01.22.18
RAD GIVES TENNESSSEE PROPERTIES FIRST MAJOR UPDATE IN 56 YEARS

RAD Gives Tennessee Properties First Major Update in 56 Years
TERESA GARCIA, MARKETING MANAGER, NOVOGRADAC & COMPANY LLP

Creekside Acres and Southern Hills public housing properties in Columbia, Tenn., are undergoing their first major renovation since opening in 1962, the same year John Glenn became the first American to orbit the Earth and Bob Dylan released his debut album.

In the years since Creekside Acres and Southern Hills, housing authority Columbia Housing and Redevelopment Corporation (CHRC) has performed regular maintenance and system upgrades, as needed, but never a complete overhaul. Until now.

“They were at a point where they needed significant renovations to bring them up [to code], correct construction issues and update amenities to really make those apartments more livable for residents,” said Trent Ogilvie, executive director and CEO of CHRC. “All of them will be brought up to a new standard.”

CHRC is converting the public housing properties under the U.S. Department of Housing and Urban Development (HUD) Rental Assistance Demonstration (RAD) program, through which 9 percent low-income housing tax credits (LIHTCs) are being leveraged to finance the sitewide renovations and housing assistance payment contracts will keep apartments affordable to families, seniors and disabled residents earning up to 60 percent of the area median income.

Renovations
The initial plan was to convert the housing authority’s entire five-property portfolio as one 4 percent LIHTC transaction. However, the capital needs were so significant on the older properties that a bond deal wouldn’t suffice and renovation needed to be done in multiple phases, according to David Arning, senior vice president of LHP Development LLC, a Knoxville-based real estate development company that is working with CHRC on the development. While Creekside Acres and Southern Hills are Phase I, Phases II and III will consist of CHRC’s three remaining public housing properties: Northridge, Northridge Annex and Oakwood, which collectively contain 155 apartments.

Creekside Acres and Southern Hills are both one-story duplexes near downtown Columbia. Creekside has 74 apartments, ranging from one- to five-bedroom units. Southern Hills has 66 apartments, ranging from one- to four-bedroom units.

Considering their age, the properties were both well kept, according to Arning. “CHRC has done a great job maintaining those properties with limited HUD resources, but the reality is that they were long overdue for a major overhaul,” said Arning.

On average, Ogilvie said renovations for each apartment will cost about $45,000. Renovation work will include replacing all electrical, plumbing and HVAC systems. Each apartment also will receive new kitchen cabinets and countertops, Energy Star appliances, bathroom vanities, showers, LED light fixtures and luxury vinyl plank flooring. Exterior work will include painted porch columns, new porch railings and more accessible sidewalks and parking spaces. The roof insulation will be upgraded and existing roof shingles, gutters and downspouts will all be replaced.

Each property’s existing office building will be updated to include a community room, computer center, shared kitchenette and accessible restrooms.

Nine apartments will have audible and visual alarm systems designed for residents with sight or hearing impairments. An additional 10 apartments will be made fully accessible with layouts, showers and door widths that can accommodate a resident’s wheelchair.

Residents temporarily relocate to vacant apartments within the property as their apartments undergo renovation. Construction is scheduled for completion in September.

Financing
To finance the renovations, CHRC committed $50,000 in public housing capital funds. Creekside Acres and Southern Hills also received an allocation of 9 percent LIHTCs under a new RAD set-aside during the 2016 awards round. First Tennessee Housing Corporation provided the $6.8 million LIHTC equity. First Tennessee Bank provided a $3.1 million mortgage and a $6.5 million equity bridge loan through the state’s Community Investment Tax Credit (CITC), a program that provides state franchise and excise tax credits for banks that provide low-interest loans to nonprofits and housing authorities for the creation and preservation of affordable housing.

For First Tennessee, the chance to preserve 140 affordable homes made Creekside Acres and Southern Hills an attractive investment. “It was an opportunity to take two neighborhoods and rehab these units to provide safe, affordable housing for a number of years to come,” said April Heath, vice president and investment officer for First Tennessee Housing Corporation.

The city of Columbia, through its Industrial Board, was also a significant player in the redevelopment, approving a payment in lieu of tax (PILOT) agreement for Creekside Acres and Southern Hills. The new PILOT preserved a tax abatement under CHRC’s existing agreement with the city. “The PILOT is a huge deal,” said Arning. “We were able to negotiate a city PILOT for 20 years that keeps the taxes at zero. Without that, the development would not have been viable.”

Arning said the PILOT is crucial because some local tax assessors in Tennessee include the value of the federal LIHTC in a property’s assessed value. “Not
many LIHTC deals would be viable without a PILOT in Tennessee,” said Arning.

RAD conversions can be challenging, especially with old properties. “It’s difficult to make RAD deals work, particularly on older public housing just because of the [extent] of the capital needs,” said Arning. Arning said that Columbia’s market-rate rents are rising; however, RAD rents are established based on existing public housing funding rather than market rents, making it difficult to leverage as much debt to make RAD deals work. “That’s why we need incentives like PILOT, CITC and 9 percent credits,” said Arning.

Partnering the RAD conversion with other state and local resources made the renovation of Creekside Acres and Southern Hills feasible. “We have more modern,
more manageable, more energy efficient properties that we can use going forward for affordable housing,” said Ogilvie. “RAD was the vehicle that allowed us to do that.” ;

Creekside Acres and Southern Hills
FINANCING
 $6.8 million in 9 percent low-income housing tax credit equity from First Tennessee Housing Corporation
 $6.5 million Community Investment Tax Credit (CITC) equity bridge loan from First Tennessee Bank
 $3.1 million CITC permanent loan from First Tennessee Bank
 $50,000 public housing capital funds from Columbia Housing and Redevelopment Corporation

This article first appeared in the January 2018 issue of the Novogradac Journal of Tax Credits.

© Novogradac & Company LLP 2018 - All Rights Reserved

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