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Catholic Charities Better Serves those in Need with Help from LIHTCs, NMTCs

Published by Mark O’Meara on Wednesday, June 7, 2017

Journal cover June 2017   Download PDF

More than 35 years ago, Catholic Charities of St. Paul and Minneapolis (Catholic Charities) opened the Dorothy Day Center in St. Paul, Minn., where it ran a small food service program, while providing those in need with a place to shower, do their laundry and receive employment counseling. Over the years, due to increased demand and in response to community input, it expanded its services to include an overnight homeless shelter, among other things. 

In recent years, the demand for such services has become too much for the Dorothy Day Center. “Demand just grew and grew until a few years ago, when we had to turn people away,” said Richard Johnson, vice president and chief financial officer of Catholic Charities. “That really was the tipping point for us.” 

As a result, Catholic Charities is building Dorothy Day Place, a two-building, two-phased development to expand and enhance its services at the Dorothy Day Center. The first phase, known as Higher Ground Saint Paul, was completed in January and includes 193 affordable apartments, 48 pay-for-stay beds and a 232-bed emergency shelter for the homeless. Higher Ground is located adjacent to the Dorothy Day Center. 

Before construction could begin, Catholic Charities had to tear down an existing aging administration building. 

Higher Ground was a complex development. Because the building used both new markets tax credits (NMTCs) and low-income housing tax credits (LIHTCs), the development had to be financed with two separate capital stacks. Brian Gorecki, principal owner of Brian Gorecki Real Estate Consultants LLC, said this created a couple of inherent challenges. “It was complex because we had to bifurcate costs between two projects,” said Gorecki, the real estate consultant on behalf of Catholic Charities. “You don’t have separate boiler systems or HVAC systems because it’s all one building,” making it difficult to determine who pays for what. But Gorecki said the extra effort was well worth it. “From a community benefit perspective, this is off the charts,” said Gorecki. 

The first two floors of the five-story building were funded in part by NMTCs and consist of the emergency shelter and the pay-for-stay beds, which include access to a locker and bathrooms and showers. Johnson said the pay-for-stay beds are most often used by people with jobs who are looking for permanent housing. Individuals can reserve a bed for $7 per night or $42 per week and can stay for up to 90 days. During that time, Catholic Charities helps residents look for permanent housing. Johnson said Catholic Charities will give residents up to $500 of the “pay-for-stay rent” they paid to Catholic Charities to go toward a deposit or first month’s rent at a permanent housing facility. 

Image: Courtesy of Catholic Charities of St. Paul and Minneapolis
The first two floors of the Higher Ground Saint Paul were funded, in part, by NMTCs and consist of the emergency shelter and the pay-for-stay beds, which include access to a locker and bathrooms and showers.

Of the 232 emergency shelter beds, 60 are reserved for women and the remainder are reserved for men. The shelter consists of bunk beds with a power outlet by each bed. Johnson said the shelter is nearly full every night. 

Floors three through five were funded using LIHTCs and house 193 affordable apartments. The affordable housing component includes 12 apartments reserved for women struggling with late-stage alcoholism. Johnson said there are similar units in the Twin Cities for men, but this is the first facility of its kind in the area for women. An additional 10 units–plus six of the pay-for-stay bunks–are reserved for homeless individuals once they are discharged from the hospital. Stays vary depending on individual circumstances. Johnson said that three local hospitals pay for 80 percent of the operating costs of these apartments. 

Construction of Higher Ground Saint Paul began in summer 2015. Residents of the LIHTC permanent housing units began moving to apartments in January, just a couple of weeks after the completion of the development. The emergency shelter and pay-for-stay beds also opened at this time. 

Phase Two

For the second phase of the Dorothy Day Place development, the Dorothy Day Center will be demolished and the expansion will be built in its place. Phase two is a six-story building called Saint Paul Opportunity Center and Dorothy Day Residence. The Saint Paul Opportunity Center will connect people to critical services to improve their health, income, housing stability and well-being, according to Catholic Charities. Services will be provided by a number of community partner organizations. The Dorothy Day Residence will consist of 177 permanent apartments above the Saint Paul Opportunity Center. Construction of phase two is expected to be completed by early 2019. 

Image: Courtesy of Catholic Charities of St. Paul and Minneapolis
The first two floors of the five story building were funded, in part, by NMTCs and consist of the emergency shelter and the pay-for-stay beds, which include access to a locker and bathrooms and showers.

Higher Ground Saint Paul Financing

U.S. Bancorp Community Development Corporation (USBCDC) was involved in both the LIHTC and NMTC transactions in phase one. On the LIHTC side, USBCDC provided an $8.4 million equity investment in 4 percent LIHTCs and a $1 million donation from U.S. Bank Foundation. U.S. Bank CEO Andy Cecere is co-chairman of Catholic Charities’ capital campaign. “[This was an attractive investment] because of our core values. We put people first. When you look at what Catholic Charities is doing, they obviously put people first, too,” said Lynn Craghead, senior vice president at USBCDC. “This is the best opportunity for us to unify our missions.” 

The LIHTC capital stack also included a $17 million allocation of housing infrastructure bonds from Minnesota Housing Finance Agency, $5 million in private capital from Catholic Charities, which includes the donation from U.S. Bank Foundation, and $500,000 in Affordable Housing Program funds from the Federal Home Loan Bank of Des Moines.

On the NMTC side, USBCDC provided a $3 million NMTC allocation, a $4.7 million NMTC equity investment and a $6 million bridge loan. “Our knowledge of and relationship with Catholic Charities makes this an attractive deal,” said Steve Kramer, senior vice president, tax credit investments at USBCDC. “They have a great track record and giving them capital to serve more people in a more efficient manner was appealing to us. And this is in our headquarters city and a large market for us.” 

National Community Fund I LLC (NCF) provided an $11 million NMTC allocation. Juneho Kim, director of investments at United Fund Advisors, the parent company of NCF, said the development vastly improves Catholic Charities’ ability to better serve the homeless by offering transitional housing options coupled with social services. Kim called this a “holistic approach.” He added that this development gives Catholic Charities, “the tools to alleviate poverty rather than sheltering it for the night.” 

The NMTC transaction also included $6 million in general obligation bonds from the state of Minnesota. The loan from USBCDC is meant to bridge the timing of the bonds. 

When looking at all the good this two-phased development will do for the community, Gorecki said, “This one checks all the boxes.” 

“The impact this multifaceted development will have on the community is exponential,” said Matt Meeker, a partner in the Dover, Ohio, office of Novogradac & Company LLP, which provided consulting for the tax structuring and the financial forecast for the financial closing. “Being able to help Catholic Charities expand and enhance its ability to serve those in need made this development a great fit for both the LIHTC and NMTC programs.” 


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