St. Louis Firm Utilizes New Markets Tax Credit for Variety of Urban Projects
Tax Credit Advisor, January 2009: McCormack Baron Salazar, a St. Louis, MO-based developer, specializes in projects that help rebuild distressed neighborhoods within major urban cores.
For many years, the company has developed a number of mixed-income, mixed-use communities under the HOPE VI public housing revitalization and mixed-finance programs administered by the U.S. Department of Housing and Urban Development (HUD).
More recently, the company, in revitalizing communities, has expanded its toolbox to add use of the federal new markets tax credit (NMTC).
Jonathan Goldstein, senior vice president of McCormack Baron Salazar, described some of his company’s current NMTC projects in an interview with the Tax Credit Advisor.
Goldstein said McCormack Baron Salazar has participated in different ways in a variety of NMTC projects: as the developer; as the community development entity (CDE) providing an allocation of new markets authority; or doing both. An affiliate of the company, MBA Urban Initiatives CDE, LLC, has received NMTC allocation awards totaling $170 million in the three most recent funding rounds. The CDE has a national service area, with its principal focus providing financing for mixed-use real estate projects.
Goldstein said the primary work of McCormack Baron for years has been “to go into some of the most distressed nations in the nation and spearhead the effort to revitalize these communities. Our traditional tools have been around housing.” However, he said once the firm got up to speed on the NMTC program, “we realized that that is the perfect tool for being able to bring the kind of commercial activity into the communities that we already serve.”
Says Goldstein: “Our whole philosophy is to try to act holistically in these communities. Which means not just housing, [but also] job training, supportive services for the residents, and working together with the local housing authority, if they’re a relative player in that particular community. So bringing in commercial activities for us is just one more facet of that kind of work.”
Goldstein described several NMTC projects that McCormack Baron is now working on:
Legends Park Commercial Building
In Memphis, TN, McCormack Baron is providing the NMTC allocation and developing the Legends Park commercial building, a 45,000-square-foot, mixed-use structure that will anchor the front entrance to the site of the new Legends Parks HOPE VI project (former Dixie Homes public housing complex) that McCormack Baron is also developing. The firm has also been selected by the Memphis Housing Authority for a second, nearby HOPE VI project called University Place.
The new commercial building and Legends Park sites are adjacent to the Memphis Medical District, which contains LeBonheur Medical Center, a VA medical center, a university medical school, and other institutions. A new 10-floor patient tower for Children’s Hospital is under construction.
“As we were master planning that community [Legends Park HOPE VI] with the housing authority,” said Goldstein, we wanted to have some commercial activity on that street to try and both draw economic activity out of the medical district and into our community, and also to give job opportunities for the [Legends Park] residents. The new markets tax credit provides the perfect tool to allow that to happen.”
Now under construction with completion expected by year-end 2009, the Legends Park commercial building will contain ground-floor retail and commercial space and a 4,700-square-foot management office. The two floors above will contain 24 market-rate one- and two-bedroom apartments. “We purposely left all that housing as market-rate,” said Goldstein, “so we could attract folks from the medical district,” in order to create, when combined with residents from the Legends Park HOPE VI development, a mixed-income community.
Goldstein said an investment fund has been established to channel NMTC-assisted funding to the project. He said the NMTC equity investor is US Bancorp Community Development Corporation (CDC). St. Louis-based Enterprise Bank is providing a first mortgage. The housing authority is providing a second, soft loan and will have an economic interest in the project, Goldstein noted. The authority has also provided a ground lease. The authority capitalized its soft loan with gap funds from the city’s Capital Improvement Project (CIP) program, which provides grants to help pay for infrastructure improvements. Goldstein said partial tax abatement has also been approved.
The $8.4 million development will also contain a community center and pool that will also be open to residents of the Legends Park HOPE VI development.
Construction of the first phase of the Legends Park HOPE VI development has begun and is slated for completion by year-end 2009. When fully built out, this development will contain 430 new units of mixed-income housing and about 28,000 square feet of commercial and retail space on 46 acres.
Goldstein said a partner nonprofit, Urban Strategies, has been on site in Memphis for several years conducting job training and other services for residents.
In Los Angeles, Goldstein said McCormack Baron is in the process of closing the first phase of the MacArthur Park Metro project, a mixed-use transit-oriented development. He said the first phase is set to begin construction in early 2009 and be completed by year-end; the second phase will hopefully close by summer 2009 and lag the first phase by 3-4 months.
The first phase, to be built across the street from a Los Angeles Red Line subway station, will include 15,000 square feet of retail space and a 233-space parking garage.
Above, on several floors, will be 90 affordable apartments, assisted by the low-income housing tax credit (LIHTC), according to Goldstein. He said two separate ownership structures have been created due to the federal tax law restriction against combining the NMTC and LIHTC in the same project. One condominium will own the retail space and parking facility, which is being financed in part with the NMTC. A second condominium will own the 90 apartments. “The economics are such that we need to take advantage [for] the affordable housing side of the low-income housing tax credit,” said Goldstein. The 3.42-acre site, located in the densely populated Westlake neighborhood adjacent to a park, is in an area of high land costs.
Goldstein said McCormack Baron is acting as developer and providing the NMTC allocation for the first phase, and will provide an NMTC allocation for the second phase.
Goldstein noted the project will provide convenient access to transit for the affordable apartment residents. In addition, it will satisfy the transit authority’s desires to create additional parking for commuters and use its property to provide housing and retail. He said the Los Angeles County Metropolitan Transit Authority (Metro) will continue to own the land, having executed a long-term ground lease. Goldstein said city and state funds are also going into the project, and Metro is providing funds to help build the parking. An investment fund and leveraged structure will be used to provide the NMTC-assisted financing for the first phase. Goldstein said his firm is in the final stages of selecting an NMTC equity investor and a commercial leveraged lender for the first phase. He noted US Bancorp CDC will be the LIHTC equity investor.
St. Louis Office Building
In St. Louis, McCormack Baron is providing an NMTC allocation and building a new 37,197-square-foot, low-rise, central office building for the St. Louis Housing Authority, which McCormack Baron has partnered with on a number of housing and revitalization projects. An affiliate of the housing authority will own the building and lease the space in the building to the tenants.
The authority, which serves about 150 visitors daily, will occupy all of the office space in the building for use by 90 employees. The ground floor will contain a café and a branch of National City bank. “That will be the first retail banking branch to serve this community in probably 20 years,” said Goldstein, noting the neighborhood currently is “checkered” with check-cashing stores. The retail bank and café will serve the housing authority’s employees and visitors as well as people from the surrounding neighborhood, including residents of a nearby HOPE VI project that McCormack Baron is developing (Renaissance Place at Grand).
Goldstein said the office building project was conceived after the housing authority decided to move from its old building but couldn’t find quality office space near its client residents. He said the authority had to move because its old building, which it owned, was at the end of its useful life. In addition, the site had become valuable and ripe for sale because of the transformation of the once difficult neighborhood.
Goldstein said US Bancorp CDC will be the NMTC equity investor in the office building project. He noted the project has also been funded in part with public housing capital funds received by the authority from HUD. Goldstein said the authority received HUD approval to use the capital grant dollars for this purpose. He said an empowerment zone loan has also been secured for the project.
For-Sale Homes Initiative
Goldstein said McCormack Baron is providing an NMTC allocation that will enable the St. Louis and Los Angeles affiliates of Habitat International to build additional single-family homes for sale to lower-income home buyers under existing programs they run that make use of sweat equity from buyers. Habitat typically sells a home to the buyer for a small down payment, and takes back a mortgage.
“The new markets here is helping to unlock additional financing to make more home building possible,” said Goldstein. He said the extra funds generated by the NMTC, much of it from equity provided by NMTC investor US Bancorp CDC, will leverage the Habitat affiliates’ other funds (from fundraising, sales of completed homes, collected mortgage payments, etc) to fund the construction by the affiliates of a larger number of homes than they could build otherwise. The NMTC funds will stay out for seven years, in accordance with NMTC program rules. Goldstein said the affiliates will keep the mortgages on their books for seven years, but may, if they wish, sell them during this time to other financial institutions, and recycle the proceeds into additional, new houses.
Goldstein said the structure of McCormack Baron’s initiative in this instance is mirrored after one originally created by officials of Habitat International, which used a NMTC allocation of its own for home construction/sale initiatives by several Habitat affiliates in the Gulf Opportunity (GO) Zone.
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