Rehabbing Hope
By Mark Olshaker
11 min read
Detroit crime swamp transformed River Crest Lobby Fountain
On the morning of Friday, November 15, 2013, a 150-person combined force of the Detroit Police Department and SWAT team, Michigan State Police, the state department of corrections, the FBI and ATF executed a raid on the Colony and Fisher Arms Apartments at 9303 East Jefferson Avenue, on Detroit’s east side. Numerous police vehicles and EMS units blocked off the corner of East Jefferson and McClellan Street as a police helicopter hovered overhead. The raid netted 32 arrests in the low-income residences that Detroit Police Chief James Craig characterized as a hotbed of criminal activity and members of his department declared was “the most problematic building in the city.”
On the morning of Friday, January 27, 2017, a public ceremony was held at the same site to rename the buildings as River Crest Apartments, now among the most desirable and safest affordable housing facilities in the city. Mayor Mike Duggan, whose official residence, the Manoogian Mansion, is two blocks away, was on hand to proclaim proudly, “It is a completely different place. This is the quality we’re going to continue to build for the people of the city of Detroit.” Police chief Craig was back on the scene, much happier this time around. City council president Brenda Jones was also in attendance.
What happened in slightly more than three years to transform this 161-unit urban blight from a place even the police feared to the mayor and city council’s pride?
Vision, optimism, passion, patience, community and government involvement, and a complex funding stack, according to the collective evaluations of several people closely associated with the effort. “It is always a challenge, but if you keep your eye on the goal, you can get through it,” says Dennis Quinn, senior vice president of Building Blocks Nonprofit Housing Corporation of Lansing, MI.
Building Blocks partnered with its fellow Lansing-based organization, Cinnaire – a nonprofit community development group – and Chesapeake Community Advisors of Baltimore to complete the $24 million renovation.
The twin apartment buildings had been constructed in 1924 with period design features and residential amenities suitable to the “Gold Coast” of the nation’s premier manufacturing city. “This was a high-end, preferred address,” explains Mark S. McDaniel, Cinnaire’s president and CEO.
“But in the late 1950s, the ‘60s and ‘70s, we saw an escalation of middle class flight from Detroit. A way to save the buildings was to convert them into project-based Section 8 housing, which is what happened in the early 1980s. Even then it was a good, safe, nice place to be. But in the late ‘80s and ‘90s, Detroit spiraled down. There was bad property management that combined with the negative dynamics of the city. It’s hard to reverse that. Things quickly disintegrated and got out of control. Drug dealers had free reign over the property and surrounding neighborhood. Even the police didn’t want to go in.”
In the year prior to the raid, Detroit PD had logged more than 600 calls from the buildings. Drug-related crimes, burglary, robbery and homicide were rife in the area.
“My first week here, a guy got shot in the building. He was dead in the hallway,” says Sherman Jones, a seven-year resident.
“When I first moved down here, I was scared to walk outside,” three-year resident Katherine Bradford recalls.
HUD had concluded that Colony and Fisher Arms were in such a state of disrepair and poor management that they were no longer serving their intended affordable housing purpose and the department was therefore prepared to revoke the Sec. 8 contract and walk away. “The existing general partner essentially threw up his hands in despair,” McDaniel adds.
In addition to the crime and dilapidation problems, a 2011 power outage made conditions so intolerable that many residents started sleeping outside. And a bedbug infestation was chronic.
There was no suitable developer in the marketplace willing to get involved with such a troubled property. “That was when Chesapeake came to us and said, ‘It would be a shame to lose all this Sec. 8,’” McDaniel relates. “We could see a slumlord buying it and the whole area would be no better off. So we thought we should take a look.”
Cinnaire has a long and productive history with Detroit, having contributed more than $500 million worth of investments in the city over the past 23 years. “From our very formative years, one reason we were created was to take on developments no one else was interested in or would touch. But that’s who we are. We’ve had great successes over the years with taking on very tough stuff, like new construction in bad neighborhoods. We are conservative in our calculations, methodical in every step of the process, and we have investors who have faith in us and the companies we work with.”
McDaniel is a Michigan State graduate in urban planning who worked with a developer for 15 years but found his greatest satisfaction was working with the nonprofits when he realized the impact affordable housing could make. With some coaxing from associates in that sector – he was a single dad raising two children at that stage – he ended up taking a 50 percent pay cut to head up what was then known as Great Lakes Capital Fund, set up to build with tax credit allocations. The organization was rebranded a couple of years ago as Cinnaire when its vision and mandate expanded. The name is taken from Celtic words meaning “forward thinking and progressive,” and “helpful and caring.”
“The whole idea exceeded all our expectations. The impact on people’s lives was beyond comprehension. All the people who work here have a passion for what they do, and it all revolves around those two sets of words,” say McDaniel. “What we really looked at [with Colony and Fisher] was a master plan, not only for this property, but the neighborhood around us. Any community we enter into, our goal is to transform it and make it a safe, quality place to live and work.”
Cinnaire’s two development partners are equally committed to their affordable housing missions. Building Blocks, according to Quinn, also takes on the hard challenges and will step in and facilitate development transactions when others don’t want to take on the challenge. Colony and Fisher was a near perfect case study. Once involved in a new endeavor, Building Blocks will seek new general partners and team up with other development entities, like Cinnaire, with which it has had a close working relationship.
Founded in 2001 by David Prout, a veteran of affordable housing finance, Chesapeake Community Advisors specializes in structuring and developing Low Income, Historic, New Market Tax Credit and federally financed projects, from preserving existing facilities to identifying new opportunities, real estate consulting, underwriting and syndication, as well as exit strategies, workouts and dispositions.
“Because of the architectural significance of the buildings,” says Quinn, “we applied to have them designated as historic by the National Park Service. This allowed us to seek, and successfully receive, federal Historic Tax Credits.” Other elements of the complex package included federal nine percent LIHTC, a new FHA 223(a)(7) mortgage, long-term renewal of project-based Sec. 8 rental subsidies and financing from the Federal Home Loan Bank of Indianapolis Affordable Program Fund. (See Funding Sidebar) In addition, the city of Detroit contributed vacant city-owned land adjacent to the property to be used for parking.
“We applied for a new Sec. 8 contract that would be mark-to-market at 105 percent of fair market rate, based on the improvement of the area,” Quinn adds.
The project is configured into nine efficiency units, 104 one-bedrooms apartments and 48 two-bedrooms. All received new paint, carpeting, appliances and central air conditioning. The lobby was upgraded to enhance the historic aspects, such as paneled walls, tile floors and new gas fireplaces. A tunnel was dug at the basement level connecting the two buildings for the first time.
“We also got control of two houses behind the property that had seen a lot of troublesome activity,” McDaniel says. “We tore them down and combined them with the city land for a playground and community garden.”
Because of the condition and reputation of the buildings, there was a 60 percent vacancy rate, which made the rehabilitation logistics somewhat easier. The two buildings were done in succession, so that as each floor was under construction, residents could be moved to the other building.
One of the greatest challenges was addressing the crime and safety issue. “It all comes down to property management,” McDaniel declares. “We recognized the security issues and installed monitoring cameras and state-of-the-art technology. We have a really strong security team on site, some of whose members lived in the property when it was so horrible. They know who should be there and who should not, and they chased away all the bad activities. We now have an excellent relationship with the Detroit Police Department and we have community police officers personally committed and emotionally engaged in this property, looking out for the mothers, children and elderly. The police chief has made a personal commitment to the community and the neighborhood has gone from one of the highest homicide rates in the city to one of the lowest.”
When the project was completed, response was so overwhelming that the waiting list had to be closed within a few weeks.
Katherine Bradford declares, “Now that it’s been fixed up, everyone wants to move in here. We’ve been through the storm and back before we got here.”
“Now,” says Sherman Jones, “there is nothing like this; not even close.”
With a 20-year Sec. 8 contract, resident income levels are restricted to 60 percent or less of area median income. And though River Crest is not officially designated as a supportive housing project, Quinn says, “We decided to treat this as supportive housing. We set aside funds to keep that going for two years and contracted with Semaritas, the Lutheran social services agency, to work with children, with families, with single parents, with employment challenges and literacy.”
City Council President Brenda Jones awarded McDaniel and Cinnaire the Spirit of Detroit award for improving the city’s quality of life. WXYZ television quoted Mayor Duggan as saying projects like this are crucial for the city to thrive again.
In many respects, River Crest can be viewed as a model of affordable housing and urban revitalization. But Quinn notes that to make a project like this work, a number of elements have to come together. “You have to have reliable funding partners, the scale large enough for it to be effective, you have to have a housing assistance payment agreement, tax credits, a definable need for affordable housing, and you have to have support from government and the community. And, of course, you have to have confidence and optimism.”
“Everything had to match up just right to make it work,” McDaniel asserts. “But we have a lot of experience in this area.”
Mayor Duggan told Tax Credit Advisor, “This project is a great example of the city we are trying to build, which is a place that has room for families of all income levels. In what was once a very troubled and crime-infested building, we now have 161 beautiful units of affordable housing that will be here for the long term, and that is an asset to the surrounding neighborhood. The partnership that made this happen is a great model for other communities.”
“I appreciate that somebody cared enough to try to solve the situation and try to make it better for us,” Katherine Bradford comments.
“It’s a community of hope now,” says McDaniel.
Colony and Fisher Arms Apartments
- “Transfer of Physical Asset” from Seller to Building Blocks
- Designation of Building Blocks as a “Qualified Non Profit” (QNP)
- New 20-year “Housing Assistance Payment” (HAP) contract (Project-based Sec. 8) (105 percent of Fair Market Rents – FMR)
SOURCE OF FUNDS
New First Mortgage (FHA 223(a)(7) – immediate) ($3,077,100.00)
Assignment and Assumption of Mortgage Restructure Note/Mortgage and Contingent Payment Note/
Mortgage by Building Blocks ($3,078,418.00)
Federal Home Loan Bank of Indianapolis (FHLBI), Affordable Housing Program (AHP) Grant ($500,000.00)
Cinnaire (Limited Partner/Equity Investor – LIHTC/HRTC) equity investment ($17,125,440.00)
Building Blocks Non-Profit Housing Corporation deferred developer’s fee ($443,209.00)
Transfer of Existing Tax and Insurance Escrow ($71,239.00)
Transfer of Existing Replacement Reserves ($125,126.00)
USE OF FUNDS
Acquisition of adjacent properties (City Lot $160,000.00 & two-duplex houses $50,000.00)
Purchase price (Land $595,000.00/Buildings $2,883,418.00)
Construction ($15,203,135.00) (including contingency $1,374,376.00)
Professional fee/Soft costs ($3,090,000.00) (including developer’s fee $1,800,000.00)
Financing Costs ($775,442.00) (including construction loan interest $425,809.00)
Tax credit syndication Costs ($198,475.00)
Reserves ($1,540,062.00)
Total Source/Use of Funds ($24,420,532.00)
Unsecured construction/bridge loan from Huntington Bank ($11,238,911.00)
OPERATIONS
Annual Gross Potential Income ($1,507,968.00) (Increasing @ 2 percent)
Annual Expenses ($1,026,782) (Increasing @ 3 percent)
Annual Net Operating Income ($481,186.00) (Decreasing @ 1 percent)
Annual Debt Service First Mortgage & Required Reserves ($270,000.00)
Annual Cash Flow to Second and Third Mortgage & Deferred Developer’s Fee ($210,000.00 – Decreasing)
