RAD Development Continues Turnaround for Cocoa, Fla., Housing Authority

Published by Brad Stanhope on Tuesday, September 11, 2018
Journal cover thumb September 2018

Pineda Village, a scattered-site, 144-apartment public housing development in Cocoa, Fla., is a landmark achievement for the Cocoa Housing Authority (CHA).

In the wake of the 2013 takeover of the agency by the U.S. Department of Housing and Urban Development (HUD), the CHA is back in control and converting its entire inventory through HUD’s Rental Assistance Demonstration (RAD) program. The process will start with Pineda Village, which will be followed by the rest of the 183 units in CHA’s public housing stock. Funding will come through equity from low-income housing tax credits (LIHTCs).

“The best and the speediest option for us was to renovate,” said Herb Hernandez, executive director of CHA. “We applied six times for LIHTCs and on the sixth time, we won $13.5 million for Pineda Village.”

Hunt Capital Partners provided $12.7 million in LIHTC equity for the development. 

Construction began in June and the property has a June 2019 completion date, with a cost of $22 million. Smith & Henzy Advisory Group Inc. is the co-developer.

“Pineda Village shows that RAD works for all sizes of PHAs,” said Charlie Rhuda, a partner in Novogradac’s Boston office, who worked with CHA on the development. “Herb and his team were patient and the winners are the residents who will live in the refurbished apartments.”

Journal September 2018 HUD Pineda Village photo

Image: Courtesy of Cocoa Housing Preservation II
When completed, Pineda Village in Cocoa, Fla., will offer new vinyl flooring, ceiling fans, Energy Star appliances, stackable washers/dryers, aluminum frame windows and bathroom fixtures.

Road to RAD

Five years ago, CHA was in crisis. HUD took control of the agency after accusing it of misusing federal funds and violating a memorandum of understanding to adopt corrective measures. That led to Hernandez’s hiring seven months later, partly because of his experience with completing tax credit transactions while at the Lakeland Housing Authority in Lakeland, Fla.

“HUD said we needed to do redevelopment,” Hernandez said. “The new commissioners were well-trained and said you can redevelop public housing in a variety of ways.”

There were hurdles to clear to regain the community’s trust, including the fact that the previous director OK’d the demolition of housing that wasn’t rebuilt. That meant Hernandez and CHA weren’t going to get buy-in on further demolition.

“We decided to renovate, not build new,” said Hernandez.

RAD was a new program and Hernandez and CHA got on board, just waiting to win LIHTCs from the state. CHA elected to be the lead developer, rather than bring in a developer partner as the lead.

Dana Mayo, executive managing director of tax credit investor Hunt Capital Partners, estimated that 80 percent of RAD deals involve a private developer, since most public housing agencies have no desire to be developers. “What these housing authorities are is stewards of assets,” Mayo said. “It’s difficult because they don’t have in-house development expertise. But the two lead people at CHA [Hernandez and Shauna Ginn, the director of development] have experience [from Lakeland] and that gave us comfort.”

Stephen Bien, director of acquisitions at Hunt Capital Partners, echoed Mayo’s thoughts.

“Smaller housing authorities don’t have the inventory and don’t have the experience,” Bien said. “A smaller housing authority is usually going to need some expertise. But our experience with Herb and Shauna showed that they had some experience.”

It wasn’t easy. As Hernandez said, it took multiple efforts to win the LIHTCs. After CHA got the approval, the 2016 presidential election threw the affordable housing industry into confusion.

Smith said winning the 9 percent LIHTC award before the 2016 election, then building after it meant a loss of about 15 cents per dollar for the LITHCs. “The buildings still needed substantial rehabilitation,” said Darren Smith, principal and owner at Smith & Henzy Advisory Group, Inc. “We had to figure out how to make things work.”

The solution was finding other financial sources. Still, construction was challenging.

“The buildings are 50 to 60 years old,” Hernandez said. “We examined them as closely as we could. We tore into walls and tried to be ahead of the game and not assume anything good. We had to replace some sewer lines even before the construction started.”

Hernandez said the CHA didn’t have a huge hurdle from local opposition, despite the agency’s previous problems.

“I’ve worked in larger cities, where there are more activists,” he said. “Here, largely because it’s a smaller city, people had questions–how is this going to be different? They had legitimate questions. I said ‘here’s who I am. Here is my track record.’ We met with them repeatedly. You communicate and answer hard questions. They’re angry and want you to know that they were mistreated. I treat them with dignity and respect.”

Scattered-Site Development with Significant Needs

Pineda Village was built as public housing from 1953 through 1965 and was in need of substantial repairs. It comprises 64 buildings across 27 acres in Cocoa. 

Once rehabilitated, Pineda Village will offer studio, one-, two-, three- four- and five-bedroom apartments for families earning between 0 and 60 percent of the area median income. The renovated units will include new vinyl plank flooring where terrazzo flooring can’t be refurbished, ceiling fans, Energy Star appliances, washer/dryers hookups, roofing, vinyl windows, fiberglass doors, new kitchens and bathroom fixtures. There will also be new walkways, ramps and some new entry porches to provide greater accessibility and general landscaping improvements.

Hernandez was quick to identify what residents will notice first.

“Central air conditioning,” Hernandez said. “There were a few units with central air, but most people had window air conditioning. It does get hot–and they are brick buildings, which absorb heat in the daytime and release it at night. It’s like being baked.”

Smith cited new impact windows, which is significant since Cocoa is on the east coast of Florida and is susceptible to hurricanes. Smith also cited new roofs, appliances and fixtures, as well as more Americans with Disability Act-compliant apartments and increased common area amenities.

When construction began, CHA moved residents to vacant agency-run apartments.

“We have 327 apartments and we started holding units vacant so we could move people,” Hernandez said. “We moved 42 households out of the first few phases to the south side of town, where there were vacant units.”

Financing

Hunt Capital Partners was the sole LIHTC investor, providing $12.7 million in equity. Hunt has been involved in more than 30 properties that use RAD.

“We have made a real conscious effort to focus on RAD,” Mayo said. “We have done a number of RAD projects and want to make it kind of a specialty. It’s a program we like and think housing authorities are good long-term stewards.”

With the drop in funding due to the decrease in LIHTC prices, the partners needed other sources.

“The construction budget was too high, so we tried to secure additional sources of funds,” Smith said. “We got a [State Housing Initiatives Partnership] SHIP grant of $550,000 from the county and spent eight months going through value engineering. We had more capital funding from the housing authority to make it work.”

That included a $2.4 million permanent loan, a $2 million capital loan fund from CHA and a $3.7 million seller’s loan. 

The result is solid, if not spectacular.

“There’s not too much that makes it attractive from a physical view,” said James Crowder, director of project management at Hunt Capital Partners. “But we look at this transaction as a good real estate transaction. The buildings have good bones that are in great shape. From a financial structure, this is a good multifamily transaction. Cocoa is a good market.”

Reaction

With construction underway and the second–and final–phase set to begin late next year, residents are excited.

“They’re anxious,” Hernandez said of residents. “So far, 90 percent of the people want to move back to the same apartment, which sounds like happiness to me. They’re saying ‘I like my neighbors.’ To the maximum extent we can, we’re moving them back to the same apartments. They’ll have central air, new bathrooms, new kitchens and new doors.”

Smith & Henzy is also the co-developer on Phase 2, the Cocoa Sunrise Terrace development, which will have 183 apartments. 

Journal September 2018 HUD Pineda Village financing