The Housing Authority Board of Commissioners on Thursday approved the sale of $24 million in bonds to pay for renovation of Easton Ridge Apartments, a 264-unit development owned by the Housing Authority of Clackamas County.
Approval of the bond sale enables the project to move from the pre-development phase into construction without seeking new bids. Completing the bond sales before the end of February allows the project to move forward at set bid prices, saving Clackamas County between $500,000 and $1 million in cost increases for construction materials, according to estimates.
The Housing Authority Board of Commissioners is made up of the Clackamas County Board of Commissioners, with the addition of Housing Authority Commissioner Erica Allison.
The Commissioners voted 4 to 2 to proceed with the bond sale and the planned renovation. Commissioners Jim Bernard, Paul Savas, Martha Schrader, and Allison voted in support. Chair John Ludlow and Commissioner Tootie Smith were opposed.
"Frankly, I’m not ready to kick out all those people or subject them to mold damage by living in the current environment," said Commissioner Paul Savas. As a condition of his support, he proposed several accountability measures that were adopted as part of the proceedings.
Those measures include conducting a performance audit on the housing authority, establishing an oversight commission that includes members of the public and convening a full discussion of the county's policy on affordable housing.
“As a Commissioner in 2007, we made a policy decision to keep affordable housing knowing we would get saddled with maintenance costs in the future," said Commissioner Martha Schrader. "People should have their basic needs met - including decent housing and food to eat – in order to be participants in their democracy and to be healthy and happy."
"I am a no vote," said Commissioner Tootie Smith."My objection is that I can not continue on any project without first discovering, debating and deciding on what our housing policy is in this county. It is a measure of a compassionate society that we provide housing and other services to our most vulnerable populations. However, we should first decide if we should be in the housing business before we spend $20 million on a project in which we could end up upside down."
"There are far too many questions about this project," said Chair John Ludlow. "When the housing authority found out that there were leaks and siding infiltrated by water in 2004 and did nothing about it for six years, that's a management problem. How could you let things go…and now all of a sudden it's an emergency? We should not jump into this just because people are now saying it's a great deal."
Easton Ridge was constructed in 1989 and purchased by the Housing Authority in 1996. In the years since, questions arose about the mold and water-intrusion issues. The Housing Authority worked to address problems as they surfaced.
The new project includes:
- Replacement of the building envelope, including siding, windows and doors.
- Upgrades to the interior ventilation and improved on-site drainage.
- Replacement of all kitchens and 15 percent of the bathrooms.
The approved bonds are broken into two series. About $17 million will be used to pay off existing property debt, along with construction and related costs. Another $7 million will be used as bridge funding and repaid through tax credit equity.
The project is expected to start in mid-February and is anticipated to be completed 14 months after breaking ground.
For more information please contact Tim Heider at (503) 742-5911
- Easton Ridge Refinance Report
- Approved Findings
- Development Scenarios
- Project Timeline
- Easton Ridge Project Q & A
Easton Ridge is a (264) unit apartment complex located at SE 90th Avenue and SE Causey Avenue approximately a quarter-mile north of Clackamas Town Center. Bowen Hunt Development built the complex in 1989. Bowen Hunt then owned and operated the property until December 1996 when the Housing Authority of Clackamas County (HACC) purchased it utilizing Oregon Bond financing. HACC views Easton Ridge as a key component of our affordable housing portfolio.
What is the problem? The building envelope including the siding, windows and doors have begun to fail allowing moisture into the buildings. Poor site drainage and inadequate interior ventilation have also contributed to the moisture problems.
FINANCE & OWNERSHIP STRUCTURE
What were the options for the property? The HACC Board of Commissioners reviewed three scenarios for Easton Ridge during a Study Session on September 20, 2011. The scenarios included: 1) Rehabilitate; 2) Valuation (with the intent to sell the property); and 3) Replacement of the existing units. HACC staff recommended the first scenario, to refinance and rehabilitate the property because it was the most financially sound and preserved 264 units of affordable housing. Subsequently, the HACC Board of Commissioners on October 20, 2011 approved Resolution No. 1886 authorizing all predevelopment activities to move forward for the renovation of Easton Ridge Apartments.
What does the renovation scope of work include? Based on the due diligence and funder based requirements, the scope of work for the renovation includes: 1) replace the building envelope including siding, windows and doors, 2) upgrade interior ventilation, 3) improve site drainage, and 4) replace 100% of the kitchens and 15% of the bathrooms. The remaining 85% of the bathrooms will be upgraded within a 6 year period as units turn over.
How will the rehabilitation of Easton Ridge be financed? HACC is proceeding with a refinance of the property to provide the equity required to complete the rehabilitation and ensure the long-term stabilization of the property. The financing structure will include: Low Income Housing Tax Credits (LIHTC), tax-exempt bond financing, and Clackamas County HOME funds.
- Tax Exempt Bonds
HACC, as a public housing authority, is authorized to issue tax exempt bonds. HACC made application in July 2012 for bond authority from the State of Oregon to Issue private activity bonds in the amount of up to $24,000,000 in short and long term bonds. The short term bonds (approximately $7 m) will be used as bridge financing repaid by tax credit equity when the property is stabilized.
- Tax Exempt Bonds with County Contingent Loan Agreement
A County guarantee of the tax-exempt bonds provides a great benefit to Easton Ridge through lower bond interest, lower issuance costs and higher yield on the bond amount. County backing is in the form of a Contingent Loan Agreement to the HACC-issued long term bonds (up to $17,000,000). On September 13, 2012, the Clackamas County Board of Commissioners approved Resolution No. 100-2012 authorizing the County Administrator, or his designee, to finalize the negotiations and execute the Contingent Loan Agreement. County risk will be mitigated through underwriting: Easton Ridge has a long operating history and proven project performance, debt size will be limited to ensure cushion in debt service, and debt service/operating reserves will be required by investors to cover any potential shortfalls.
- Low Income Housing Tax Credits
HACC has received a reservation of 4% Low Income Housing Tax Credits from the State’s Housing Finance agency, Oregon Housing and Community Services. HACC will sell the tax credits to raise approximately $8.5 million in equity capital for the project. This funding is a tax credit, and does not incur debt for HACC.
- Clackamas County HOME Funds
The Clackamas County Board of Commissioners approved a loan of Federal HOME funds on January 17th, 2013. This loan will be in the amount of $660,000 and will be a low-interest deferred payment loan.
With the introduction of Low Income Housing Tax Credits, how will the ownership structure change? HACC will sell the tax credits to raise equity capital for the project. HACC expects to sell the tax credits to a syndicator, who assembles a group of investors and acts as their representative. Tax credits can be claimed annually over a 10-year period by the property owner. However, HACC will need the money immediately to pay for development costs, not 10 percent annually for 10 years. Accordingly, HACC will syndicates the credits - i.e., sells the rights to the future credits in exchange for up-front cash. The credit purchaser must be part of the property ownership entity; which will be accomplished by creating a limited partnership (in which the credit purchaser is a 99%+ limited partner) or a limited liability company (in which the credit purchaser is a 99%+ non-managing member). The general partner, HACC, will be responsible for managing the project and the partnership, while the limited partners will be limited to a passive investment role.
At the end of the 15-year Compliance Period, HACC will have an option to purchase the property or investor interest at the greater of Fair Market Value or the minimum price allowed by the Federal Internal Revenue Code Section 42(i)(7)(B). This formula price is for outstanding indebtedness and any taxes attributable to the sale. The Option to Purchase may be exercised at any time following the end of the Compliance Period. Fair Market Value is typically determined by appraisal and must take into account the restrictive covenants imposed by the low income housing tax credits. Under the Section 42 formula price (Debt Plus Taxes), the debt would be assumable by HACC and potential tax liabilities of $425,000 are forecast for the Investor. Any cost associated with transfer would be limited to actual legal and transaction costs.
DESIGN AND CONSTRUCTION TEAM
How was the General Contractor procured? HACC utilized the Construction Management/General Contractor (CM/GC) model to procure construction services for the Easton Ridge Apartment renovation. The CM/GC model has a proven track record of containing construction costs while maximizing available resources. An RFP was issued on November 1, 2011 and included detailed instructions to proposers, the scope of services required, submittal requirements and the evaluation process. HACC received 8 proposals which were forwarded to the Evaluation Committee for review and scoring. Walsh Construction Co. was the highest ranked proposal with a total of 95.7 points. The next highest ranked proposal was from LMC Construction with 78.7 points. The committee therefore, recommended the award of the contract to Walsh Construction Co.
What is the total amount the architect and contractor will be paid if the project proceeds as proposed? The architecture and engineering contract is for $528,765.00. The HACC Board approved the Architecture and Engineering contract on November 17th, 2011. For pre-construction, the contractor will be paid $101,197.00 at the time of closing and then for construction, they will be paid 2.25% of the total hard construction costs. The HACC Board approved a pre-construction contract with Walsh Construction on January 19th, 2012.
What phase is the project currently in? The design and construction team has completed the majority of their pre-construction work. The project has completed all of the required review processes and building permits are ready to be issued in anticipation of a mid-February construction start.
What is the path to financial closing?
- Completing the due diligence and underwriting process with Enterprise Community Investments, Inc., tax credit investor. Enterprise Community Investments, Inc. will be securing approval for the project with its Finance Committee.
- Securing a 2012 Carry-Over Allocation (or a 2013 new allocation) of Private Activity Bond Volume Cap from the Private Activity Bond Committee, Office of the State Treasurer.
- Completing the due diligence and underwriting process with Enterprise Community Loan Fund for the private placement of the short-term bonds which will bridge the tax credit equity financing. Enterprise Community Loan Fund will secure project approval with its Finance Committee.
- Negotiating all closing documents with legal counsel representing the parties involved in the transaction.
- Meeting the State’s Office of Housing and Community Services conditions to the reservation of 4% Low Income Housing Tax Credits. This includes reaching agreement on an appraised value of the property.
- Walsh Construction Co. is finalizing the Guaranteed Maximum Price (GMP) by confirming bids and executing contracts with all sub-contractors.
HACC is working diligently to complete all of these objectives in order to issue the Preliminary Official Statement for bond pricing purposes and achieve a timely closing.