Akron, Ohio — One hundred single-family homes have been renovated and preserved as affordable rental units by the Akron Metropolitan Housing Authority (AMHA).
Eastland Woods is a scattered-site project, but with the homes situated next to one another in the same residential neighborhood.
The houses were built approximately 20 years ago as a large project-based Sec. 8 development. The project’s housing assistance payment (HAP) contract, however, had expired, and the owner was interested in selling the project.
The owner had started a Mark-to-Market (M2M) transaction for the project. The Department of Housing and Urban Development’s (HUD) M2M program helps reduce rents to market levels on multifamily properties with expiring housing subsidies as well as restructure existing debt to levels supportable by these rents. Considered one of the more successful federal preservation programs, M2M is scheduled to end Sept. 30, 2006.
M2M was just the first of several financing tools used in the Eastland Woods project.
The $15.2 million deal was important for the community because it was an opportunity to save and revitalize a significant number of affordable units. It was also unique because it involved large single-family homes.
The housing authority recognized the value of the project and the opportunity to reposition the property, said Chris Scranton, director of assisted housing and real estate investment at AMHA.
The previous owner, Summit Management, completed the M2M process with AMHA’s involvement. This restructured about $4 million in old debt and provided $1.8 million for the rehabilitation of the houses. The day after the M2M transaction was completed, AMHA acquired ownership of the development. The project-based Sec. 8 contract was also renewed for another 20 years, which provides rental subsidies for tenants.
In the end, HUD provided a new $2.4 million first mortgage and a $4.1 million second mortgage. AMHA brought in an affiliated nonprofit to join the deal. This allowed HUD to assign the second mortgage to the nonprofit and ultimately to the housing authority. This was a key step. With AMHA holding the second mortgage, increased financial flexibility to sustain future project viability and a potential funding source for AMHA’s development activity is enhanced, according to officials. The housing authority now holds the mortgage.
This helped make the deal financially feasible, according to Scranton.
In exchange, HUD is requiring the property to be kept affordable for 50 years.
That, however, was just the beginning of the financing story. AMHA then used tax-exempt bonds and 4% low-income housing tax credits to raise money for the additional rehabilitation of the homes. The Summit County Port Authority’s bond issue was about $7.5 million.
About $3.9 million in tax credit equity was raised, according to AMHA. Ohio Capital Corporation for Housing (OCCH), which also served as a syndicator, invested in 75% of the funds, and National City Community Development’s investment was just under 25%.
“The housing authority really wanted to preserve the housing and worked to achieve the end,” said Doug Klingensmith, vice president of development at OCCH.
With a large inventory of Sec. 8 deals in the state, Ohio has seen a good number of M2M transactions, according to Klingensmith.
John J. Seikel and Associates, CPAs, served as a financial adviser on the Eastland Woods deal.
During the rehab, AMHA used 11 vacant houses as “swing” units. Families moved into these homes while theirs were being rehabbed. The work started in October 2004, with the last house completed in November 2005.
The homes received new furnaces with central air conditioning, roofs, gutters, windows, carpeting and doors. The bathrooms were redone, and the kitchens were replaced. Larry Hecky was the architect.
“There’s a sparkle to them,” Scranton said. Officials even built new decks for the homes.
There are 40 three-bedroom homes that rent for about $750 per month and 60 four-bedroom homes that rent for about $874 per month. All the houses are rented to families earning no more than 60% of the area median income.
Department of Housing and Urban Development (HUD) first mortgage: $2.4 million
HUD second mortgage: $4.1 million
Akron Metropolitan Housing Authority third mortgage: $2 million
GP Equity (Office of Multifamily Housing Assistance Restructuring/HUD): $1.7 million
Deferred developer fee: $875,000
Tax credit equity: $3.9 million
Total sources: $15.2 million
Acquisition: $7.8 million
Construction: $6.6 million
Replacement reserves: $237,000
Miscellaneous fees and costs: $564,000
Total uses: $15.2 million