LOUISVILLE, KY. House by house and block by block, Mark Wright is bringing back several of the older neighborhoods in his hometown.

He is building new homes on vacant and abandoned lots that have vexed Louisville's West End for 10 or more years. Wright is filling in the holes, building on deserted lots that sit between occupied homes. On other streets, he is developing a whole row of houses.

“We saw a problem and were looking for a solution,” says Wright, an architect and owner of Oracle Design Group, Inc., a firm focused on building affordable housing. He grew up in some of the neighborhoods he is restoring.

At the beginning of February, Oracle had nearly completed its latest project of 64 homes—51 new construction and 13 that are being rehabilitated. The firm was about to start work on another 50 houses in Louisville.

While most affordable housing developers use low-income housing tax credits (LIHTCs) to finance an apartment building with multiple units, Oracle is using tax credits to help fund single-family homes on scattered sites.

It's a difficult task to pull off because it involves coordinating multiple work sites instead of one. Costs are also typically higher for single-family projects. Because LIHTCs target the development of affordable rental housing, Oracle's homes are leased for 15 years to families earning no more than 60 percent of the area median income, with residents having an option to buy after that period. The final purchase price will factor in the affordability for the buyer given the income requirements and the ability to pay down the existing mortgage.

Oracle serves as the architect, the developer, the contractor, and the manager, which helps in overseeing the project. The homes are also concentrated within about four neighborhoods.

Wright credits his wife, Caryn Winter, who leads the firm's development team, with being the brains behind the project.

Despite the complexities of the work, they feel the effort is important for Louisville.

“Years ago when we first started, we looked at the impact of vacant properties in the urban area in Louisville," says Wright. “What happens is it becomes a dump for everybody. There are good people living next to it, but they are helpless to do anything about the vacant properties. It just breeds problems."

He describes the empty properties as “missing teeth” lots in an otherwise developed neighborhood.

Creating the single-family homes also helps maintain the character of their neighborhoods, some dating back as far as the 1860s.

Wright has about seven different home designs that allow his houses to fit into their communities while still adding variety.

Putting the deal together

The firm works closely with the city of Louisville and several local agencies. The properties are purchased from the regional Landbank Authority generally for $1 each, sometimes more.

For the $9.8 million Oracle 64 project, the Kentucky Housing Corp. (KHC) provided $7.3 million in Tax Credit Exchange Program funds. Created as part of the American Recovery and Reinvestment Act of 2009, the program allows state housing agencies to exchange LIHTCs for grants to keep projects moving during the recent economic downturn.

Financing also included $900,000 in HOME funds from the city of Louisville and $194,000 in Louisville Metro Lead Funds. Fannie Mae provided a permanent loan through servicer Lancaster Pollard.

“The approach taken by Oracle has a positive impact on neighborhoods," says Mark Offerman, KHC's deputy CEO and COO. “The improvements are highly visible, concentrated, and really change the appearance of a neighborhood. The impact of enhancing a neighborhood can be felt as a result of the work being concentrated in particular demographic areas."

He explains that if 30 homes are rehabilitated in a neighborhood but they are all on different streets or in different blocks, you can say you are improving the lives of these 30 households, but you may not draw much attention to the fact improvements are being made or get others interested in trying to make improvements to their own homes.

“However, if you rehab 30 homes in a two- or three-block area, then everyone sees the improvements immediately, and those close to the ”˜rehab center' may start making their own improvements," says Offerman. “Working to make improvements into one area has a positive ripple effect. "

On the next set of 50 homes, Oracle is using LIHTCs that are being syndicated by the Ohio Capital Corporation for Housing. The investor is Fifth Third Bank, which has provided the equity for Oracle's earlier single-family projects as well. The city of Louisville is also adding HOME funds.

“These neighborhoods are strong," says Wright. “They have a beauty that's inherent. There's a vitality that you can't kill. We just needed to help keep it boosted up."