WINSTON-SALEM, N.C.—You can still find Internet ads for The Enclave, a luxury condo development here with steeply discounted prices starting in the low $100,000s.
But the ads are long out of date. For years, the townhouses have stood empty—three abandoned buildings in a barren field at a busy crossroads.
“There was gang writing on some of the walls. Vandals had broken windows and knocked some doors down. And right across the road is a soccer park where my kid plays soccer,” says Dan Kornelis, director of the Forsyth County Housing Department.
This September, affordable housing developer Miller-Valentine Group and local nonprofit the North Carolina Housing Foundation (NCHF) were weeks away from buying The Enclave back from the bank using money from a multibilliondollar federal program designed to help rehabilitate foreclosed properties.
Calling on NSP funds
The Enclave's original developer, Pierce Homes of Carolina, went out of business in August 2008. About a year later, Wachovia/Wells Fargo Bank seized the property.
The foreclosure left the 25-acre site with loops of new road and gravel roadbed and three townhouses with four condos apiece. Thieves stole the major appliances, from air-conditioning units to refrigerators.
At press time, the new development team planned to take control of the property by the end of September, paying $1.8 million plus closing costs.
The developers will pay for it with $2.2 million in federal Neighborhood Stabilization Program (NSP) funds, including $1.4 million provided through the county and another $800,000 through the North Carolina Housing Finance Agency.
NSP is designed to stabilize vacant and abandoned properties in communities that were hit hard by foreclosures in the housing bust and the financial crisis. In September, the Department of Housing and Urban Development awarded another $1 billion to local governments for the third phase of the program, NSP3.
Large, multifamily properties like The Enclave have an unexpected advantage in the competition for NSP funds, which many housing advocates thought would fund the redevelopment of foreclosed single-family houses.
It turns out that many potential home buyers who try to use NSP funds to buy foreclosed single-family houses have difficulty navigating federal rules or qualifying for home loans. As a result of the delays, many local governments have missed deadlines to spend NSP cash and been forced to return NSP money to the government, says Kornelis.
Forsyth County and the city of Winston-Salem had to obligate $3.6 million in first-round NSP funding before a July 18 deadline or risk losing it. Officials successfully used $1.4 million of the funds to redevelop 90 single-family lots.
But it was a relief to be able to put the remaining $2.2 million to good use at The Enclave—especially since it's unlikely that the private market could have quickly handled the property.
“Without the NSP money and tax credit money buying it down, you couldn't make the numbers work,” says Garry Merritt, president of the NCHF. He should know: Merritt is also the owner of private development company Merritt Land Co.
Also, because the entire site received NSP funds, any future development is also guaranteed to be affordable.
The plan for redevelopment
The first $11 million phase of construction will build 68 affordable apartments on 8.5 acres of the site.
The apartments will be large, from 1,100 to 1,400 square feet, with attached garages and matching the original design of Pierce Homes' boom-time condos.
In addition to $2.2 million in NSP money, The Enclave won a $9.9 million reservation of 9 percent low-income housing tax credits. The developers are negotiating with two potential syndicators for the tax credits and expect to sell them later this year for $7.4 million, or about $0.75 on the dollar.
The rest of the development funds will come from a planned $1.1 million in state tax credits and $400,000 in local HOME funds.
If all goes well, the developers plan to close their construction financing and start work by next February with no need for help from the federal Tax Credit Assistance Program or Exchange Program. The developers will also not have to give up any of their $714,000 fee. The state will not have to contribute soft financing or HOME funds. Phase one won't even have a permanent mortgage.
“My only fear now is that I may have to retire ”¦ I don't know if I'm going to be able to top this,” says Matt Jackman, senior developer for Miller-Valentine.
Perhaps the answer is to find other projects that can use NSP funding. Miller-Valentine has several more NSP projects under way in states, like Ohio, that still have many vacant foreclosed properties—and the developer wants to do more.
“We are looking to replicate this,” says Jackman.