ADJUNTAS, PUERTO RICO Last December, Woody Pagan drove an hour and a half from this mountain town into San Juan to get stamps and signatures on several documents. Before workers could start building Alturas de Castañer, a planned 24-unit rural development here, Pagan needed to certify that the project’s limited partnership did not owe child support.
Never mind that a limited partnership is an abstract legal entity incapable of having children or needing to support them. Pagan, the executive director of Rural Opportunities Puerto Rico, Inc. (ROI), found it easier to meet the requirement and pay the $50 recording fee than to argue.
“Puerto Rico is a very difficult place to build,” said Pagan. The barriers to development here can seem insurmountable. But ROI has finally broken through them. This April, construction finally started at Alturas de Castañer. Contractors for ROI are also building three other rural affordable housing projects, and the developer plans to close the financing on a fifth in December.
Getting started wasn’t easy. “Everything is different, down to the real estate law,” said Pagan, a New York native who moved to Puerto Rico two years ago. “We had a learning curve that was very expensive.”
More than four years passed between the day ROI purchased the site to build Alturas de Castañer and the day it began construction. That delay forced the developer to request an extra year to use its reservation of low-income housing tax credits (LIHTCs).
In the meantime, the developer put $900,000 of its own equity into the $4.6 million project, in addition to deferring its $500,000 developer fee.
It takes time to build anything here, said Pagan. According to local homebuilders, the average project in Puerto Rico takes 5.2 years from the initial concept to the start of construction. It takes 17 separate approvals to get a construction permit, said Pagan, and none of the requests for these approvals can be submitted before the developer has ownership of the site.
To win approvals in a timely manner, Pagan had to learn the importance of visiting officials in person to show his seriousness and respect. “Over here, if you don’t go into the office, they don’t think you care,” said Pagan. “Here, they don’t want to see the director of real estate development. They want to see the executive director.” Pagan met dozens of times with officials to move the project forward. In New Jersey and Pennsylvania, on the other hand, tax credit officials met with him twice per project on average, he said.
Alturas de Castañer was also difficult to finance because of the very low incomes in the area it serves. Residents, who are mostly farmworkers, earn just $8,000 a year on average. Nearly all of that income is earned during the growing season.
No matter how low incomes may be, it will still cost $192,000 per unit to develop the 24 apartments. “The cost of construction is the same as in the Northeast,” because of the scarcity of construction contractors and the high cost of materials, said Pagan. ROI solved the problem by using almost no hard debt. The project received a $380,000 Sec. 514 loan from Rural Development with a 1 percent interest rate and a $125,000 Affordable Housing Program loan from the Federal Home Loan Bank of New York.
The rest of the financing included $2 million in equity from the sale of LIHTCs to National Equity Fund, Inc., a $584,200 soft loan from the Puerto Rico Department of Housing, and of course the developer’s own equity.
Alturas de Castañer represents the start of a building boom for Rural Opportunities, as projects that have been hung up for years in the planning process come to fruition. In May, the developer planned to start construction on 10 houses on the same site as Alturas de Castañer. These self-help houses will be built by their future residents using cement panels trucked to the site from a factory on the coast. Using pre-fab panels is a big advantage in humid Puerto Rico, where a cement roof built from scratch can sometimes take 21 days to dry, said Pagan.
ROI is developing another self-help project in the town of Yauco, where 14 houses are expected to be completed by the fall of 2009.
Also, ROI’s 14-unit Parque Platino project, built under the Department of Housing and Urban Development’s Sec. 202 program, has gone through years of difficulties and delays, including a change of general contractor, that pushed its $1.5 million budget to $1.9 million. The project is now back on track and should be finished by this September, said Pagan.
Building housing in rural Puerto Rico has been a priority of ROI for decades, despite the difficulty of working in a place where torrential rains sometimes wipe out phone and Internet service.
When ROI’s parent company, Rochester, N.Y.-based Rural Opportunities, Inc., was founded in the 1960s, the nonprofit’s board was mostly made up of farmworkers from New York, New Jersey, and Pennsylvania who were born in Puerto Rico, said Lee Beaulac, Rural Opportunity’s senior vice president for community and economic development.
“They have been on us from the very beginning to develop housing there,” he said. ROI’s Puerto Rico branch started on the island as a contractor for the U.S. Department of Agriculture, providing emergency services and repairs after Hurricane Georges in 1998.
Today, few Puerto Ricans are left on ROI’s board—90 percent of the board members hail from Mexico. But now that the developer has broken into the Puerto Rican market, ROI has no plans to turn back.
This fall, ROI plans to close the financing on a new project to build 48 apartments in Yauco in partnership with the local First Baptist Church. ROI has already applied for LIHTCs and Sec. 8 rental subsidy.
ROI also plans to hire another two or three staff members. “We’re here to stay,” said Pagan.