HousingPolicy.org | Policy - Preserve Affordable Rental Homes

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Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Preserve Affordable Rental Homes

Case Studies

Every preservation project has its own unique story. Listed below are several examples of communities in which affordable rental homes were preserved as a result of innovative financing mechanisms, federal incentives programs, or tenant initiative. The examples are excerpted from longer case studies prepared by the National Housing Trust, a national nonprofit dedicated to safeguarding affordable housing through public policy initiatives, lending, and real estate development. Click on the links after each example to view the longer case study on the National Housing Trust website.

Examples include:

Predevelopment, Acquisition, and Interim Financing for Preservation Projects

In 2003, with property values in the neighborhood on the rise, the owner of Battery Park Apartments in downtown Asheville, NC was contemplating selling the 14-story building to a developer with plans to convert it to market-rate condos. That meant the property's elderly residents would lose their homes and the city would lose 122 units of project-based Section 8 assistance.

National Church Residences (NCR) expressed interest in preserving the property's affordability, and the owner agreed to sell to them - but only if NCR could match the other buyer's offer, meeting not just the price, but the purchase deadline. The National Affordable Housing Trust (NAHT) helped to structure a six-month interest-only acquisition/bridge loan allowing NCR to buy the property. The loan involved two pieces: $4.465 million from Fannie Mae's American Communities Fund, and $235,000 lent by NAHT. A key element: NAHT took the top loss position, with its funds covering the top 5 percent of the combined loan.

NCR started its $30,000 per unit renovations immediately after closing. The bridge loan was repaid and the deal went forward with the typical range of financing sources: a HUD 221(d)(4) mortgage, 4 percent Low Income Housing Tax Credits, federal and state historic tax credits, HOME funds from the City of Asheville, and NCR's deferral of developer fees.

Click here to read more about predevelopment, acquisition, and interim financing for preservation projects.

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Preservation Using Mark to Market

For twenty years, 100 low-income families have lived in Eastland Woods' three- and four-bedroom single family detached homes located in an Akron, Ohio suburb. But with an expiring Section 8 contract, a pending reduction in HUD rent subsidies, substantial rehabilitation needs, and an owner interested in "getting out," these families faced a serious risk of losing their homes.

The Ohio Capital Corporation for Housing (OCCH) and the Akron Metropolitan Housing Authority (AMHA) developed a plan that preserved the affordability of these units for the long-term and positioned them for the future through a combination of a mortgage restructuring under the Mark-to-Market program, $2,000,000 investment by AMHA, and supportive HUD and Mark-to-Market administrative offices that proved crucial to making the deal work. HUD restructured $4 million of its original loan, converting it to a long-term 1 percent loan payable from a portion of annual cash flow. A $2.4 million tax exempt first trust, 4 percent Low Income Housing Tax Credits, AHMA's $2 million loan - also repayable from cash flow -and deferred developer fees make up the bulk of the remaining sources.

Click here to learn more about Mark-to-Market and other preservation-related federal programs.

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Preservation Financing for Small Property Owners

Clover Patch Apartments in St. Charles, Minnesota, was built in 1980 and financed through USDA's Section 515 program. In 2001, the owner applied to prepay the loan. By this point the 20-year low income use restriction period imposed on post-1979 Section 515 properties had expired. As a result, the owner could convert the property to market rate making Clover Patch's tenants vulnerable to substantial rent increases.

After reviewing the owner's application for prepayment, USDA's Rural Development determined the loss of this affordable housing would adversely affect housing opportunities for minorities in the region, meaning that the owner had to market the property to a non-profit or public agency that would maintain affordability. The search for a qualified purchaser was not easy, in part because non-profits cannot currently be reimbursed for organization costs or earn a developer fee under Rural Development loan programs, but Three Rivers Community Action, a local non-profit, stepped up to the plate. Rural Development transferred the existing mortgage to Three Rivers and provided a new loan to cover the gap between the owner's equity and the outstanding loan. Rural Development also increased the number of units receiving USDA project based Rental Assistance from 18 to all of the property's 32 units.

Three Rivers then found the funding for rehabilitation and organization costs to undertake the transaction. Minnesota Housing Finance Agency provided a $350,000 deferred loan from its Preservation Affordable Rental Investment Fund Program, a statewide program that provides low interest-deferred loans to help cover the costs of preserving permanent affordable rental housing with long term project based federal subsidies that are in jeopardy of being converted to market-rate apartments.

Click here to read more about preservation financing for small property owners.

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Green Affordable Housing Preservation

In the late 1980s, New Holland Apartments in rural Danville, Illinois was renovated as affordable housing for low income families but was poorly managed by an out of state company. It was a vacant eyesore when Crosspoint Human Services decided to pursue redeveloping it as 46 units of affordable housing.

Crosspoint faced challenges in getting the project off the ground - mainly raising the funds necessary to begin the development process - until the City of Danville provided a $35,000 predevelopment grant. Crosspoint also chose to pursue a green approach from the outset, and the property is on track for at least a silver Leadership in Energy and Environmental Design (LEED®) award for major renovations. The Illinois Clean Energy Community Foundation provided more than $200,000 in grants to help cover the LEED design process and other energy improvements; additional funding came from Enterprise Community Partners and Enterprise Community Investment, a related entity, which purchased historic and 9 percent Low Income Housing Tax Credits.

Rents are set at levels that very low income families can afford, due in part to a 30 year, 1 percent mortgage structured by the Illinois Housing Development Authority. Twelve of the units are reserved for formerly homeless single mothers with children, who receive support services to help them get back on their feet. And the property itself, across from the city's library at the edge of downtown, may well help spur additional revitalization needed in the area.

Click here to learn more about green affordable housing.

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The City of Seattle and City Light, Seattle's public utility company, donated four Energy Star light bulbs for each of the 60 apartments at Vincent House in Seattle, a federally assisted senior complex. The new light bulbs were part of the Change a Light, Change the World campaign, an effort of the EPA, Department of Energy, and HUD to promote energy efficiency and conservation throughout the nation.

Vincent House is undergoing a significant renovation including other energy enhancements that are expected to save the tenants nearly $100 a year in utility costs. In 2004, with the help of Providence Health System, Vincent House received a $6.3 million HUD Section 202 rehabilitation grant. At the same time, the city agreed to donate $40,000 to make certain energy enhancements, including adding energy efficient lighting, thermostats, and refrigerators to all of the units.

The money provided by HUD ensures that Vincent House can continue operating. The Section 202 grant included $5.2 million for renovations and a project based rental assistance contract. Although tenants will now be responsible for their own utility expenses, the energy efficiency improvements funded by the city will ensure that electricity costs are low. The switch to compact fluorescent bulbs alone should have a significant impact on energy use. According to the EPA, compact fluorescent light bulbs use at least two-thirds less energy than standard incandescent bulbs to provide the same amount of light, and last up to 10 times longer.

Click here to learn more about green affordable housing.

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Galen Terrace Apartments was once identified as one of the most troubled properties in Washington, D.C. but in 2006 the Galen Terrace Tenants Association exercised its right of first purchase under D.C. law and acquired the Section 8 property in order to make substantial improvements.

The renovations include environmentally friendly features that have made the buildings more energy efficient and healthier for residents. Galen Terrace is now the first rehabilitated property in D.C. to meet all of the criteria under the Enterprise Green Communities Initiative. Moreover, it's the first Section 8 building to be rehabilitated under Enterprise's Green Communities program. Environmentally friendly features include low volatile organic compound paints, primers, sealants, and adhesives, Energy Star appliances and lighting, solar reflective roofing material, double-paned windows, and water barrels to collect and reuse rain water for landscaping.

Primary sources of funding for the renovations included tax-exempt bonds and Low Income Housing Tax Credits provided by the D.C. Housing Finance Agency, and CDBG funds provided by the D.C. Department of Housing and Community Development. MMA Financial purchased the bonds in the amount of $5.6 million and Enterprise Community Investments purchased the tax credits in the amount of $4.6 million. The U.S. Department of Housing and Urban Development agreed to a long-term Section 8 contract that will ensure rents remain affordable to low income families and seniors for 20 years.

Click here to leave this site and learn more about Galen Terrace, or click here to learn more about green affordable housing.

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