Developer Gorman & Co. has closed on the final Rental Assistance Demonstration (RAD) project in the Housing Authority of Maricopa County’s sweeping effort to bolster the public housing portfolio in Arizona’s largest county.
“Over the last five years, we have worked with the housing authority on the strategic plan to reposition its public housing portfolio. With this deal close, it will have converted 100% of the portfolio to RAD, using every possible tool you can imagine—federal tax credits, historic tax credits, Federal Home Loan Bank, transfer of assistance,” says Brian Swanton, president and CEO of Gorman & Co. “The authority was one of the earliest adopters of the RAD program nationally. It has been a leader in this area.”
The final challenge of the portfolio repositioning was 70 single-family homes scattered in several communities about 20 miles apart in western Maricopa County. It was difficult for the housing authority to maintain the homes and provide services for the residents. To remedy the situation, the team is converting the 70 public housing subsidies to RAD Sec. 8 and bundling the new Sec. 8 contract on one site.
This will result in the newly constructed 100-unit Heritage at Surprise in Surprise, Ariz., with 70 RAD units and 30 units with project-based vouchers. The 70 single-family homes will be converted for first-time affordable homeownership once the new development is completed. The public housing residents in the single-family homes will have the first right to move into the new units or may be able to purchase their existing homes.
“We’re helping transition public housing residents into homeownership. The full spectrum of affordability is taking place,” adds Swanton.
Heritage at Surprise will be the first new development in the original town site in three decades. The city of Surprise contributed a three-acre site that had an old ballfield on it at no cost through a long-term ground lease. However, even with free land and noncompetitive 4% low-income housing tax credits (LIHTCs) allocated by the Arizona Department of Housing (ADOH), a significant gap remained for the $22.5 million development.
To make the deal work, Gorman & Co. pursued and received National Housing Trust Fund (HTF) financing, the first allocation by ADOH in the state. Funded by an annual assessment on the volume of business done by Fannie Mae and Freddie Mac, the HTF is the first new housing resource since 1974 targeted to building, preserving, and operating rental housing for extremely low-income households, those with incomes at or less than 30% of the area median income (AMI). At Heritage at Surprise, 30% of the units will target those households at 30% of the AMI.
“Without it, we wouldn’t be able to do new construction with 4% credits at this location. It’s a great resource, and any new money coming into affordable housing is desperately needed,” says Swanton, adding that Heritage at Surprise is the third HTF project that Gorman closed this year, with the others in Denver and Albuquerque, N.M. The developer also plans to close two more deals in 2019.
Swanton says one challenge on utilizing HTF financing is that the rents on the 30% AMI units don’t even cover basic operating expenses for the development. “What we have determined is to really use it effectively you need to leverage it with rental assistance to boost the revenue per unit,” he says. “Project-based vouchers and RAD deals are perfect partners for the HTF.”
In addition to the HTF financing, Freddie Mac is the purchaser of the 4% tax credits, one of the government-sponsored enterprise’s first LIHTC investments since the Great Recession, and is providing a forward tax-exempt loan. Enterprise Housing Credit Investments is the tax credit syndicator.
Additional financing includes a first mortgage from Hunt Real Estate Capital, recycled Neighborhood Stabilization Program funds from Surprise, and a long-term loan from Mercy Maricopa, the regional behavioral health authority. The housing authority also provided a long-term loan by tapping into the equity of the single-family homes. To do this, Local Initiatives Support Corp. along with the Industrial Development Authority of Maricopa County provided an unsecured loan to the housing authority and will be repaid as the first-time homebuyers purchase the 70 homes.
“Every layer of government—county, city, state, federal—was actively involved to make this development happen,” says Swanton.
Construction is expected to start by the end of the year and will be completed by early 2020. The development will feature an on-site job center and placement services. Additional amenities will include a fitness center, a computer lab, and after-school programming. The development also will be adjacent to the city’s public facilities.
“We’re right in the heart of the city’s human services campus so our residents will have direct linkages to all of those amenities and services,” adds Swanton.