The Turnaround - National Housing & Rehabilitation Association

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The Turnaround - National Housing & Rehabilitation Association

Low-Income Housing Tax CreditLotus Landing Apartments,Sacramento, CaliforniaThe TurnaroundCalifornia Firm Repositions Older Tax Credit PropertyIt’s the perfect example of a multifamilyrepositioning in the works – withoutnew tax credits.Azure Park Apartments, an affordablegarden apartment community inSacramento, Calif., was singing the fiscalBasel Rallisblues when Oakland-based BaysideCommunities LLC came along in the spring and sawopportunity beneath the asset’s faded veneer.The 220-unit property, built in 1973, was in receivership,verging on foreclosure, saddled by a 16% vacancyrate, and looked “tired,” says Basil Rallis, President andChief Operating Officer of Bayside Communities LLC.Although the buildings were renovated in 2003-2004using 4% low-income housing tax credits, the rehab work“didn’t go as far as it should have,” he notes.Flash forward to the present, where BaysideCommunities has begun a repositioning of the communityto increase its value while enhancing conditions forresidents.“Our view is that about a million dollars can takecare of some [physical improvements] that we think weremissed or would enhance the property to enable it tocompete in the marketplace,” Rallis says. “Our marketstudy showed that the overall occupancy in the area isvery close to 94%. We feel that’s a number we canachieve within the next calendar year.”Bayside Communities is turning the property aroundby making modest physical improvements, expandingthe services offered to residents, and creating a newimage. In fact, the development was renamed LotusLanding Apartments after Bayside acquired the propertyin September 2012.The 158,000-square-foot development consists of 26two-story apartment buildings, a one-story clubhouse, aLotus, continued on page 32 Tax Credit Advisor | December 2012 www.housingonline.com


Low-Income Housing Tax CreditLotus, continued from page 2leasing office, and an after-school center.Variety of ImprovementsThe company is renovating and upgrading a numberof the apartments, replacing large warped or rotted woodpanels on the exterior of buildings, enhancing securityfeatures, and making other physical improvementsthat should be mostly complete bynext spring. In addition, a local nonprofit,Asian Resources, has enlarged the menu ofservices provided to residents, which includesan on-site Head Start center open to childrenfrom the property and the neighborhood.Having purchased the real estate, andwith it the right to the tax credits, BaysideCommunities is claiming the remaining streamof housing tax credits (about $630,000) generatedby the 2003-2004 tax credit transaction.The original syndicator is no longer part ofthe ownership entity. In the new partnership,Bayside is a 99% administrative generalpartner and a nonprofit is a 1% managinggeneral partner.The property is 100% low-income, withsome units rented to households at 50% of thearea median income, but the vast bulk rentedto households at or below 60% of AMI. HUD’s annualincome limit for a four-person family at 60% of AMI is currently$45,660.Lotus Landing Apartments has 136 one-bedroomapartments ranging from 590 to 627 square feet; 72 twobedroomunits of 760 to 910 square feet; and 10 threebedroomtownhomes of 1,050 square feet each. Thetownhomes are in high demand with rents at maximumallowable tax credit rents; the remaining units belowmaximum LIHTC rents. The company expects to be ableto raise rents for the latter once the property is fullyrepositioned. Currently, monthly gross rents at the developmentrange from $599 to $950.Quick Closing CriticalBayside Communities, which owns and (through affiliateEPMI) manages other multifamily properties in theSacramento market, learned of the availability of AzurePark Apartments last spring. The original general partnerLotus LandingApartments has136 one-bedroomapartments rangingfrom 590 to 627square feet;72 two-bedroomunits of 760 to 910square feet; and10 three-bedroomtownhomes of 1,050square feet each.had already been replaced and the property was underperformingfinancially, operated by a conventional managementcompany, and had been languishing inreceivership for 18 months with the lender about toforeclose.“Several buyers had fallen out and we came to thetable in June with a proposal to close very quickly withoutthe contingency for financing,” says Rallis. The keyto a rapid closing, he explained, was a twoyear,$5.35 million bridge loan that Baysideobtained through New York-basedPembrook Capital Management. PatrickMartin, President of Pembrook MultifamilyCapital LLC, says the bridgeloan closed in about 40days. “This was a transactionthat needed somemore work to be repositionedbefore it could ultimatelybe financed on a Patrick Martinmore permanent basis,” he notes.Rallis said Bayside didn’t have enoughtime to obtain a conventional loan to financethe acquisition and didn’t want to make anall-equity purchase. “The bridge loan, froma return on investment standpoint, was thebest execution for us,” he says.Discharge of DebtBayside Communities closed on the acquisition ofthe property on September 14, buying Azure ParkApartments for $6.3 million. As part of the arrangement,the Sacramento Housing and Redevelopment Agency,the lender, agreed not to foreclose and instead dischargeditsexisting loan on the property during receivership inexchange for Bayside Communities agreeing to maintainthe 50% of AMI set-aside units.The sole funding sources for the acquisition werethe bridge loan and owner equity. No new housing taxcredits were sought, says Rallis, noting the property isstill in its original 15-year LIHTC compliance period.Better Days AheadRallis is optimistic about a successful turnaround atLotus Landing Apartments. While the Sacramento mar-Lotus, continued on page 4www.housingonline.com December 2012 | Tax Credit Advisor 3


Low-Income Housing Tax CreditLotus, continued from page 3ket saw job losses and declining rents from late 2008even into early 2012, “we’ve been seeing a slow uptick inrental rates over the last six months,” he notes. “So wefeel pretty good about not only being able to improvethe occupancy but also to grow the rent.”By improving the property and the living experiencefor residents, Rallis says, “we think we’re going to beable to command more rent than the existing operationbecause the property will compete very well in the marketplace.”TCAPresident Signs Bill Extending EB-5 ProgramOn September 28, President Obama signed a law(S. 3245, P.L. 112-176) extending the EB-5 RegionalCenter Program for three years, through September 30,2015. The program provides visa leading quickly togreen cards to foreign citizens investing a certain minimumamount in qualified projects (e.g., real estate)located, in eligible census tracts.(http://tinyurl.com/3jpp926)Bridge LoansPembrook Capital Management offers bridge loansthat enable owners and purchasers to carry affordablerental and other multifamily housing properties whilethey are being repositioned or going through someother type of transition period, such as reaching toachieve stabilization.According to Patrick Martin, President of PembrookMultifamily Capital, LLC, Pembrook’s bridge loans haveterms that range from 12 months to five years and a fixedor variable interest rate.Pembrook also offers a second product for similarpurposes: either mezzanine debt or a preferred equityinvestment. According to Martin, the factor that determineswhich of these is provided is usually whether aloan and security interest in the real estate is permitted.Possible uses for preferred equity capital would be ageneral partner buying out his or her limited partner inan existing property or a new owner buying out the currentgeneral and limited partners. TCAPeople in the NewsJeff LaRosa has joined WNC & Associates, Inc., Irvine, Calif.,as Director, Construction Risk Management. In this position he isresponsible for strategically evaluating and implementing WNC’sdevelopment and construction projects in accordance with thecompany’s overall objectives. Before joining WNC, LaRosa waswith Makar Properties, ultimately serving as Vice President,Development & ConstructionColumbia Residential, a leading affordable housing developerheadquartered in Atlanta, has hired Barry Weaver as President ofProperty Management. Previously he served as Vice President ofProperty Management at Westlake Housing in Austin, Texas.Trey Phillips has joined Great Lakes Capital Fund, a Lansing,Mich.-based nonprofit syndicator of low-income housing taxcredits, as Asset Manager in its Chicago office. A decorated U.S.Army veteran, Phillips oversees a portfolio of multifamily assetslocated throughout the Midwest.The Riley Area Development Corporation (RADC), a nonprofitorganization in Indianapolis, Ind., recently presented its annualRobert D. Beckmann Neighborhood Leadership Award to FredHash, outgoing President of RADC’s Board of Directors and VicePresident of the Capital Group at Great Lakes Capital Fund, a taxcredit syndicator.Oak Grove Capital, a national multifamily mortgage lenderheadquartered in St. Paul, Minn. has announced the addition ofthree new underwriters to its growing team. They are: Brian Harris,Deputy Chief Underwriter, GSE Lending, based in Birmingham,Ala.; Adam Roberts, Deputy Chief Underwriter, FHA Lending,based in Columbus, Ohio; and Heath Coryell, SeniorUnderwriter, Seniors Housing, based in Bethesda, Md. TCA4 Tax Credit Advisor | December 2012 www.housingonline.com

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