Azure Park Apartments was in trouble. Its 220 affordable garden apartments were just 85 percent occupied, far below the surrounding apartment market in Sacramento, Calif.
If so many of Azure Park’s garden apartments remained empty, the low-income housing tax credits (LIHTCs) would have eventually been reclaimed. “It would have been a recapture property,” says Natalia Williams, vice president of finance for Bayside Communities.
The old owners had piled debt onto the property during the real estate boom, and the property’s tax credits had been sold to a new investor as one piece of a portfolio. When the property went into receivership, the new investor was unwilling to rescue the property.
So Bayside came to the rescue with a commitment to keep the apartments affordable. Bayside took possession of the property Sept. 14 and is planning a full redevelopment including a new name: Lotus Landing.
Bayside has a similar story of revival and reinvention. It was formed in 2009 out of the bankruptcy of A.F. Evans Development, Inc. Williams, who had been the director of investment management at A.F. Evans, helped manage the transition. Before the financial crisis, A.F. Evans had a strong business managing more than 7,000 units of affordable housing. The firm owned partnership interests in 3,000 of those at 29 properties.
Unfortunately, A.F. Evans also had ventured into condo development, building three new projects from scratch and renovating a fourth. One of these sold to moderate-income homeowners according to plan. But in 2008, the other three were finished and ready to welcome new homeowners, just as the financial markets teetered on the brink.
Lenders seized the buildings, but their deflated value was not enough to repay the guarantees on the construction loans.
When A.F. Evans declared bankruptcy in May 2009, most of its development and corporate staff had been laid off, leaving about 300 property and asset managers. The company was marketed as a single entity.
Bayside Communities, a joint venture of Barker Pacific Group, Luzzatto Co., and Lion Real Estate Group, committed to purchase the properties and maintain their affordability commitments.
The biggest challenge was to transfer A.F. Evans’ ownership stake to the new ownership without disturbing the rest of the partnership agreements for a portfolio of 29 tax credit properties in California, Nevada, Oregon, and Washington. The stakeholders for each property often included LIHTC investors, lenders, state and local agencies, development partners, and resident groups.
A web of agreements protected the income restrictions at the properties. However, the stakeholders also needed to believe that the new owners had the capacity to comply with the rules that came along with these restrictions.
To prove this point, Williams used herself and the other 300 remaining staff from A.F. Evans who now work for Bayside in EPMI, its asset management division, as examples.
Their experience should help keep the portfolio operating smoothly for years to come.
“Natalia’s leadership, steadfastness, and positive demeanor has helped our company come through these hard times,” says Debra Weber Sobeck, president of EPMI.