Chicago - Despite the lack of new HOPE VI funding, this city is continuing to transform its older public housing projects into mixed-income communities by using a grab bag of other subsidies and by hitching a ride with the city?s market-rate home sales market.
Next month, the first buyers will move into homes selling for $190,000 and up on the former site of the Stateway Gardens public housing project in a community that mixes public housing rental units with affordable and market-rate for-sale homes. The first 311-unit phase of the Park Boulevard community is nearing completion on the site of eight public housing buildings that had 1,644 apartments.
A grand total of 880 units are planned on the 33-acre site four miles south of downtown Chicago. Another 436 units are planned on adjacent sites, including the already-occupied Pershing Courts, an 80-unit rental building with 27 public housing replacement units and 53 affordable units that qualify for federal low-income housing tax credits.
The master plan for Park Boulevard calls for diverse housing types that include townhouses, duplexes, detached homes, and mid-rise condos. Roughly one-third of the units will be set aside for public housing, one-third will be affordable rental and for-sale units, and the final third will be market-rate units, most of which will be for sale.
The project represents a new step forward for the public-private collaboration the Chicago Housing Authority (CHA) is known for. CHA leased the land to the development partnership for $1 per year for a 100-year renewable lease, and will get 4 percent of gross sales proceeds from all market-rate units. CHA has a solid partner in Kimball Hill Homes, a large builder of market-rate suburban detached homes
The firm?s subsidiary, Kimball Hill Urban Centers (KHUC), is one of four partners contributing capital and expertise. KHUC has focused primarily on design and marketing the for-sale units, and has provided a substantial portion of the initial equity and financial guarantees for the first phase.
The risk was great, since it involves creating a whole new neighborhood in an area where there were no market-rate home sales comparables. On the other hand, the developer gets all the upside after paying CHA its share of sales proceeds.
In addition to Kimball Hill, other members of the development partnership include Mesa Develop-ment Group, Davis Development Group, and Walsh Construction.
?Park Boulevard is a collaborative effort between the four partners and the city of Chicago and CHA. Without the corporate and financial commitments of the four partners and the vision of the mayor and city agencies, the project would not have occurred,? said James L. Miller, CEO of Stateway Associates, LLC, the master developer of Park Boulevard.
?What?s significant here is that it is a for-sale-driven mixed-income community. All the public housing is mixed in with for-sale units,? said Doug Guthrie, president of KHUC. ?We are working with CHA to try to bring income into the area,? he said.
For CHA, the plan represents a continuation of its $1.5 billion Plan for Transformation, in which it is reducing public housing density substantially (generally replacing only one-third of the original number of units) and encouraging tenant self-sufficiency through job training and employment programs.
For KHUC, it represents a business decision that urban housing can be profitable. ?We are establishing a market presence, a new community. Our goal is to bring value to future phases,? said Guthrie.
The financing plan and the stability of the community over time depend on the success of the for-sale component, and so far, the results are good, despite some concern about the slowing home sales market in the region and nationally.
In the first phase, there are 211 for-sale units, 72 affordable, and the balance market-rate. There are also 17,000 square feet of retail space and 100 units of replacement public housing. The sales pitch describes the former public housing site as ?an idyllic setting of tree-lined streets, beautifully landscaped parks and family-friendly playgrounds.?
Half of the market-rate for-sale homes were under contract at press time, with an average sales price of $240 to $290 per square foot, up from a starting price of $199 per square foot, according to Guthrie. Detached single-family homes are selling at $625,000 on 25-by-100-foot lots, he added.
The affordable homes are priced to be affordable to persons earning up to 120 percent of area median income, Guthrie said. To cover the difference between the affordable prices the buyer pays and the market value, the partnership attaches a second mortgage lien that gets recaptured on sale and goes back to the city?s affordable housing trust fund, Guthrie said.
KHUC is confident that it will see even stronger sales for the second phase, which will probably break ground in late 2008.
For the first 311-unit phase, the total development cost is $93.8 million, including the following line items:
- Construction costs: $67.6 million;
- Site and infrastructure costs: $6.6 million;
- Site remediation costs: $2.1 million;
- Soft costs: $13.2 million;
- Finance costs: $4.2 million.
Key sources of financing include Bank of America, which is providing a $20 million revolving construction loan and purchasing a tax-exempt bond issue of about $11.5 million that is sufficient to allow the project to take 4 percent federal low-income housing tax credits. The bond financing was secured by CHA, using its Capital Fund grants from HUD, during construction.
The CHA funds convert to permanent financing, and the tax credit equity will take out the bonds after construction, so that the project has no hard debt, according to Guthrie.
The tax credit equity investment was made by the National Equity Fund, which is based in Chicago.
Other sources of funds include:
- A loan from CHA secured by a state tax credit for the donation of a land parcel from a nonprofit entity: $1.3 million;
- Developer equity contribution $2.7 million;
- Tax credit equity investment: $10.9 million;
- A loan from the city?s tax increment financing program for $9 million; and CHA payment of the roughly $2 million in site remediation costs.
KHUC is well along on a similar venture at the site of the former Cabrini-Green public project just northwest of the Loop. It is working with Holsten Real Estate Development Corp. and Alliant Capital on Parkside of Old Town. Thanks to its proximity to the Loop and the lake, the project?s for-sale units are moving briskly. The project has a total of 391 units, including 72 public housing rentals, 14 affordable for-sale units, and the balance market-rate for-sale units.
At press time, just a few months after the October 2006 construction start date, 75 percent were under contract at an average of $335 per square foot.
In this case, the high prices for the market-rate units will be of more than passing interest to the former tenants of Cabrini-Green. Their tenant council won a federal court consent decree that makes them financial partners in redevelopment of the Cabrini site. Through a subsidiary, they will share profits equally with Holsten and KHUC, and are expected to use the money to provide supportive services to tenants.