EAST BRADY, PA. - Acutting-edge financing model has funded the significant renovation of 79 units of seniors housing built nearly 30 years ago. As a result of the $12.4 million deal, seniors at Allegheny Hills Retirement Residence can enjoy a high level of care that is economically, as well as environmentally, sustainable.
The development was built under the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) Sec. 202 loan program in 1981 at the prevailing (and now high) interest rate of 8.5 percent. With significant rehabilitation needed—including energy-efficient improvements that would address the fact that sixth-floor residents were often hot during Pennsylvania winters while second- floor residents were cold— funding the renovations out of the property’s replacement reserve seemed an expensive option.
After exploring numerous financing options with the help of Lancaster Pollard—an FHA and U.S. Department of Agriculture (USDA) lender—developer a.m. Rodriguez Associates, Inc., opted for a bold new plan.
As a rural property about 70 miles northeast of Pittsburgh, Allegheny Hills Retirement Residence was eligible for a USDA Sec. 538 loan, which features a guarantee with the ability to lock in the construction and permanent interest rates at construction closing. The program also provides an interest credit that reduces the interest rate on the first $1.5 million of the permanent loan to the long-term monthly applicable federal rate, which would allow the developer to charge $35 less per unit.
Ultimately, Lancaster Pollard provided the development with a construction and permanent loan of $3.5 million, with the Sec. 538 guarantee to reduce the overall interest costs. Meanwhile, the Pennsylvania Housing Finance Agency provided a $1.14 million PennHOMES loan, and PNC MultiFamily Capital provided low-income housing tax credit equity of $7.7 million.
To be completed by year’s end, the rehabilitation work is designed to meet Leadership in Energy and Environmental Design silver requirements and includes new flooring, paint, kitchen cabinets, and Energy Star-rated appliances in each of the 74 one-bedroom and five two-bedroom units. Building renovations also include a new roof, high-efficiency windows, and updated plumbing, electrical wiring, and HVAC. The developer also added a hair salon, a library, a fitness center, and a greenhouse.
Renovating the interior without displacing any of the residents was the largest challenge, according to Victor Rodriguez, senior vice president of operations and administration at a.m. Rodriguez Associates.
“Residents had to be moved around,” explained Rodriguez. “It’s a 79-unit building, so we’d let the vacancy rate rise to 20 units and then renovate 20 units at a time. Units stack vertically in the building, so we were looking for columns of five identical apartments in sets of four so we would do all the plumbing and HVAC at once. Then we’d move tenants back into those units and start on the next phase.”
Another complicating factor to the deal was the property’s congregate housing services, which a.m. Rodriguez Associates has been providing in other properties since the 1970s. These congregate services include transportation, meals, housekeeping, and personal care.
“The programs at the building needed to be reviewed by our tax credit syndicator,” said Rodriguez.
However, in the end, the services passed muster, allowing the development to continue to play a key role in this small rural community.
“[This development’s] level of service and affordability are very unique in this area of Pennsylvania. Most of the housing for seniors here is a lot smaller and doesn’t have these kinds of services. [Allegheny Hills] has almost the level of services of some market-rate assisted living. People end up spending the rest of their lives here because they don’t have to move to an expensive assisted-living facility or somewhere else with a higher level of care.”