Ten and a half years ago this article appeared in
Crains Chicago Business. Peoples Housing was spawned from 'Good News', a faith-based organization here. With the fall of Peoples Housing, the properties were purchased and the legacy continued. Yet I fail to realize how some of these owners are still in business when you look through the pictures in the archives. We're still paying into the continuance of a horizontal project, we're still supporting slumlords who take their government check and force low income tenants to live in less than desirable conditions. These examples are of
just one owner who bought up certain properties:
Example1
Example2 Example3 Example4So how is low income presented like this helping anyone, especially the children? Children are tomorrow's resources, human resources, and what are the chances that these kids are going to be a part of a productive society? Are they going to grow up thinking that conditions like the examples are 'normal, and acceptable' just because their parent(s) were low income? The legacy will continue. Just how are we really helping the children and their parents? Who's watching out for the children? Is HUD watching? Is the Mayor watching?
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HELTER SHELTER
PROBLEMS PLAGUE TAX-CREDIT HOUSING
May 01, 1995
By TOM ANDREOLICommunity developer Donna Smithey didn't get into real estate for the money, but her social conscience has proved small consolation as default looms for eight apartment buildings she rehabbed in a rundown corner of Rogers Park.
Ms. Smithey, executive director of
not-for-profit Peoples Housing, has attracted $12.8 million in private investment to the North of Howard neighborhood since 1987 by selling federal low-income-housing tax credits to corporate investors that served as seed money to leverage private bank loans.
Yet Ms. Smithey and participants in other local tax-credit-based housing projects-including City Hall, Loop banks and such names as Ameritech Corp. and Amoco Corp.-are learning that the inner-city real estate market doesn't always respond to good intentions.
Lower-than-expected rents and uncontrolled expenses, caused partly by worsening neighborhood social conditions,
have made many tax-credit properties neither economically viable nor nice places to live.
More than $300 million in tax-credit-based housing rehabs and developments have been undertaken in Chicago during the past decade, mostly in blighted, predominantly minority neighborhoods. The corporate tax breaks have played a major role in nationally recognized rebuilding efforts in South Shore and Garfield Park.
Nevertheless, a significant portion of these properties is in financial jeopardy and facing physical decay. That's a bitter pill to swallow for community developers, city officials, bankers and corporations that invested hopes-and dollars-in the deals.
Among the troubling signs:
Three of the city's largest non-profit developers-Peoples Housing, Bethel New Life in Garfield Park and Neighborhood Institute in South Shore-have ceded management of tax-credit properties to private-sector firms.
"I don't think we have a not-for-profit housing customer that we are not looking at closely," says Frances Grossman, a vice-president at Bank of America Illinois, which works with Peoples Housing and seven similar groups.
Chicago-based
National Equity Fund (NEF), the nation's largest syndicator, has put 20% of its $1.2-billion equity portfolio on credit watch-indicating serious financial concerns.
In addition, NEF's three top executives are leaving over the next year as the syndicator pursues new products and markets, confirms Andrew Ditton, executive vice-president of NEF's parent organization, New York-based Local Initiatives Support Corp.
Chicago Equity Fund (CEF) has placed 7% to 10% of its $100-million equity portfolio on credit watch, President William Higginson reports. And CEF, which invests for more than 30 local companies, including Amoco and Tribune Co., has stopped funding not-for-profit developments because of financial concerns, he says.
The Chicago Department of Housing says that 10% of $102 million in city loans to tax-credit developments during Mayor Richard Daley's administration are delinquent.
"Clearly," surmises Housing Commissioner Marina Carrott, "we are losing ground with respect to the units we've already created.
" As concerns deepen over the state of local tax-credit properties-especially developments by not-for-profits in the city's toughest neighborhoods-emotions are flaring on the issue of blame.
One flash point: the question of whether
not-for-profits have allowed their social mission to interfere with their business judgment.
"There is a big level of sensitivity and a big level of denial and defensive posturing" says Susan Motley, a senior program officer at Chicago's John D. and Catherine T. MacArthur Foundation, which has multimillion-dollar investments in both the Local Initiatives Support Corp. and the Neighborhood Institute's parent, South Shore Bank.
Most players agree that to solve the projects' problems will require extensive workouts in which all participants will have to take a hit. The hard part, of course, is who gives up what.
"The first thing is acceptance, then it goes to finger-pointing, then you get to a solution," says Peter Holsten, president of Holsten Real Estate Development Corp., a restructuring expert recently called in to manage Peoples Housing's tax-credit portfolio. "Unfortunately, we're stuck in the finger-pointing phase right now."
A potentially divisive issue will be whether to change the financial structure of tax-credit developments to reduce the complexity of deals and the amount of mortgage debt carried by the properties.
A tax-credit deal typically carries multiple financing layers, including equity from corporate investors, a first mortgage by a private lender and gap financing from the city or state.
Some housing advocates have criticized City Hall's policy of requiring community groups to both borrow the most private money possible and to repay the public-sector gap financing. The obligations, advocates argue, crush financially fragile projects in the neighborhoods that need help most.
"Most of the developments that we are involved in cannot carry substantial amounts of amortizing private or public debt," says NEF President Douglas Guthrie. (The pending departure of Mr. Guthrie, who led NEF's rapid growth this decade, and two other top executives is unrelated to softness in parts of NEF's portfolio, says Mr. Ditton of the Local Initiatives Support Corp.)
City Hall's mission, counters Housing Commissioner Ms. Carrott, is to get the most bang from its buck. "Where cash flow is available," she says, "it should be used to support the largest possible (private) first mortgage, because subsidy dollars are scarce and anytime private dollars are available, we should maximize them.
"A key concern among all participants is backsliding in city neighborhoods, such as South Shore and Rogers Park, where multimillion-dollar housing tax-credit investments initially appeared healthy. "It should be a lesson to all of us who worked cooperatively to put this together that we have to put more money into these projects," says Dorris Pickens, executive director of the Neighborhood Institute from 1987 to 1993. "What if we have to start all over again?"
One likely outcome is a slowing of new projects and a re-allocation of resources to stabilize existing properties. Some groups already are losing out in the shift. CEF last summer quietly took control of partner Bethel New Life's high-profile Guyon Hotel redevelopment in Garfield Park. Restructuring plans include a $290,000 grant from the state and annual $50,000 infusions from corporate investors, CEF's Mr. Higginson says.
Meanwhile, the city has cut off new development funding to Bethel, Ms. Carrott confirms. What most low-income housing developers and lenders didn't account for in their underwriting was the
cost of managing properties in poor Chicago neighborhoods, where social conditions have deteriorated with the introduction of crack and increased gang activity. "In the neighborhoods, times are tougher; I don't care what (President) Clinton or Mayor Daley says," says Mr. Holsten.
Last month, Ms. Smithey turned over management of eight Peoples Housing buildings with 248 units to Mr. Holsten, who also now manages the Guyon Hotel and Neighborhood Institute properties in South Shore. Ms. Smithey also is talking with banks and the city to restructure debt, starting with $1.3 million in mortgages held by First National Bank.
A Peoples Housing property on Ashland Avenue, now undergoing financial restructuring, offers an example of the quandary facing tax-credit developers. Operating costs per unit have exceeded projections by 20%, while rents have not kept pace, when Peoples Housing could collect them at all.
Nearly new three years ago, the four-story red brick building with terra-cotta trim already is showing signs of blight: broken stairwells, kicked-in doors, screens dangling in the wind. The building technically is in default, has no reserves and has accumulated a backlog of bills and deferred maintenance that requires an immediate $20,000 cash infusion, according to Ms. Smithey. "These deals didn't work," she says on a tour of the site, "and everyone involved in them is culpable for setting them up that way, not just Peoples Housing."
Ms. Smithey says restructuring talks with First National Bank recently have taken a turn for the better, giving her renewed hope. "It's a pretty nice building," she says of the Ashland property on an otherwise gloomy morning.
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