Tax Credits Bring Updated Housing to Boston Veterans

Published by Novogradac & Company LLP on Thursday, October 1, 2015
Journal thumb October 2015

The New England Center for Homeless Veterans (NECHV) has served United States military veterans since 1989. To better offer an array of services that enable success, reintegration, meaningful employment and independent living, NECHV is rehabilitating an existing apartment community serving formerly homeless and at-risk veterans in Boston. The rehabilitation of Court Street Veterans Housing began in April and will be completed and fully occupied by the end of 2016.

“Our mission is to provide services and support to help veterans struggling with homelessness and supply them with the tools that enable success,” said Andy McCawley, president and CEO of NECHV.

The rehabilitation of the 135,000-square-foot, 97-unit apartment community, located within the NECHV building in downtown Boston’s Government Center Plaza, was financed using low-income housing tax credits (LIHTCs) and federal and state historic tax credits (HTCs). The 11-story historic building–seven floors will house the Court Street Veterans Housing development–will include the addition of 37 new permanent supportive studio apartments and one additional single room occupancy (SRO) unit along with the renovation of the existing 59 SROs. The other four floors feature complimentary resources and programming for veterans living on- and off-site. McCawley said the development is also receiving 35 project-based U.S. Department of Housing and Urban Development (HUD) Veterans Affairs Supportive Housing (VASH) vouchers.

The rental housing units will be available to veterans earning up to 60 percent of the area median income (AMI). In addition, this property features housing specially for female veterans, many of whom have a history of trauma. Jeff Sacks, partner at Nixon Peabody, is the development counsel and helped structure the financing. He said that the involvement of the U.S. Department of Health and Human Services, which has a right of reverter from the original sale of this project to the sponsor under the Stewart B. McKinney Homeless Assistance Amendments Act of 1996, made this a very unusual tax credit development. Sacks has worked with NECHV since 1990 in various capacities.

Court Street Veterans Housing will not only provide housing to at-risk and homeless veterans, it will also provide a number of services to its tenants. These services will include daily meals, case-management support, counseling, medical clinics and employment assistance. McCawley said the goal was to create “holistic resources for veterans.” He added, “It is important to have that array of services to help prevent veterans from slipping into homelessness.”

This development is also close to a number of outside services and amenities. McCawley said the development is within 100 feet of all four lines of the subway system and is walking distance from retail services, restaurants and employment opportunities. The Veterans Affairs (VA) Office and the city of Boston’s Veterans Services are also adjacent to the development. This redevelopment is expected to create nearly 150 construction and permanent jobs.

Historic Rehab

The building was erected in 1908 as a bank, but McCawley said that the most notable history of the building for NECHV came between 1947 and 1987, when it served as a VA medical and administration center. In terms of the preservation work, McCawley said that the building’s windows will be preserved where possible and the rest will be replaced with historically accurate replicas. On the front of the building, the windows will be restored along with their iron frames. The original canopy in front of the building was destroyed years ago, but because the developer had historic photos, they are rebuilding it. Also on the exterior of the building, the limestone will be restored and the masonry work will be preserved. On the interior, the marble flooring and stairs will be preserved and the ceiling columns and their detailed scroll work will be restored.

Trio of Tax Credits Fund Redevelopment

To finance this very complicated investment, Boston Capital was the syndicator for the LIHTCs and the federal HTCs. The investment was spurred by the importance of the center to veterans in Boston, said Laura Surdel, vice president of acquisitions at Boston Capital. “The size of this investment will allow for a significant rehabilitation of the existing facility and its operations,” she said. Surdel added that NECHV is a great example of the LIHTC program’s impact on communities, as it helps veterans get back on their feet through the creation and rehabilitation of permanent supportive and affordable housing. Boston Capital has invested in more than 4,000 units of affordable housing in Massachusetts.

Citi Community Capital was the sole investor of the LIHTCs and federal HTCs through a single-investor tax credit fund through Boston Capital. It provided $11.3 million in 9 percent LIHTC equity and $5.6 million in federal HTC equity. Citi Community Capital also provided a $20 million construction loan. Greg Goldberg, a director in Citi Community Capital’s originations group, said the purpose of the construction loan was to bridge the financing until the tax credit proceeds became available. He added that Citi Community Capital specializes in providing financing for large transactions, so this development was a good fit for the bank. “Citi supports veterans and values the contributions they make to our country,” said Goldberg. Plymouth Rock Assurance provided $2.6 million in state HTC equity.

“A few years ago, we were not experienced in tax credits. We have come to appreciate what a successful, very robust initiative that tax credit programs are in this country,” said McCawley. Kevin Ward, senior vice president of strategy and chief financial officer of NECHV, said that this was a successful redevelopment because there is no hard debt on the project.

MassHousing provided a $2.2 million soft loan under the Affordable Housing Trust Fund, which it administers on behalf of the Massachusetts Department of Housing and Community Development. “In addition to creating 37 new efficiency units for an underserved population in a major metropolitan area, the rehab will add permanent housing for homeless women veterans and improve program space,” said MassHousing executive director Thomas Gleason. “The center is also able to help hundreds of veterans find permanent housing every year. … The building, in downtown Boston, was in desperate need for rehabilitation and it was an opportunity to provide additional housing to veterans.”

Other funding sources include a $5 million capital campaign from the sponsor, $2.6 million bridge loan from Life Initiative, $2 million in Housing Innovation Funds from the state of Massachusetts, $1.6 million of existing debt from state and local sources, $1 million in state of Massachusetts Housing Stabilization Funds, $1 million city of Boston neighborhood housing trust soft loan, $500,000 in AHP funding from the Federal Home Loan Bank of Boston, and a deferred developer fee.

“These are the types of deals where we can really add value,” said John Cornell, partner at Nixon Peabody, when referring to investments with nonprofit sponsors who don’t have much development experience. “This is our bread and butter,” Sacks added. “The federal, state and local agencies worked very well together to make this deal possible.”

“First and foremost, the organization has a wonderful purpose. We are thrilled to have the opportunity to work with them,” said Rose White, managing director of real estate at the Women’s Institute for Housing and Economic Development (WIHED). WIHED does consulting work with companies that provide supportive services, such as NECHV. On this development, WIHED helped the sponsor with putting together the capital stack. One of the main challenges was “eliminating all of the conventional debt from the property. There is no hard debt,” said White. “The challenge was the layering of all the many sources [of funding].”