KNOXVILLE, TENN.—A notorious Knoxville building has been transformed into permanent supportive housing for formerly homeless men and women.

Condemned in 2002, the Fifth Avenue Motel was a reminder of another era, complete with a fading sign that touted “free parking” and an arrow directing drivers where to go. Although it was dangerous and decrepit, the closed motel was far from vacant. Transients often settled inside, causing even more damage.

“I cannot tell you how bad that building was,” says Ginny Weatherstone, CEO of the Volunteer Ministry Center (VMC). Recent fires had damaged key sections, and the roof was missing in places.

Built in 1913 as row houses, the buildings carried historic significance and could not be torn down despite their horrible conditions. That made redeveloping the property difficult. From time to time, developers would show up to look at the site, but no plans ever materialized.

Weatherstone had warily eyed the motel for years, knowing VMC was going to move its offices to a neighboring site. With the city's help, the nonprofit bought the troubled property about six years ago and began its long turnaround.

Renamed Minvilla Manor, the property opened last year with 57 apartments for Knoxville's neediest residents.

“I absolutely believe that we have people living there who would be dead if not for Minvilla,” Weatherstone says.

”˜Wedding cake' financing

She estimates that there are roughly 1,620 homeless individuals in Knoxville during any given month. Weatherstone should know because her organization works with many of them, providing case management and other services.

As she and her colleagues watched people cycle in and out of the shelters, they grew increasingly frustrated. They wanted to see more individuals leave homelessness for good so they became interested in creating permanent supportive housing, specifically a Housing First development.

The Housing First model calls for getting homeless individuals into apartments as soon as possible and then providing them with key services.

The idea is once their housing is stabilized, they can better utilize mental health services, drug counseling, and other programs. This is a departure from the longstanding approach of requiring people to get treatment first before providing access to housing.

As with most affordable housing developments, one of the biggest challenges was financing. To help build the $7.2 million Minvilla Manor, VMC leaders teamed with another local nonprofit, Southeastern Housing Foundation.

David Arning, vice president of the foundation, describes the financing package as a wedding cake because it has so many layers, including tax-exempt bonds, low-income housing tax credits (LIHTCs), historic rehabilitation tax credits, and Neighborhood Stabilization Program (NSP) I funds.

To make the deal work, the team used a master lease pass-through structure also known as a “sandwich lease.” This complex structure is used by developers to maximize the amount of tax credit equity that they can receive and to distribute the benefits among multiple investors. It essentially allows a project to combine both LIHTCs and historic tax credits without reducing the basis used to calculate the housing credits.

Minvilla Manor received about $2.4 million in LIHTC equity and about $1.2 million through historic credits. Citizens National Bank purchased most of the housing credits, with FSG Bank purchasing a small portion of the housing credits and all of the historic credits.

In addition, the Tennessee Housing Development Agency provided an $819,195 loan through the Tax Credit Assistance Program and $300,000 from its Housing Trust Fund. Because the project involved rescuing a blighted property, developers were also able to obtain a $975,000 NSP grant from the city of Knoxville.

“It is more than a housing project," Arning says. “It's a community development project because it's revitalizing the area."

Other key programs were called on to help the project's bottom line. The city's Industrial Development Board approved the project's participation in a payment in lieu of taxes program, which means property taxes are abated for 20 years at the pre-rehabilitation assessment.

To assist with the operating costs, the Department of Housing and Urban Development has provided a Supportive Housing Program grant of $150,000 over three years.

The second big challenge was overcoming fierce neighborhood opposition. Even though the project is in the city's “mission district,” where several homeless services agencies operate, many still objected to Minvilla Manor. They didn't want yet another homeless services building in the neighborhood.

“One of the things that helped was we kept our promises,” says Weatherstone, who has been with the organization for 14 years.

VMC had relocated its headquarters and resource center next to the property, allowing them to build relationships.

They placed an entrance at the back of their building to reduce visibility from the street. They also have a neighborhood representative on the organization's board of directors.

Opening doors

Minvilla Manor, which was built preserving as much of the original row houses as possible, opened near the end of 2010.

Many people, both supporters and opponents, continue to keep a close watch on the development.

At the end of August, 42 of the 57 apartments were occupied, and another six units were expected to be filled soon. The slow lease-up has led to one very vocal critic recently proclaiming the project a failure.

The developers stand behind Minvilla Manor. The apartments are Sec. 8 voucher units, and it has taken time to work through different issues. The team also says it wanted to make sure that the social services for the residents were right.

They call Minvilla Manor a model for turning around a blighted property. They also point to the people who live there.

“It's a success in terms of operation," Arning says. “There are folks who are no longer on the streets."

One resident is 49-year-old Doris Ingram, who was able to leave her sister's house and move into her own handicapped-accessible apartment in May. It's a new start for Ingram, who has had lung surgery and walks with a cane.

“It's made me want to live again,” she says.