HATCH, N.M.—The Falcon Ridge Apartments is more than housing. It's a step in the rebuilding of this small farming town.

The community lost many of its buildings, including the three Los Caballos apartment complexes, when floodwaters breached an arroyo and raced through town in the summer of 2006. The residents, including many who helped farm the area's famed Hatch chiles, were suddenly displaced.

About 200 people in a town of 1,600 lived in the apartments, and the loss of the properties had a ripple effect throughout the community. For example, when school started, a large part of the student body was missing, which reduced income to the school district, and a number of jobs in town were lost.

The Falcon Ridge Apartments gives displaced families living in temporary Federal Emergency Management Agency trailers or staying with family for the last several years a permanent home, says Jeff Curry, director of development for JL Gray Co., a longtime affordable housing developer in New Mexico.

The firm could have walked away from the mess that was left of its Los Caballos properties. Instead, it found a way to rebuild on higher ground at a time when the nation's financial markets were also underwater.

The original apartments were financed through the U.S. Department of Agriculture's (USDA's) Rural Development Sec. 515 rental housing program. Working with the USDA, the Falcon Ridge Limited Partnership was able to assume the existing belowmarket loans from the three phases of Los Caballos and put them under one entity for the new 72-unit project.

About $2 million in insurance proceeds and reserves carried over from the old properties.

Developers also worked to retain the USDA Rental Assistance on 67 of the apartments to help keep rents low for the families. “The Rental Assistance connected to the properties was so valuable, USDA didn't want to let that assistance get away from the community," Curry says.

Assembling the financing

JL Gray, working with the Housing Authority of the City of Las Cruces, also turned to several new sources to finance the approximately $10 million project, which borders the old apartments but is outside of the floodplain.

To start, the firm received a reservation of low-income housing tax credits (LIHTCs) from the New Mexico Mortgage Finance Authority in 2007. Unfortunately, the LIHTC market was beginning to struggle as the economy sputtered, so the project could not find a tax credit investor at a price that could make the deal work.

The difficulties delayed the project about a year, but developers were able to push the project forward once the Tax Credit Exchange Program was created under the American Recovery and Reinvestment Act of 2009. The program allowed developers of stalled LIHTC deals to return their unused credits for cash grants. Falcon Ridge was able to obtain about $6.9 million in exchange funds.

The new financing also included $1.3 million in a new Rural Development Guaranteed Sec. 538 loan from Lancaster Pollard.

“The amazing part of this deal was the cooperation from the federal government, the state, the local community, and the development team,” says Ginger McGuire, senior vice president at Lancaster Pollard. “The flood several years ago had an enormous impact on Hatch, and this kind of natural disaster is not easily absorbed in the rural countryside because everything is interconnected. In Hatch, everyone had an interest in the success of the project. I am glad that we were able to be a small part of the success by providing the permanent debt."

Citizens Bank of Las Cruces provided predevelopment and construction financing.

Serving families earning no more than 50 percent of the area median income, the apartments filled up quickly, with people inquiring about the housing nine months before construction was completed.

About half of the Los Caballos residents have returned to live at Falcon Ridge.