Historic LIHTC Development Survives Equity Market Turmoil

Published by Teresa Garcia on Wednesday, September 6, 2017

Financing the first low-income housing tax credit (LIHTC) property in Crawford County, Wis., wasn’t easy–especially because the timing coincided with the LIHTC equity market turmoil in late 2016. Commonwealth Development Corporation’s conversion of a historic school into Lawler School Lofts in Prairie du Chien nearly didn’t happen when the original investor dropped out.

Fortunately, U.S. Bank stepped up as the LIHTC and federal historic tax credit (HTC) equity investor and the development is now on track to provide much-needed affordable housing by summer 2018.

“It’s a catalytic project for the community because they don’t really have any apartment projects at all in the entire community; there aren’t any comparable[s] and the closest thing is a condo development that ended up turning some units into rentals,” said Kevin McDonell, Commonwealth Development Corporation’s vice president of development for the Great Lakes Region. “They’ve got a number of large employers in town, with Cabela’s and 3M being the two largest, but there aren’t any apartments. They need workforce housing and this helps fill the gap there.”

Once completed, Lawler School Lofts will have 40 apartments, six of which will be market rate. The remaining apartments will be set aside for households earning up to 50 percent of the area median income (AMI). A subset of those income-restricted apartments will target veterans earning 30 percent or less of the AMI. Local nonprofit Couleecap will provide on-site supportive services, such as education and gap training. 

“The project is a poster child for why rural communities need the historic tax credit to survive tax reform,” said McDonell. “One thing is for sure, a community like Prairie du Chien would never be able to attract the necessary capital without the historic credit that has been proven time and time again to pay for itself, while creating thousands and thousands of jobs across the country.”

History and Rehabilitation  

The building had various uses over its long history, which made for an interesting historic preservation challenge. “The building grew in fits and starts, so it has very distinctive components added on at different times,” said Emily Ramsey, consulting senior affiliate of MacRostie Historic Advisors LLC, who acted as the historic consultant and helped with the property’s addition to the National Register of Historic Places. “There were a lot of changes made to the building and it has this layered history.” 

Lawler School Lofts is named after John Lawler, a local ferry operator who donated the land (formerly part of Fort Crawford) to Catholic nuns to build St. Mary’s Institute, a girls’ boarding school. The school was built in 1872 and changed its name to St. Mary’s Academy in 1897. In 1913, the school’s first college curriculum went into effect and the institution changed its name to St. Mary’s College, the first four-year Catholic college for women in Wisconsin. St. Mary’s left the property in 1968, after which the building operated as the Wyalusing Academy residential care center for youths until 2013. The building remained vacant until Commonwealth Development Corporation acquired it for rehabilitation.

Ramsey said that as St. Mary’s expanded the complex in the late-19th and early- 20th centuries with numerous additions, it altered the interior of original historic structure to make it look more consistent with the updates. Wyalusing Academy made additional changes to the interior in the 1960s and 1970s. Part of MacRostie’s challenge was discerning which elements were original during the building’s period of historic significance as St. Mary’s Academy and keeping as many of those historic elements as possible.

Ramsey said one of the primary public spaces in the building that had the most significant non-historic alterations by previous owners was the chapel, which was constructed in 1886. The chapel’s vaulted ceiling was cut off from view with the addition of a second floor. The proposed rehabilitation project will restore the historic volume of the space and convert it into an apartment. The non-historic second floor will be removed to reveal the original vaulted ceilings and plaster detailing will be retained and restored. The chapel’s few remaining stained glass windows will be restored to their original condition. 

Financing and Credit Pricing Challenges

“We had an original timeline of starting construction this past fall and we had really good credit pricing,” said McDonell. “With the threat of tax reform, we all know the effect on credit pricing: Investors were pumping the brakes.” 

U.S. Bank stepped in as the investor when the original tax credit investor fell through. “In the midst of chaos, there is also opportunity,” said Kyle Kochtanek, business development officer for U.S. Bank. “We saw this time of uncertainty as an opportunity to demonstrate to others U.S. Bank’s ability and commitment to executing in both good times and bad. We feel this is imperative to creating strong, long-term relationships.” U.S. Bank provided $6 million in federal LIHTC and federal HTC equity, while Associated Bank invested in state HTCs.

Chase is providing a $6.1 million construction loan and through a partnership with Impact CIL, a consortium of insurance companies, a $654,000 permanent loan. Chase also sponsored a $510,000 Affordable Housing Program (AHP) grant through the Federal Home Loan Bank. The development also has a HOME Loan of $468,000, which results in a complex capital stack with seven permanent layers of financing that are all essential to the Lawler School Lofts project.

“When I rejoined Chase and was given responsibility for business development in Wisconsin, I connected with Commonwealth Development and Kevin McDonnell shared their upcoming project with us,” said Dell McCoy, vice president of Chase Community Development Banking. “Curiously, the prior fall I had taken a trip along the Mississippi River and I remember seeing the building and thinking it would be a great property to rehab and a great fit for Chase to finance.”

Partners say the diverse mix of public funding and private investment needed to make Lawler School Lofts possible is an investment in the local community’s history and future. “We are preserving a 145-year-old school building and providing affordable housing to those who need it the most,” said Kochtanek. “It’s a perfect pairing of what the tax credits are intended to do.” 

Journal September 2017 Historic Finance Box