dire need of affordable housing. At press time, 402 families were on the waiting list for Second East Hills, which leased up almost immediately. Other parties are interested in meeting the demand. The city of Pittsburgh and Allegheny County are working on a plan to add more affordable housing to the neighborhood, and another developer has acquired and rehabilitated a subsidized development adjacent to Second East Hills. Another developer is constructing for-sale homeownership units within a half-mile of the East Hills neighborhood.

Telesis also is providing supportive services for residents. The programs include an after-school program for children ages 5-12, a program for teens, and a family support and family crisis center.

True to its mission of trying to improve the community at large, Telesis has been working with a number of organizations to attract retailers to the neighborhood, which once included a thriving retail area near Second East Hills. Wal-Mart recently announced its plan to build a Supercenter at the nearby East Gate Commerce Center.

Additional project information, as provided in application by the nominator.

Q. Why does the nominated project deserve to be recognized based on the award criteria of this contest?

A. Second East Hills is an important project for the community of Pittsburgh, Pa., and the surrounding municipalities of Wilkinsburg and Penn Hills, all of which are located in Allegheny County. Constructed in the late 1960s, Second East was once considered a modern urban community. In the 1970s, however, rising crime rates, limited resources for physical improvements, and the failure of the adjacent East Gate Shopping Center contributed to the neighborhood decline, and gave the development its current reputation as housing of last resort.

Transforming this long-neglected area into a vibrant, revitalized community required a comprehensive development approach, encompassing innovative financing strategies, community support at the local and county levels, and resident involvement in planning, design, and construction.

Since Telesis’s involvement in the area, others have expressed interest in the community and provided reinvestment in the existing housing stock, as well as in economic development. Government, community, and private sector leaders have recognized the need for reinvestment in East Hills, and have allocated funds to the revitalization of Second East Hills and the surrounding area. This commitment has led to other improvements in the neighborhood, including the construction of new housing for the first time in decades, as well as additional rehabilitation planned for an adjacent subsidized development.

Revitalization of this distressed area required significant investment. In an extraordinary partnership, Allegheny County, the city of Pittsburgh, and the municipality of Penn Hills drew upon scarce community development resources to rehabilitate this depressed area. Allegheny County provided a commitment for $1.8 million, including $350,000 from Penn Hills, and Pittsburgh provided $890,000. Telesis also worked with the state of Pennsylvania, Allegheny County, and the Pennsylvania Housing Finance Agency (PHFA) in utilizing Pennsylvania’s innovative Bridge Loan II program, in order to generate additional funds with the help and support of investor PNC Bank.

In addition to the physical redevelopment, community initiatives were energized by the rehabilitation work on the town homes and apartments at Second East Hills. The city of Pittsburgh and Allegheny County cosponsored the development of a master plan for the neighborhood, and hired the Hanson Design Group to oversee the process.

The East Hills Restoration Initiative, sponsored by the Pittsburgh office of the U.S. Department of Housing and Urban Development, the Pittsburgh division of the Federal Bureau of Investigation, and the Pittsburgh Bureau of Police, focuses on creating programs that will protect the sizable investment of funds in the neighborhood, bring employment and economic opportunity to the East Hills neighborhood, teach residents to respect the law and the provisions of their leases, and improve the quality of life for residents and their children.

Q. How does this project represent an innovative solution to a specific development challenge?

A. Second East Hills was a distressed, 326-unit multifamily, very low-income housing development located in the East Hills section of Pittsburgh. The East Hills neighborhood was plagued with crime, violence, and the use and sale of illegal drugs. The site itself was in disrepair, and many of the units required significant improvements.

Telesis was limited in the way in which these needed improvements could be funded since the development receives Project-Based Sec. 8 funding. There were limited resources available. In 2001, HUD completed the mark-to-market process in which the Sec. 8 rents, which had been above the fair-market rent levels in Pittsburgh, were reduced substantially and the existing debt subordinated and restructured. Because the operating income would not provide for the repairs needed to rehabilitate and acquire the property, Telesis was required to secure new funding sources for the redevelopment.

The Second East Hills renovations focused on increasing private space and adding homeownership elements within the units, and also addressed significant problems with the property. These improvements ensured that the property will be able to serve residents for another generation, and will provide for quality living accommodations for the long term.

Second East Hills also required the improvement of supportive services, employment opportunities, and safety on the site. Telesis’ efforts to improve the quality of life of residents and their children have been corresponded by the emergence of community initiatives like the East Hills Restoration Initiative, which has resulted in the creation of a security task unit to oversee the site and improve safety issues. Telesis donated two units to house the pilot safety program.

Finally, the efforts to attract major retailers to the site to provide more than 340,000 square feet of retail shopping have been successful. Wal-mart has already announced that it will bring to the once-thriving mall property a 150,000-square-foot Supercenter, about 350 jobs, and a new “Jobs and Opportunity Zone” initiative designed to spur economic development in surrounding neighborhoods. The program promises to spend thousands of dollars to help local businesses and surrounding communities.