Popular Charlotte, N.C., Complex Gets Refinancing Boost

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1 News, Analysis and Commentary On Affordable Housing, Community Development and Renewable Energy Tax Credits July 2017 Volume VIII Issue VII Published by Novogradac & Company LLP Popular Charlotte, N.C., Complex Gets Refinancing Boost BRAD STANHOPE, SENIOR EDITOR, NOVOGRADAC & COMPANY LLP A highly regarded affordable housing property in Charlotte, N.C., is stronger financially after refinancing its debt on a 192-home apartment community and having 20 of its apartments undergo a conversion to the Housing Choice Voucher program under the U.S. Department of Housing and Urban Development (HUD) Rental Assistance Demonstration (RAD) program. The result for South Oak Crossing is positive, but the transaction was a challenge. It had many moving parts, said Padam Singh, vice president for Lancaster Pollard, which led the transaction. Not for any single reason, but because the partners were very different. Besides borrower and lender, there was the city of Charlotte, the Charlotte Housing Authority and then there were two sides of HUD the loan and the RAD. There were a lot of things that had to happen and every time you thought you were almost set, something new popped up. Fred Dodson, chief operating officer of nonprofit developer and property owner Charlotte- Mecklenburg Housing Partnership (CMHP), said the complexity of the transaction caused a bit of a delay. Fortunately, the two HUD departments worked together, Dodson said. They closed simultaneously. It added maybe a couple of months [to the timeline]. Now the South Oak Crossing apartments are stronger financially, which continues a success story for the property. The property is relatively new, Singh said. It was new construction completed in 2008 and didn t require much recapitalization. Initially, this was more about refinancing to reduce interest rates. RAD came in as the transaction was underway. South Oak Crossing South Oak Crossing is a 192-apartment low-income housing tax credit (LIHTC) and market-rate complex on 10 acres that opened in 2006 near the light rail line in Charlotte. Included were 20 units of public housing as part of HUD s HOPE VI program, which encouraged the construction of extremely lowincome housing (residents earning no more than 30 percent of the area median income [AMI]) with market-rate housing. We were intentionally looking for property that was close to where Charlotte s light rail would be continued on page 2

2 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT continued from page 1 built, Dodson said. We didn t know the location of the stations, but we wanted to be close to the light rail. Dodson said South Oak Crossing was modeled after another property owned by CMHP Rivermere Apartments that was the same size with the same mix, built with the same 4 percent tax credits and bonds with the same investor two years earlier. South Oak gave us the chance to do it again, Dodson said. The challenge was the location. We took a chance at where the station would be. The city wanted affordable housing along the light rail line, Dodson said. The city ended up building the Lynx light rail system s Arrowhead station a half-mile away. The location is unique, said Singh. It s in the south corridor, where Charlotte s only light rail is now open. It s an affordable property on the light-rail line in one of the biggest boom areas. It provides great access to major employment centers, including downtown by the light rail. It remains a rarity. It became tougher [for affordable housing development] when the light rail came in, said Julie Porter, president of CMHP. New development is nearly out of reach because land has become too expensive and the competition for tracts large enough to support new apartment developments is fierce. Singh agreed. continued on page 3 Image: Courtesy of Charlotte Mecklenburg Housing Partnership The 192-home South Oak Crossing, which includes this clubhouse, refinanced its debt and underwent a conversion to the Housing Choice Voucher program for 20 apartments. July

3 continued from page 2 The city of Charlotte has experienced so much growth that prime real estate for housing has been taken up by higher-end housing, Singh said. There s such a need for affordable housing and this meets two issues: it is affordable housing in the city and they need it in a place that isn t economically depressed. This is a great location. Jeff Meadows, senior vice president of development for Horizon Development Properties, a nonprofit development subsidiary of the Charlotte Housing Authority, said the transportation boost is more than light rail. This gives transportation options, Meadows said, citing the opportunity residents have to take the light rail to the bus transportation center, which gives them access to the entire region. The success of South Oak Crossing goes beyond location. Dodson said CMHP did a lot of homework before opening the property. We talked to people who lived there, to the police department, to property management firms, Dodson said. We didn t want to create problems. South Oak Crossing has more large units for families and includes a fitness facility and swimming pool. Image: Courtesy of Charlotte Mecklenburg Housing Partnership South Oak Crossing is a low-income housing tax credit (LIHTC) property near the light-rail line in Charlotte, N.C. It recently refinanced its debt. Mixed-Income Apartments The property is a mix of affordable apartments and market-rate homes, which is no accident. OF HOUSING AND URBAN DEVELOPMENT Novogradac Journal of Tax Credits July DEPARTMENT continued on page 4

4 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT July 2017 continued from page 3 We like the idea of mixed income communities, Porter said. We re always trying to maximize the number of units for people earning 60 percent or less of the AMI, but 192 units would be a lot of lower-income units in one place. If there ever was a spot where mixed-use was desirable, it s near light rail. She said CMHP s strategy is to build housing that the community needs. If an area is low- and moderate income or disinvested, doing mixed-income helps alleviate economic isolation, Porter said. But in an affluent area, it s about getting the affordable units in there are already plenty of market-rate units [in those areas]. This article first appeared in the July 2017 issue of the Novogradac Journal of Tax Credits. Novogradac & Company LLP All Rights Reserved 223(f)-insured loan. Also subordinated to that loan were loans from the city of Charlotte and from HUD s HOPE VI program. The property was originally a 4 percent LIHTC bond deal through the HUD 221(d)(4) program. The HOPE VI loan required the 20 apartments (10 two-bedroom, 10 three-bedroom) to be set aside for public housing tenants. Partnership Victory Meadows said the success of the development, the completion of the refinancing and the conversion of the housing authority units shows how well groups can work together. Meadows said South Oak Crossing is a classic example This really demonstrates the spirt in Charlotte of of mixed-income housing. It gives a true mixed income willingness to partner, Meadows said. The city, the environment, Meadows said. You cross the subsidized housing authority and a nonprofit developer all worked housing, tax-credit housing with the market-rate. together. It s a great example of how we can all work together to advance affordable housing. ; That the refinancing tied in with the RAD conversion was a result of timing. When the RAD program began, CHA elected to convert its full public housing portfolio of 3,300 units in a multiphase plan that involved more than 50 transactions. These 20 apartments South Oak Crossing were included. FINANCING $10.2 million refinance with Federal Housing Financing Changes Administration Section 223(f)-insured loan by Lancaster Pollard completed the $10.2 million refinance Lancaster Pollard Mortgage Company LLC via a Federal Housing Administration (FHA) Section Notice pursuant to IRS regulations: Any U.S. federal tax advice contained in this article is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties under the Internal Revenue Code; nor is any such advice intended to be used to support the promotion or marketing of a transaction. Any advice expressed in this article is limited to the federal 4 continued on page 5

5 continued from page 4 tax issues addressed in it. Additional issues may exist outside the limited scope of any advice provided any such advice does not consider or provide a conclusion with respect to any additional issues. Taxpayers contemplating undertaking a transaction should seek advice based on their particular circumstances. This editorial material is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding property compliance or any other material covered in this article can only be obtained from your tax advisor. For further information visit OF HOUSING AND URBAN DEVELOPMENT Novogradac Journal of Tax Credits July DEPARTMENT

6 CREDITS EDITORIAL BOARD PUBLISHER Michael J. Novogradac, CPA EDITORIAL DIRECTOR Alex Ruiz TECHNICAL EDITORS Michael G. Morrison, CPA James R. Kroger, CPA Owen P. Gray, CPA COPY SENIOR EDITOR Brad Stanhope ASSIGNMENT EDITOR Teresa Garcia Thomas Boccia, CPA Daniel J. Smith, CPA SENIOR WRITER Mark O Meara ADVISORY BOARD LOW-INCOME HOUSING TAX CREDITS Bud Clarke Jana Cohen Barbe Tom Dixon Rick Edson Richard Gerwitz Rochelle Lento John Lisella Philip Melton Thomas Morton Mary Tingerthal Rob Wasserman PROPERTY COMPLIANCE Michael Kotin Michael Snowdon Gianna Solari BOSTON FINANCIAL INVESTMENT MANAGEMENT DENTONS BOSTON CAPITAL HOUSING CAPITAL ADVISORS INC. CITI COMMUNITY CAPITAL DYKEMA GOSSETT PLLC U.S. BANCORP COMMUNITY DEV. CORP. BELLWETHER ENTERPRISE PILLSBURY WINTHROP SHAW PITTMAN LLP MINNESOTA HOUSING FINANCE AGENCY U.S. BANCORP COMMUNITY DEV. CORP. KAY KAY REALTY HIGHRIDGE COSTA HOUSING PARTNERS SOLARI ENTERPRISES INC. July CONTENT MANAGEMENT SPECIALIST Elizabeth Orfin CONTRIBUTING WRITERS George Barlow Tina Latva Forrest Milder ART CARTOGRAPHER David R. Grubman PRODUCTION Alexandra Louie James Matuszak CONTACT CORRESPONDENCE AND EDITORIAL SUBMISSIONS Alex Ruiz alex.ruiz@novoco.com Thomas Stagg John M. Tess Tim Zhang Jesse Barredo ADVERTISING INQUIRIES Carol Hough carol.hough@novoco.com EDITORIAL MATERIAL IN THIS PUBLICATION IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED OTHERWISE. ADVICE AND INTERPRETATION REGARDING THE LOW-INCOME HOUSING TAX CREDIT OR ANY OTHER MATERIAL COVERED IN THIS PUBLICATION CAN ONLY BE OBTAINED FROM YOUR TAX ADVISOR. HOUSING AND URBAN DEVELOPMENT Flynann Janisse Ray Landry Denise Muha Monica Sussman NEW MARKETS TAX CREDITS Frank Altman Merrill Hoopengardner Scott Lindquist Matthew Philpott Ruth Sparrow Elaine DiPietro HISTORIC TAX CREDITS John Leith-Tetrault Bill MacRostie John Tess Novogradac & Company LLP 2017 All rights reserved. ISSN X RAINBOW HOUSING DAVIS-PENN MORTGAGE CO. NATIONAL LEASED HOUSING ASSOCIATION NIXON PEABODY LLP COMMUNITY REINVESTMENT FUND NATIONAL TRUST COMMUNITY INVESTMENT CORP. DENTONS U.S. BANCORP COMMUNITY DEV. CORP. FUTURES UNLIMITED LAW PC BLOOMING VENTURES LLC RENEWABLE ENERGY TAX CREDITS Bill Bush STEM INC. Benjamin Cook Jim Howard Forrest Milder NATIONAL TRUST COMM. INVESTMENT CORP. MACROSTIE HISTORIC ADVISORS LLC HERITAGE CONSULTING GROUP NEXTPOWER CAPITAL DUDLEY VENTURES NIXON PEABODY LLP Reproduction of this publication in whole or in part in any form without written permission from the publisher is prohibited by law.