Abandoned homes lined the streets of Olneyville in Providence, R.I., sad, steadfast tattoos of the Great Recession, stubbornly staining the landscape, daring to be removed.
The neighborhood, one of the oldest in the capital city, looked very much like what it was: an area hit hard by the foreclosure crisis of the past half decade.
To help heal the scars from the boarded-up, vacant buildings, locally based Olneyville Housing Corp. redeveloped 12 of the townâs foreclosed properties, along with several vacant lots, into 40 affordable homes.
âWe had hundreds of properties to choose from, but these were focused around an elementary school,â says Frank Shea, Âexecutive director of the 25-year-old nonprofit. âRather than the school being surrounded by abandoned buildings and nuisances, we wanted to provide well-maintained community assets.â
Olneyville Housing acquired the propertiesâmostly small Âinfill developments with just a few unitsâusing Rhode Island Housingâs Land Bank program, which purchased nine foreclosed properties for about $416,000 and held the sites while the housing developer applied for low-income housing tax credits (LIHTCs) and other financing.
The housing finance agencyâs program is helping other affordable housing developers in the state, as well, overcome one of their toughest challengesÂâacquiring sites to build on or preserve. Entities such as Olneyville Housing are saddled by the need to piece Âtogether multiple sources of financing for their deals, a long, time-Âconsuming process. The Land Bank program snatches up desirable properties before theyâre bought by market-rate interests and the opportunity to use them for affordable housing is lost.
Land of the zombies
While the number of foreclosures has ebbed since the housing crisis, the problem is still pervasive. One in every five U.S. homes in the foreclosure process remains a âzombieâ property: still vacant, abandoned by the homeowner but not yet repossessed by the lender, according to RealtyTrac, a real estate data firm based in Irvine, Calif. Sitting in limbo, unmaintained, these sites continue to drag down their neighborhoods.
Some developers are targeting these foreclosed properties and brownfield sites for development opportunities. Local land bank programs and new acquisition funds are aiding their quest for land.
Rhode Island Housingâs Land Bank program not only acquires properties but also provides acquisition loans to nonprofit developers. In Âevery case, the applying nonprofit must present a development plan for the property it wants. The program, which began years before the housing crisis, earned an award for excellence and innovation from the National Council of State Housing Agencies in 2004.
âRhode Island Housing recognized a long time ago the value of community-based development and the special challenges the nonprofit community faces in acquiring land and holding it for the extended periods of time needed to assemble financing and secure approvals,â says Richard Godfrey, the organizationâs Âexecutive director. âCreating a land bank was a way to preserve our assets but also use them to directly advance our mission.â
Since 2006, the agency has closed $16.9 million worth of Land Bank investments, with repayments of $18.7 million. The program has generated 777 affordable homes and provided a net return to the agency of about $1.8 million. About $5.1 million in outstanding investments is expected to generate another 450 affordable homes.
âThe Land Bank allows a small, neighborhood development corporation like ours to move quickly on properties and strategically assemble them for a larger initiative,â Shea says.
The program has been especially useful in assembling enough blighted urban properties to create a viable development that would be competitive for other funding, like housing tax credits.
Olneyville Housing strategically sought foreclosed properties near DâAbate Elementary School.
Phipps Houses Tackles Brownfield Site
The 141-unit Lebanon West Farms project is under construction on a former rail right-of-way in the West Farms neighborhood in the South Bronx. Itâs the fifth project The Phipps Houses Group is building under the New York State Brownfield Cleanup Program.
âPart of it is that many of the neighborhoods in which Phipps is doing community-building work are neighborhoods that are âenvironmental justiceâ locations,â says Adam Weinstein, president and CEO.
These are areas where advocates are working to ensure that residents are treated fairly and donât suffer from a disproportionate share of environmental problems or potentially hazardous land uses. In many cases, they are low-income and minority neighborhoods. Problems found in these communities can include dormant factories that were built to be near cheap labor. When the factories shut down, they left behind derelict buildings, contaminated soil, and other troubles.
Weinstein and his team often encounter land and urban sites requiring cleanup. At Lebanon West Farms, they eyed an abandoned rail site in a neighborhood where Phipps had created about 1,100 apartments.
The team learned that the site was among a massive number of properties owned by the city and leased to the Metropolitan Transit Authority. The nonprofit eventually ended up negotiating an agreement with city and transit leaders to take over the property and build affordable housing.
At Lebanon West Farms, the projectâs first capital was $1.6 million that Phipps invested to remediate the site. This included the costs of excavation; foundation support; soil removal; and new, clean fill. âTrue developer equity goes in for cleanup first,â Weinstein says.
Phipps will recoup those costs through the state brownfield program, which includes a credit for taxpayers who incur costs for the remediation or redevelopment of a brownfield site. On the downside, the tax credit benefits come over several years.
The state brownfield program is slated to sunset next year, but Weinstein is confident it will be continued. Phipps has two more projects in the pipeline that plan to use the credit.
By focusing its redevelopment efforts close to the campus, the developer was able to stabilize and transform the overall neighborhood. Had the properties been spread too far apart, the impact would have been Âdiminished.
Sheaâs group identified the sites it wanted and negotiated with the sellers. Rhode Island Housing then bought and held the sites from about six months to a little more than a year until the developer could buy them. More than just holding the land for the developer, the agency was part of the projectâs checks and balances.
âThey were another set of informed eyes,â Shea says. âIt was great to have someone else look at the deal.â
The team was able to acquire the properties quickly, often closing a deal in about a month. âWithout speed, you may lose the properties,â Shea says.
Known as Olney Village, the projectâs 40 units are in small multifamily buildings spread over a five-block area. Financing for the $11 million deal included housing tax credits, HOME funds, a voter-supported housing bond, and Neighborhood Stabilization Program funds. The city of Providence, National Equity Fund, and TD Bank were financing partners, and LISC Rhode Island provided predevelopment funds.
In addition to Olney Village, Sheaâs group has redeveloped three single-family homes and 12 units in five foreclosed and abandoned buildings using similar financing tools and strategies.
New day in Dayton
In Dayton, Ohio, Miller-Valentine Group and St. Mary DevelÂopment Corp. have been targeting vacant and foreclosed properties for redevelopment. Together, the two developers have been working with the city to turn around dilapidated housing in the Roosevelt neighborhood, one of the areas where the city has already made a significant investment.
In 2013, the team completed the first phase of its RooseÂvelt Homes development, featuring 43 single-family lease-to-Âpurchase homes financed with the help of LIHTCs.
The project started with the purchase of abandoned and foreclosed properties acquired from the city of Dayton, which utilized Montgomery Countyâs Real Estate Acquisition Program process for foreclosing on vacant, abandoned tax-delinquent properties.
The developersâ strategy has been to decrease the density in the neighborhood by replatting the existing lots. For example, three 30-foot-wide lots would be reconfigured into two 45-foot lots to reduce the overall housing stock and enhance the neighborhood, says Brian McGeady, partner and president of Miller-Valentine Affordable Housing Development.
This plan was designed for a neighborhood that has had a large number of foreclosures and is seeing a declining population. To stabilize and improve the neighborhood, the team Âdemolished two blighted homes for every one it built.
âItâs been a tremendous improvement,â McGeady says. âIf you look at the neighborhood before and today, itâs a night-and-day difference.â
The team purchased about 80 to 90 properties over a seven-block area to develop the first phase. The vast majority involved foreclosed homes the developers acquired mainly for the costs of the foreclosure process and the title clearance. Other lots were purchased through private sales. On average, lots and homes to be torn down were acquired for about $11,000 per home.
Although the land was purchased at low prices, the development of Roosevelt Homes came with many challenges, one of which was to create a project at a large enough scale to have a meaningful impact, says McGeady. The developers wanted to avoid having a redeveloped home sitting in the middle of dilapidated structures. Thatâs why they worked to acquire privately owned lots.
Prior to Roosevelt Homes, the vacancy rate in the project area was 35 percent. Since the new development was completed, the vacancy rate has dropped to 19.8 percent, a decline the city attributes to the investments made to develop the project.
Other challenges facing Roosevelt Homes included working through the foreclosure process and clearing titles, steps that can add to a developmentâs time line and go beyond buying an empty lot ready for development.
With its many lots, the project was also very labor intensive. The developers werenât only buying a large number of properties; they were also managing multiple construction sites.
Because the LIHTC development features a lease-to-Âpurchase program, its homes may be purchased after the 15th year. Residents will have the first opportunity to buy the homes, at below-market value, based on the number of years during the 15-year period they occupied the home.
Ohio Capital Corporation for Housing syndicated the housing tax credits that were allocated by the Ohio Housing Finance Agency, and Key Bank was the construction lender. The approximately $9.9 million development also used federal Neighborhood Stabilization Program funds.
The Roosevelt Homes team has its eye on developing a second phase of 30 homes.
Land banking for affordable housing
Developers are also teaming with regional land banks, which acquire blighted properties to return them to productive use. These organizations often have the authority to enforce local codes, Âdemolish structures, and sell properties to new owners.
Interest in land banks has grown since the foreclosure crisis, which left communities with swaths of vacant and abandoned properties. The Philadelphia Land Bank and the Cook County Land Bank Authority in Chicago are among those to emerge recently to help combat the problem and promote redevelopment.
In Flint, Mich., Communities First is redeveloping the former Oak School into a 24-unit development for low-Âincome seniors. The nonprofit organization bought the property for $1 from the Genesee County Land Bank Authority, which has been a model since its formation in 2004.
After the school closed in 1976, the century-old building was occupied by other tenants until about 1998. The land bank acquired the school in 2005 as a donation from Greater Flint Mental Health Facilities. Previously, Genesee County Community Mental Health Services had run a program at the location for a short time.
Communities First is working to bring new life to the old building, says Glenn Wilson, president of the nonprofit group. The project is important to the community and to seniors in the Flint area.
The $5 million Oak Street Senior Apartments, currently under construction, is being financed by a HUD Sec. 202 Supportive Housing for the Elderly grant, a Michigan State Housing Development Authority grant, and a grant from the city of Flint. Communities First partnered with New Samaritan Corp. of New Haven, Conn., on the project. Construction is Âexpected to be complete in September.
The local school district has moved to close more than 20 schools during the past decade, due to shrinking enrollment and aging facilities. This is a chronic problem for both the school district and the communities where the vacant buildings are located.
Acquiring Oak School from the land bank was significant, says Wilson. It provides his organization a key site in Flintâs Grand Traverse District neighborhood, and it will restore a local landmark into needed affordable housing for seniors.
A number of former students have shown support for the project, and a few are even interested in moving into the apartments when they are completed later this year.
Sold! Developers Buy Land With New Funds
Acquiring land or properties can be one of the biggest challenges for affordable housing developers, especially nonprofits.
The Community Preservation and Development Corp. (CPDC) in Washington, D.C., had made about eight offers on properties in the Hampton Roads market in Virginia but was having trouble closing a deal. CPDC was putting in solid offers, but it couldnât compete when it came to closing quickly. Sellers wanted deals that could be executed in about 60 days, an impossible deadline for many affordable housing developers who have to assemble layers of financing for each deal.
That changed last year when CPDC acquired Woodmere Trace, a 300-unit property in Norfolk, in collaboration with the new Housing Partnership Equity Trust (HPET).
âThis is exactly the type of property that HPET was intended to serve,â says Christopher LoPiano, CPDCâs senior vice president for real estate.
The development, located near Norfolk International Airport and two military bases, is ânaturally affordable,â meaning that it generally serves residents with incomes below 80 percent of the area median income and is not subsidized by a government program, according to LoPiano. Residents include retail workers, baggage handlers at the airport, and retired couples. About 25 percent of the units are leased by enlisted military families.
In the past, if CPDC was going to acquire a property of similar size, it would likely have had to enter into a contract that was contingent upon it acquiring low-income housing tax credits (LIHTCs) and bond financing. It would have been a process that took nine months, maybe longer.
HPET changed the game for CPDC and other nonprofit members. Operated by the Housing Partnership Network, a collective of 100 of the nationâs leading housing and community development nonprofits, the trust was established to help participating members access long-term capital to acquire apartment buildings quickly and to compete with for-profit developers. Twelve nonprofits are taking part in HPET.
The trust was funded with an initial $100 million from several big investorsâCiti, Morgan Stanley, Prudential Financial, the John D. and Catherine T. MacArthur Foundation, and the Ford Foundation. The transactions are unique because they donât involve housing tax credits or other public financing that nonprofits typically need to buy property.
As a result, HPET and CPDC were able to move quickly on the $15 million purchase of Woodmere Trace. They executed a purchase-and-sale agreement that called for a 75-day closing.
It was HPETâs third transaction. The other two involved Mercy Housing Lakefront of Chicago and Eden Housing of Hayward, Calif. The trust hopes to close another three to five deals this year, says Drew Ades, HPET president and CEO.
Looking long term, HPET wants to raise additional capital and expand to include other nonprofits. Itâs also examining the possibility of taking part in portfolio acquisitions.
In Norfolk, LoPianoâs organization is in the midst of rehabilitating its new property. About $13,000 per unit in rehab work is being done at Woodmere Trace.
Across the country, in Los Angeles, the Skid Row Housing Trust is turning a vacant lot into The Six, a 52-unit development for homeless veterans and individuals with special needs. Construction started on the approximately $16 million project near the end of March, after the longtime developer acquired the property with the help of a $1.125 million loan through another recently established acquisition programâthe Golden State Acquisition Fund (GSAF), which was seeded by an initial $23 million investment by the state Department of Housing and Community Development. The state investment serves as a 25 percent top-loss guarantee for GSAF loans.
The state funds are combined with capital from a consortium of seven Community Development Financial Institutions (CDFIs) that serve as originating lenders for the fund. The Low Income Investment Fund (LIIF) is the administrator.
Century Housing, one of the participating CDFIs, has closed 12 loans under the Golden State fund, including the Skid Row Housing Trust loan.
âOne of the largest potential unknown costs an affordable project can incur is land-carrying costs,â says Aaron Wooler, Centuryâs senior vice president of lending.
When it can take two to three years to go through the competition and obtain housing credits, those costs of holding the land can be substantial, he says.
The Six project loan was able to close in about 30 days, important because the seller was getting market-rate offers, says Wooler.
The GSAF has deployed $105 million in just over a year, helping to create or preserve more than 1,490 units. Its maximum loan amount is $13.95 million, and the maximum term is five years.
GSAF is open to both for-profit and nonprofit developers and has been used to acquire land and existing properties. Nonprofit developers can borrow up to 100 percent of the lesser of the as-is appraised value or the purchase price. For-profit developers can borrow up to 95 percent of the lesser of the as-is appraised value or the purchase price.
For Skid Row Housing Trust, the alternative would likely have been to borrow directly from the CDFIs with a lower loan-to-value ratio and higher interest rates, says Dana Trujillo, housing development director for the firm.
In Denver, the nonprofit Urban Land Conservancy (ULC) preserves real estate to ensure its continued community benefit. One of the ULCâs strategies is to buy and bank properties for low-income housing, and one of its tools has been the countryâs first affordable housing transit-oriented development (TOD) fund. The ULC, Enterprise Community Partners, the city and county of Denver, and several other investors partnered to establish the $15 million Denver TOD Fund, which has been used on eight deals, including the recently completed, 50-unit Evans Station Lofts, which serves residents earning no more than 60 percent of the AMI.
The ULC used the TOD Fund to purchase the land for $1.2 million, hold it for about a year, and then sell it to for-profit developer Medici Communities after the firm assembled the financing, including LIHTCs, for the $12.35 million development.
In other cases, the ULC keeps ownership of the land and provides affordable housing developers with 99-year ground leases. âItâs a stronger mechanism for long-term stewardship,â says Aaron Miripol, ULC president and CEO. âItâs similar to the community land trust model.â
The TOD Fund not only helps developers acquire land but also provides valuable time to create just the right project.
âIt allows you to plan better and make sure youâre not missing opportunities,â says Troy Gladwell, principal at Medici. âYou donât have to worry about tying up the land. It allows you to do a more dynamic project, to take advantage of all the opportunities at the site rather than doing one thing.â
Other affordable housing TOD funds have emerged, including one in the San Francisco Bay Area thatâs managed by LIIF, which is also an originating lender along with several other leading CDFIs.
The acquisition loans these funds provide are usually more flexible and patient than other loan products, says Melinda Pollack, vice president of transit-oriented development at Enterprise. âThe concept has really caught on across the country, especially in places that are building or expanding their transit systems,â she says.
