San Antonio—For Dan Markson, the recent completion of two large San Antonio developments signals a return to the front lines of development in this highly competitive state. For The NRP Group, the deals represent a big push into Texas, a key territory with roughly $42 million in annual low-income housing tax credit (LIHTC) authority and an overall statewide tax-exempt bond cap of about $1.8 billion.
The company’s Costa Biscaya and Costa Cadiz developments are providing 422 units of needed housing and are a sign of more to come.
The NRP Group, a leading affordable housing developer headquartered in Cleveland, has also finished a project in Irving, Texas, has two other projects scheduled to be completed in 2007, and has more in the pipeline. The future includes prominent deals with the San Antonio and Corpus Christi public housing authorities (PHAs). It’s an area of business that Markson calls “the last great frontier.”
Overall, NRP sees big opportunities in the Lone Star state.
“We’re excited about Texas,” said J. David Heller, a principal at NRP. “We see continued strong growth there.” The state, he estimated, represents roughly a quarter of the firm’s business.
Until about three years ago, Markson was leading his own development company, Royal Castle, which developed the Villas at Costa Brava and the Villas at Costa Dorada in San Antonio around 2002. But he was having trouble competing against larger firms because of the substantial capital requirements needed for a project. He estimates that it costs about $50,000 a pop to prepare a deal and apply for the highly competitive 9 percent low-income housing tax credits, with no certainty of receiving an award. An alternative is using tax-exempt bonds, but that’s also costly and, in Texas, comes with the additional requirement that deals close within 150 days. Small developers can’t afford to do too many of these deals.
While Markson was struggling to compete, NRP leaders were looking for opportunities in Texas, so they hired the San Antonio-based developer, providing him with financial and technical support.
According to Heller, it was a chance for one entrepreneurial developer to join another, albeit a large one that has done about 130 transactions across several states. NRP, he said, was able to bring in its operating systems and back-office support.
With NRP’s construction and management teams behind him, Markson, vice president of development, can focus on finding sites and working with neighborhoods. He’s hired Debra Guerrero, a former San Antonio city councilwoman, to help him.
Winning over the neighbors
The relationship seems to be working. NRP recently opened the doors to the $22.7 million Costa Biscaya development, a tax-exempt bond and housing tax credit deal in the city. The 250-unit project includes one-, two-, and three-bedroom units. All units are reserved for families earning no more than 50 percent of the area median income (AMI) and 60 percent of AMI.
One of the challenges was winning the support of two nearby neighborhood associations that were worried about the consequences of a large apartment complex being built in the area.
The neighborhood was used to the property being open space, said C.R. Nowell, vice president of the Park Village Neighborhood Association.
And the site was zoned to allow for apartments, so Markson didn’t have to work with the neighbors. Nevertheless, he did, according to Nowell. He labored to change initial concerns about what type of project would be built and reached a compromise.
As part of the outreach, NRP built a sidewalk in the neighborhood, preserved many of the trees on the site, created walking trails through the property, and became a member of both associations. The development’s 3,000-square-foot community center is also open to the neighborhood.
Winning over neighbors makes for good public relations, but it’s also good business in Texas. Community support is critical when competing for housing tax credits in the state because points are awarded based on support or opposition from recognized neighborhood organizations.
Markson has managed to win nearly all of his NIMBY battles, whether it’s in Texas or on his native East Coast. He grew up in a hardscrabble Boston neighborhood made up largely of public housing and older apartments. As a result, Markson is a blend of optimism and scrappiness.
One of his strategies is to bring a resident of one his existing developments or a courtesy officer from the local law enforcement agency with him to community meetings.
By meeting residents, especially children, worried neighbors can see that the residents are not unlike their own families, he said. The officer helps by explaining how any potential crime-related issues would be handled.
Costa Biscaya, which was completed this year, was financed with about $14 million in tax-exempt bonds issued by the San Antonio Housing Finance Corp. and 4 percent LIHTCs allocated by the Texas Department of Housing and Community Affairs. The tax credits generated about $7.3 million in equity from CharterMac Capital.
The San Antonio Department of Economic Development also provided about $100,000 in fee waivers to help the deal pencil out.
About 25 families that fled the Gulf Coast after Hurricane Katrina in 2005 are among the residents.
One of NRP’s partners has been The American Agape Foundation, which provides educational and social programs that include financial planning, health screening, basic adult education, and youth programs.
The other recently completed project in the city is Costa Cadiz, a 172-unit project for families earning no more than 50 percent and 60 percent of AMI. This project also involved tax credits and bonds issued by the San Antonio Housing Finance Corp. MMA Financial provided about $5.2 million in LIHTC equity and about $8.2 million in construction and permanent loans. The city of San Antonio also provided assistance, including $350,000 in HOME funds.
All of the developments feature after-school programs for children. One, called Homework First, offers kids the opportunity to do arts and crafts, watch a movie or play sports after they finish their homework.
“As a latchkey kid, I know that when I got into trouble it was between 3 and 5 p.m.,” Markson said. Today, his schedule is filled with different industry events and meetings. A recent one covered the details of façade renovations in an old commercial corridor of San Antonio. His spare time is spent restoring his own old house and a 1960 Cadillac convertible.
The last frontier
Looking ahead, Markson said he is also interested in developing housing for families that fall out of the income range that would qualify them for a housing tax credit unit and for homeownership. This group of residents would have incomes of more than 61 percent and less than 120 percent of AMI.
NRP’s business plan includes partnering with public housing authorities to develop mixed-income developments. In Texas, the firm has completed a project with the Dallas Housing Authority and is working on others with the housing authorities in San Antonio and Corpus Christi.
“At SAHA [San Antonio Housing Authority], we’re very excited about our partnership with NRP,” said Henry Alvarez III, president and CEO. “With their extensive experience and focus on community involvement in the development of affordable housing, communities like San Juan Homes, the Villas de Costa Valencia, and others in the pipeline will be great places for San Antonio citizens to call home.”
Markson, who worked at Boston Capital early in his career, has long been interested in public housing. In the 1980s, he studied urban planning at Clark University in Worcester, Mass., where his senior thesis explored redevelopment of a public housing project in that town.
Going undercover as a resident, Markson found that the public housing was good quality, but it was isolated and had weak public transportation links, which are critical for people to get to jobs and other services.
He also found that the absence of social services left many residents without child care, jobs, medical services, and even education. He also discovered that the project’s dumpsters were located on the front lawns. “It is hard to respect oneself, one’s home and one’s neighbors without these simple needs being met,” Markson said. Today, virtually every affordable housing development that he builds address these issues, he noted.
Working with PHAs, however, is more than a personal interest. It’s also good business based on need and demand, according to Markson.
“There are countless public housing developments that need to be renovated throughout the country,” he said.
Many of these old public housing projects can be redeveloped into mixed-income communities, Markson said. The PHAs provide the sites in gentrifying or stabilizing areas and bring the residents. These sites may be accompanied by some financing incentives, including demolition or replacement funds and property tax benefits.
NRP brings seed capital, expertise in tax credits and other financing, and its development, construction and management teams. “These transactions are not for the inexperienced developer,” he said.
“Public-private partnerships are reaching a new level of sophistication, and I see us on the leading edge of that trend,” Markson said.