Portland, Ore. — A formerly run-down, crime-plagued apartment complex in northeast Portland got a new lease on life a decade ago – but its second lease only came after the recession slammed this Pacific Northwest city, causing years of financial losses for the project.

Now – after a partial teardown-and-rebuild and a loan restructuring – the 178-unit Clara Vista complex has been transformed into 44 newly constructed “green” rental townhomes and 133 rehabilitated apartments.

Completed in March, the project required developer Hacienda Community Development Corp. and nonprofit technical assistance consultant Housing Development Center (HDC) to orchestrate some unusual financing moves, as well as to renovate 17 buildings and demolish four others.

The project, which tapped nearly $10 million in public and private funds, created 34 three-bedroom and 10 four-bedroom new townhome-style apartments and preserved and rehabilitated 133 existing units.

All the new units are affordable to households earning no more than 50% of the area median income (AMI). Project-based Sec. 8 rental subsidies will help make rents more affordable on 30 of the rehabilitated units and 14 of the new construction units. Lease-up on the new units is expected to be complete by May.

Originally built in the 1960s, the complex was once four privately owned properties. Its 178 units were primarily one- and two-bedroom units, housed in two-story, motel-style buildings, a number of which were originally surrounded by parking lots.

By the early 1990s, the 21 buildings were in very poor condition and a magnet for crime. City officials approached leaders of the Latino community about the problem, and the community leaders formed Hacienda to acquire and renovate the properties, said Pietro Ferrari, the group’s executive director.

As a new organization, Hacienda hired a for-profit developer, which assembled the four sites and completed the CDC’s first low-income housing tax credit (LIHTC) project – a limited partnership with MMA Financial. In addition to tax credit equity, Hacienda took out a $3.4 million first mortgage from Fannie Mae and used $1.45 million in Community Development Block Grant (CDBG) funds and other grants to acquire and renovate the dilapidated apartments.

Since the acquisition and rehabilitation, which was completed in 1996, Hacienda’s board and staff have worked to oversee the nearly two dozen buildings and develop a network of services to support the units’ large Latino population.

However, a depressed rental climate led to another troubled chapter in Clara Vista’s story.

Robin Boyce, executive director of HDC, said city officials asked her to meet with Hacienda in 2003 because “the property had been on MMA’s watch list for many years” and “had been losing $70,000, $80,000, $100,000 year.”

HDC began by assessing whether the financial picture could be improved by simply making operational changes.

“In the 1990s in Oregon, rents were really going up, and we were all probably overly optimistic about the future. By 2003, the project’s revenues were about $400,000 a year less than those in the original developer’s projections,” said Boyce.

Half the rents were underwritten to be affordable to tenants earning 50% or less of AMI and half to those earning no more than 60% of AMI, he said, “but market rents in the area in 2003 were somewhere between 44% and 46% of AMI. The operating expenses were close to $150,000 more a year than projected.”

A survey of the tenants revealed that more than half of the households earned less than 30% of AMI. Worse yet, when an architect visited apartments in the late winter of 2003 to assess the condition of the property for rehabilitation, he discovered that only two units had the heat on, contributing to mold problems in the property.

“The rent burden was so high that many residents just couldn’t afford to pay both rent and heat,” said Boyce. “Yet 88% of the tenants had at least one adult working – in service jobs, hotels, restaurants, landscaping – and they were taking care of 225 children between them. One of the very first things we did was to apply for and receive Sec. 8 certificates from the Housing Authority [of Portland] to help lessen the housing costs for tenants,” said Boyce.

Meanwhile, the rehab assessment brought some bad news. Although Hacienda and HDC would have preferred to renovate the existing units enough to bring them through the end of the property’s 15-year tax credit compliance period, extensive mold infestation and shoddy construction meant that four buildings would cost far too much to restore.

After much modeling, HDC and Hacienda created a plan that required compromise and cooperation from numerous partners. A complete teardown-and-rebuild (estimated at $30 million) was not feasible, but the several-acre site encompassed multiple tax lots, which made it possible to isolate the tax lots that included the four buildings deemed beyond repair.

HDC negotiated with MMA, the tax credit investor, to exit the four worst buildings from the existing limited partnership, so that Hacienda could raze the structures and replace them with new, larger rental town homes.

After applying for and being awarded 9% LIHTCs through the state’s normal allocation cycle, Hacienda teamed up with Enterprise, which became the equity investor on the proposed 44 new units: Clara Vista Townhomes.

Through its Green Communities initiative, Enterprise provided more than $4.2 million in LIHTC and grant funds for the new construction to support the development and outfit the town homes with “green” features, including Energy Star lighting, rooftop solar hot water systems, and formaldehyde-free particle board cabinets and countertops. Enterprise also provided $1.35 million in financing to bridge the city’s federal dollars that had to come into the project over a multiyear period.

The townhomes’ systems include hydronic heating systems, low-flow plumbing fixtures, and whole house ventilation systems and ultra-quiet bathroom fans to help prevent mold growth. Hacienda also teamed with the city of Portland to pilot a new program in which all of Hacienda’s tenants receive a monthly discount for their water and sewer bill that amounts to $22 a month per occupied unit.

To remediate the mold and improve the safety throughout the 133 remaining original apartments, the city loaned the project an additional $3.9 million in CDBG and local funding to complete the rehab and refinance. A partial pay-down of a portion of the Fannie Mae first mortgage helped lower debt payments on the property, freeing up revenues to cover operating expenses and resident services. A “Fannie Mae Prepayment Loan” covered prepayment penalties related to the partial principal pay-down of the first mortgage.

All the rehabilitation and new construction was completed without any permanent displacement of tenants. “In preparation for the rehab and demolition, we spent a year – with significant operating losses – creating vacancies by not releasing units as normal vacancies occurred,” said Boyce. “Prior to starting the rehab, we had 50 or 60 units out of 178 vacant, which allowed us to move people from building to building as we renovated the 133 units and then tore down the 45 worst units.”

The result is a development with new units that have been built to last, and rehabbed units expected to remain safe and affordable until their 15-year LIHTC compliance period expires. In seven years, Hacienda and the city plan to begin the next phase of this project, replacing another 70 or so of the units.

Although the construction workers have left, Hacienda’s work continues. Because the property is in a blighted area, across the street from a strip club, the battle against crime is an ongoing effort. “We’re doing our share by organizing a group of residents and integrating them with civic engagement groups and law enforcement to tackle together the factors of instability that affect our community,” said Ferrari. Hacienda coordinates a monthly safety committee meeting and is working to re-establish a community policing contact office at Hacienda’s adjacent Ortiz Community Center.

Among the resident services Hacienda coordinates are after-school programs, English as a Second Language instruction, driver’s education classes, and financial services, said Ferrari.