RAD Conversion Saves Six Affordable Housing Properties in Boulder, Colo.

Published by Mark O’Meara on Tuesday, December 1, 2015
Journal thumb December 2015

Boulder Housing Partners (BHP) knew it had a challenging road ahead when it decided to rehabilitate its affordable housing properties in Boulder, Colo. To get the job done, the housing authority for the city of Boulder, which builds, owns and manages roughly 33 percent of the city’s affordable housing stock, used the Rental Assistance Demonstration (RAD) and Section 18 Disposition programs with the help of 4 percent low-income housing tax credits (LIHTCs).

Built from the 1960s through the early 1980s, the six developments in question house 279 units of public housing. The properties are a combination of single-family houses, multifamily housing in multi-story townhomes, senior apartment housing in a high-rise facility and senior two-story apartment-style housing. The properties include Diagonal Court (30 multifamily units), Iris Hawthorne (14 single-family units), Kalmia (49 multifamily units with a community center), Manhattan (41 multifamily units with a community center), Northport (50 senior multifamily units) and Walnut Place (95 senior multifamily units). All six properties are being rehabilitated under one development effort, called Boulder Communities. The renovation will bring the properties up to 21st century standards, said Laura Sheinbaum, senior project manager at BHP. Because public housing residents only pay 30 percent of their income toward rents and because the U.S. Departments of Housing and Urban Development’s (HUD’s) Capital Fund has been chronically underfunded, Sheinbaum said that the properties often accumulate years of deferred maintenance.

Each of the properties will have a full interior upgrade that will include new kitchens, Energy Star-rated appliances, new or refinished flooring, upgraded bathrooms and new lighting. Developments will receive new siding, roofs, windows and doors, and better insulation. Site improvements include new landscaping and parking upgrades. Properties with family areas will receive new playgrounds and community gardens. Sheinbaum said it was important to provide energy-efficient amenities. All six properties will be compliant with Enterprise Green Communities Standards and city of Boulder Smart Regulations.

Sheinbaum said doing all these improvements under one transaction was much more efficient in terms of both time and financial resources. If each property was rehabilitated individually, Sheinbaum said it would have taken five or six years to get all six developments completed. Sheinbaum said that if BHP wanted to fund each development individually that “we would not get as much attention in the LIHTC market.”

Sheinbaum said that it was extremely important to preserve Boulder’s existing affordable housing stock. “We wanted to make sure we are not losing anything. We are trying to preserve housing that is at the core of our affordable housing product,” said Sheinbaum. She said this is so important because “land is at a premium. Pricing for rent is off the charts in Boulder.”

BHP has had a lot of success with the LIHTC program, closing eight developments. BHP has also done a Section 18 disposition, so it is also familiar with this process. Construction began in early October and will be completed by Dec. 31, 2016. The Boulder Communities properties will continue to serve the same residents who live in them, and will serve future residents who qualify for assistance under the Housing Choice Voucher (HCV) program. To maintain affordability, the six properties will have 135 RAD vouchers and 144 project-based HCVs.

Development Challenges

Sheinbaum said perhaps the biggest challenge with the development was that it was an occupied rehabilitation. BHP did not fill vacancies at any of the six properties for approximately six months to create vacancies, so that it can rotate residents around the properties while units are rehabilitated. To create more vacancies for that rotation, BHP also offered all residents the opportunity to use a HCV and move permanently with tenant-based assistance.

“Work will be taking place on four sites at one time, which requires detailed planning, procurement and scheduling to ensure that work is completed on time and within budget,” said Kari Feld, project manager for the Boulder Communities development at Palace Construction, which is the general contractor of all six properties. “One of the biggest challenges of the project is the phasing of the work. Boulder Housing Partners and Palace have worked very closely to develop a schedule that minimizes the impact on the residents while maintaining a flow of work for the trades.”

Funding Six Developments in One Transaction

The development was primarily funded with 4 percent LIHTCs and tax-exempt bonds. Enterprise Community Investment was the syndicator for the tax credits and put together a proprietary fund with American Express as the end investor. American Express invested in the LIHTCs, providing $28.3 million in 4 percent LIHTC equity. “Trying to reposition public housing is a difficult thing to do. But the RAD program allows it to get done,” said Brian Windley, vice president, syndication at Enterprise Community Investment. Windley said that this development was attractive because Enterprise Community Investment has had a relationship with BHP for nearly 15 years; therefore, it was confident in BHP’s ability to execute such a large and complex transaction.

FirstBank was the private activity bond purchaser and construction/permanent lender for this development. Nicole Mansour, senior vice president of FirstBank, said the bank provided a $46 million construction loan that later converts to a $14 million permanent loan at construction completion and project stabilization. Mansour said the large construction loan will be used to bridge funding until the LIHTC equity comes in and ensure the partnership successfully meets the private activity bond 50 percent test. “This is a very large loan for the bank. In fact, it is the largest loan on a tax credit project for us to date,” said Mansour. FirstBank has had a partnership with BHP for more than 12 years and, as Colorado’s largest locally owned bank, understood the importance of the development in one of the state’s most expensive rental areas. “We are excited to be partnering with BHP to preserve this much needed affordable housing in our community.”

Development funding also included a $39.7 million seller note, a $4 million deferred developer fee and a $1.2 million sponsor note.