Projects face long battles for approval
Kirk Pinho / Crain’s Detroit Business
There’s demand for affordable housing for veterans, but getting projects off the ground has been more of a challenge.
Two developments totaling about 250 units are proposed for north Oakland County, but builder Forrest Milzow doesn’t have financing for Veterans Village of Clarkston, and Trillacorpe Construction LLC is winding through a state tax credit approval process for a project in Waterford Township.
One issue is that the economics of affordable housing projects are harder to make work.
“Typically, affordable housing projects, at least the stuff we are engaged in, are kind of a break-even proposition,” said Tim Thorland, executive director of Detroit-based nonprofit Southwest Housing Solutions, which operates the Piquette Square apartments for veterans on Brush Street in Detroit.
“If we operate a property like this and break even, we are pretty happy. It meets a need, and that’s what we are in business to do,” he said.
Thorland said his $23 million project required 13 sources of financing, including MSHDA, the Great Lakes Capital Fund, the Federal Home Loan Bank of Chicago and Bank of America.
Bingham Farms-based Trillacorpe Construction hopes the Michigan State Housing Development Authority will approve low-income housing tax credits to finance a development for about 100 veterans and their families on part of the former Summit Place Mall site on the Waterford-Pontiac border.
“The process is burdensome, but it’s doable,” said Trillacorpe COO Larry Goss.
Goss said the state tax credits for the still-unnamed development at Summit Place would be sold for between 80 cents and 95 cents on the dollar, depending on the market.
The proceeds would become equity for the project, and loans would finance the balance of the $10 million it’s expected to cost.
“You pay those loans off through the income of the apartment buildings,” Goss said. “The apartments pretty much break even in terms of cash flow. There’s a little bit of additional cash flow over expenses, but those go to reserves for upgrading landscaping (and) roofing.”
The best-case scenario is for construction to begin next spring.
Milzow, president and CEO of Clarkston-based Milzow Building Co., said getting financing for the Veterans Village of Clarkston also has proven difficult. He’s seeking to raise $5 million for a proposed $7 million project at Maybee Road and Dixie Highway.
About 120 veterans would be housed in one- and two-bedroom apartments at the project, where rents will be $600 and $850 a month.
Joe Kopietz, member at the Detroit office of Clark Hill PLC, said lending for affordable housing developments has been stagnant, so developers often go to the U.S. Department of Housing and Urban Development for Section 221 financing, or for state or federal low-income housing tax credits.
“When we are dealing with HUD dollars for that first position (lending), they are not allowed to have subordinated debt, except in certain instances,” Kopietz said.
Subordinated debt for a project is debt beyond what the first position lender provides. HUD and other lenders like Fannie Mae and Freddie Mac view potential borrowers with subordinated debt as riskier, said Dennis Bernard, president of Southfield-based Bernard Financial Group.
In the 2012 fiscal year, HUD financed $2.7 billion for 175 multifamily housing projects with a total of over 27,000 units.
Milzow said he tried to get HUD financing for the Veterans Village, but the process took close to a year before HUD turned him down.
“That avenue is certainly open, but it takes a huge amount of money and a huge amount of effort to get through,” he said.
Milzow said it has been frustrating trying to break into a seemingly closed circle of lenders.
“There seem to be three or four players in the state who are making business loans,” and it’s harder to build banking relationships than it once was, he said.
Bernard said financing for the right kinds of multifamily projects, including affordable projects through HUD, is available because the recession caused many people to lose their homes, and many then moved into apartments.
“There is plenty of money out there for well-located, well-sponsored, well capitalized multifamily,” he said.
According to the Mortgage Bankers Association, $103 billion in multifamily development loans closed nationally in 2012. There was $77 billion in 2011, and $48.9 billion in 2010.
Waiting to launch
Getting a veterans project off the ground isn’t easy.
Trillacorpe’s Goss said a rigorous application process through MSHDA means the earliest the agency will review their application is August.
“It doesn’t put the kibosh on the whole program (if we don’t receive the tax credits), but it gives us another degree of difficulty in finding the resources to fill that equity bucket,” he said. “That’s where you might look to the private sector or other veteran support organizations.”
Rents will be between $700 and $1,200 a month, Goss said.
“Through the use of those tax credits, you’re required to provide lower rents to the occupants. In a sense, you have a cap on how much you can charge for rent, and those caps are basically tied to the income level of the greater community.”
Kopietz said the challenges show how the low-income tax credit market has not fully recovered.
“The projects are more difficult than they were in 2007,” he said.
Trillacorpe is optimistic, though, and is also looking at several suburban sites for more veterans complexes, Goss said.
Meeting a need
Developers, both nonprofit and for-profit, agree there is demand for affordable housing for Michigan’s veterans population.
According to the 2011 American Community Survey of the U.S. Census Bureau, 1.47 million veterans — 7 percent of the total veteran population nationwide — live below the federal poverty level.
Thorland said he estimates there are 3,000 homeless veterans in the city each night.
The first residents began moving into the 150-unit Piquette Square in June 2010, and its one-bedroom units consistently remain full.
The monthly rent is $640. Its previously homeless residents pay 30 percent of gross monthly income toward rent, and if that doesn’t cover the $640, a state voucher program pays the rest, Thorland said.
Residents can receive mental health treatment, substance abuse treatment, job training and other support services arranged by Southwest Counseling Services, a sister nonprofit of Southwest Housing.
Thorland said Piquette Square is the only permanent supportive housing run by a nonprofit in Southeast Michigan.
One aid in getting it built was that there were more incentives available, particularly for redevelopment sites.
Dick Buss, principal at Birmingham-based Strength Property Partners LLC, which raises capital and financing for developments, said one of those changes came in 2011. That’s when the state eliminated some tax incentives, including brownfield tax credits for the redevelopment of contaminated or blighted sites.
“Most of those (tax credit) programs are really focused on the lowest-income rungs and redevelopment areas,” Buss said. “I think it’s much harder to find them qualifying in suburban, middle-class, middle-economy areas.”
But Goss said the end user — in this case, the veteran — always stays top of mind.
“This community that’s trying to help create affordable housing for veterans and help prevent homelessness, we are all kind of on the same page” that more needs to be done, Goss said.