BEST OVERALL PROJECT:Lord Tennyson Solves Preservation Puzzle

HAYWARD, CALIF.—The residents at the Lord Tennyson Apartments are a tight-knit group. That’s what Rosalind Cosby likes about living at the development. “The tenants all get to know each other,” she said, noting that there are many seniors as well as children in the large community.

Cosby, who works in physical therapy, has lived at Lord Tennyson for 20 years. Her apartment was recently rehabbed with a new bathroom vanity and kitchen, including a new microwave and dishwasher.

Volunteers of America (VOA) overcame regulatory and financial challenges to rehabilitate and preserve the affordability of the family housing development.

It is one of the overall winners in the AFFORDABLE HOUSING FINANCE Readers’ Choice Awards this year.

Located in the San Francisco Bay Area, the 252-unit Lord Tennyson Apartments development is home to lowand moderate-income workers. Its location allows it to serve workers at nearby industrial parks, shopping centers, and hospitals.

The development was built in 1968, and its mortgage was close to being paid off, plus its affordability requirements were expiring. It was a project that could have been sold and turned into a marketrate development, but VOA, the longtime nonprofit owner, was committed to maintaining its affordability.

The preservation of affordable housing is an important focus for VOA. The nonprofit expects to close on about seven renovation deals in fiscal 2008, said Patrick Sheridan, senior vice president of housing development.

Lord Tennyson is a good example of how a property can undergo a major renovation and maintain its affordability. The extensive work included upgrading the electrical system, said Lloyd Wright, VOA construction director. Units were also individually metered for gas and electricity. And the development has a new clubhouse, landscaping, and playground facilities.

But most importantly, Lord Tennyson remains affordable. Rents are about 25 percent below market rates. The project shows how creative structuring can help a development remain affordable to low-income residents without the use of any federal or state tenant subsidies, Sheridan said.

VOA won an allocation of lowincome housing tax credits (LIHTCs) and tax-exempt bonds for the deal. Initially, local Department of Housing and Urban Development (HUD) officials indicated that the low-income households would receive “enhanced” Sec. 8 vouchers, which would subsidize rents upon prepayment of an existing HUD 221(d)(3) loan. However, late in the process, after new bonds had been issued, HUD officials in the national office determined that the owner’s nonprofit status made the project ineligible for the vouchers, according to developers.

Faced with this challenge, the development team decided to defer half of the developer fee to fund a reserve that would subsidize rents for existing very low income residents. Through consultation with the California Debt Limit Allocation Committee and the California Tax Credit Allocation Committee, a plan was formed to charge full LIHTC rents to those residents with incomes between 50 percent and 60 percent of the area median income (AMI). This helped generate more revenue to protect the rent levels for those at or below 30 percent of the AMI.

Although all of the households were qualified under Sec. 221(d)(3), some were over-income under the tax credit regulations. VOA encouraged higher-income residents, whose units could not be counted in the tax credit basis, to relocate and become homeowners by offering relocation and home-purchase incentives. Twenty-eight households became first-time homebuyers.

The city of Hayward issued $13.9 million in tax-exempt bonds (plus a $700,000 taxable tail), which were credit enhanced by Freddie Mac in a deal put together by PNC MultiFamily Capital and Merchant Capital. LIHTCs generated about $8.9 million in equity. The credits were syndicated by the National Affordable Housing Trust, and the investor was MassMutual.