by Katy Reckdahl, The Times-Picayune
Tuesday December 02, 2008
Before the end of the year, the U.S. Department of Housing and Urban Development will break ground in its grand plan to build mixed-income communities to replace the city’s “Big Four” public-housing complexes: B.W. Cooper, C.J. Peete, Lafitte and St. Bernard, HUD officials say.
Despite financing problems caused by the bleak economy, “everything is on track” to create 1,904 new apartments within the next two years, said Anoop Prakash, deputy chief to HUD Secretary Steve Preston.
But even if the agency does break ground in December, it will be six months late. That puts the projects on a break-neck pace, in order to put the new apartments in use by the end of 2010 — the deadline for developers to cash in on Gulf Opportunity Zone low-income housing tax-credits, slated to finance more than half of HUD’s $636 million endeavor.
The GO-Zone deadline was pushed back once before, from 2008 to 2010. But Prakash said that he saw no need for any additional extension because the projects would be completed by the end of 2010.
Where HUD plans to build low-rent mixed-income apartments, as well as other housing statistics.
Each developer’s deal will vary, making it hard to predict how much tax credit proceeds developers could lose if they fail to meet the construction deadline — or whether that could result in delaying or scaling back the housing developments.
When asked if HUD has a contingency plan in case a developer falters, HUD spokeswoman Donna White declined to give particulars. “We don’t have a crystal ball, ” she said. Instead, she said, HUD and the Housing Authority of New Orleans had “a commitment to roll up our sleeves, focus and execute (their Big Four) plan by 2010.”
Though HUD officials now beam confidence about the tax credit deals, former HUD Secretary Alphonso Jackson previously raised the specter that construction delays could torpedo the financing. In a letter to Mayor Ray Nagin in December 2007, Jackson used the impending tax credit deadlines to pressure the mayor to speed up the approval of demolition permits for the Big Four.
“Without these crucial funds, the redevelopment effort would be stalled, if not stopped, thus denying low-income New Orleanians the opportunity to start a new life in a new home, ” Jackson wrote.
Because of the delayed start, HUD must fold roughly three years of work into two years, a tight time frame to transform what are now fenced-in fields of dirt into 1,904 apartments.
Some see the plans as ambitious. Others, like the Rev. Marshall Truehill Jr., find them unbelievable.
“I’m extremely skeptical that anything will be replaced, ” said Truehill, an opponent of the demolitions who grew up in B.W. Cooper (then called the Calliope), served on the City Planning Commission, and oversaw social work in the city’s 10 public-housing projects for all of his adult life.
Truehill cited the track record of HANO demolitions that were followed by years of delays. Look, he said, at the Desire, Florida, Fisher and St. Thomas projects, none of which were rebuilt on time, or as promised.
These will follow that pattern, he predicted.
“There is a deadline of 2010 to have those things completed, ” he said. “But we’re already on the cusp of 2009, and we haven’t seen a single pile driven.”
Prakash said he is familiar with HANO’s history, but assured it would not be repeated.
“In December, that skepticism will come to an end, ” he said.
According to last year’s Louisiana Housing Finance Agency project schedules, HUD planned to have 10 percent of Big Four construction finished by Oct. 15 of this year.
Then, this fall, the economy tanked. Federal low-income housing tax-credit deals became nearly impossible to close because the credits themselves declined in value, prompting HUD to seek backup investors and shop around for gap financing to gather the $636 million necessary to complete the first phase of the Big Four’s construction.
At their highest possible market value, the tax credits — along with housing authority grants and $27 million for each development in federal block grants — were supposed to provide half the capital to leverage the remaining financing.
Since the credits were created in 1986, affordable-housing developers have vied to receive the credits to raise equity for their projects. They then sell the credits to investors, who buy them for less than face value — at, say, 94 cents on the dollar or $940,000 for $1 million in tax credits — but can subtract the full amount from their taxes over a period of 10 years.
But because many banks and corporations now face huge losses, they have no tax liabilities to write off, and thus have no need for tax credits. So — if they sell at all — the credits will sell for less, for, say, 80 cents on the dollar instead of 94 cents, creating financing gaps for the Big 4 and for all affordable-housing construction.
These issues were foreseeable in June when Preston took office, but he has, from the start, made rebuilding the Big 4 one of his top priorities, Prakash said. To do that, he needed to find backup investors and find about $50 million in financing to close the gap created by the decline in the value of tax credits.
Preston has conferred with key bankers about investing in the projects, Prakash said, and recently requested — and received — a $15 million earmark from Congress. The congressional resolution also allowed HANO to shift money from other parts of its budget to the Big Four.
Last month, HUD reached out to the Federal Emergency Management Agency, which recently obligated $17.5 million to cover demolition costs for the four sites, FEMA spokesman Andrew Thomas said.
HUD, as a federal agency, is ineligible for most FEMA financing. But HUD argued, successfully, that the 286 brick, World War II-era buildings in the Big 4 posed an “immediate threat to public safety, ” Thomas said, causing FEMA to pay for their demolition as an “emergency protective measure.”
Then, last Wednesday, HANO appeared to have closed the financing gap, with an additional appropriation of $20 million to the St. Bernard project.
Now HUD had all it needed to close these deals, said HANO’s federally controlled, one-woman board, Diane Johnson.
“That money is to bridge the gap on the overall construction, ” she said, adding that she is “very excited” about the redevelopments.
“We see this as a glorious time, ” she said.
Still, no construction can begin until each developer closes on GO-Zone tax-credit deals.
In mid-September, Milton Bailey, president of the Louisiana Housing Finance Agency, which awards Louisiana’s share of the federal tax credits, said that he was not hopeful about investors’ appetite for credits and believed the market for them wouldn’t rebound until 2009. Last week, Bailey’s brief e-mailed response to questions seemed to indicate that the fate of the deals depended entirely on HUD and its local agency, HANO.
“HANO has given us assurances that all of the Big Four will come to fruition despite the challenges faced in the credit market, ” Bailey wrote.
Not a problem, Prakash said.
“HUD anticipated a lot of the curveballs in the credit market, ” he said.
While he declined to comment on announcements made by developers during public meetings that tax-credit investors had pulled out of a few of the projects, he acknowledged that “there had been a change in investment mix” in recent months. All the projects now are moving toward final negotiations between developers and tax-credit investors, making any further information too sensitive to release.
All the deals were solid and would move forward, regardless of shifts in investors, he said.
“Only the names on the paper may change, ” Prakash said.