A Rich Pipeline: Pioneer Group Develops Projects from Leased Historic Structures

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For developer Pioneer Group, Inc., a set of 38 leased historic buildings on the medical campus of the U.S. Department of Veterans Affairs (VA) in Leavenworth, Kansas is the gift that keeps on giving. The company is currently developing its third real estate project from the structures. The $10.3 million project, called Ridge Top Apartments, involves the historic rehabilitation of six of the 38 buildings into 49 affordable one- and two-bedroom apartments for low-income renter households. The company’s previous two projects utilized 18 buildings. “This development will have a preference for homeless veterans,” says Ross Freeman, President of Topeka, Kansas-based Pioneer Group. “So we’re working with the local housing authority as well as the VA” to identify potential applicants. The modern VA campus includes a hospital. “Their current mission includes inpatient drug and alcohol abuse treatment,” says Freeman. “When the veterans finish that outpatient program, many of them like to stay close to the hospital for continued medical care. The hospital is within walking distance from where our units are.” The impetus for Pioneer Group’s current project – and two prior plus certain future projects – occurred in 2005, when the company entered into a 75-year lease of the 38 buildings from VA under the agency’s “enhanced use lease” program. The Leavenworth campus was constructed starting in 1885 to serve Civil War veterans and included barracks, a mess hall, an administration building, staff housing, and other facilities. In 1930 the National Home for Disabled Soldiers was incorporated into the newly created Veterans Administration. In 1999, VA determined it no longer needed 38 vacant older buildings on the campus. But rather than demolish them, VA decided to lease them, and subsequently negotiated an agreement with Pioneer Group. Former Domiciliary Buildings Pioneer Group began construction in November 2012 and will complete the development in stages, with the apartment buildings expected to come on line in July through November. Four of the buildings being renovated were originally “domiciliaries” – low-rise barracks housing veterans. The fifth building is a house once used by VA medical staff for living quarters, while the sixth is a detached garage once used by VA personnel. The domiciliary buildings are being converted into apartments; the former residence and garage into space for the apartment management and maintenance staff. “These domiciliary buildings were built in 1886, the house in 1900, and the garage in 1928, and basically vacated in 1995,” says Freeman. He said the current project is a “gut rehab,” noting one challenge has been determining how to reconfigure interior portions of the structures to create apartments; the domiciliaries have wide open spaces with no hallways. “It’s always challenging to work with the architect to figure out how we can utilize those wide open spaces to accomplish what we intend and provide adequate housing,” Freeman notes. Pioneer Group is restoring and preserving historic features of the structures to qualify for federal and state historic tax credits. It also obtained 9% federal low-income housing tax credits allocated by the Kansas Housing Resources Corporation. In addition to equity generated by the housing and historic tax credits, other funding sources are a $1.2 million permanent mortgage from a bank and a deferred developer fee. Boston-based Michel Associates, Ltd. syndicated the federal tax credits while Pioneer placed the state historic tax credits with a different investor. Rents, Lease-Up Initial gross monthly rents will range from $460 to $550 for the one-bedroom apartments and $540 to $630 for the two-bedroom apartments. Ten apartments will be rented to households making 40% or less of the area median income (AMI); the rest to tenants making up to 60% of AMI. “We’ll start the lease-up in August,” says Freeman, who doesn’t expect the management company to have any problem filling the units quickly. “We’ve already had a number of veterans inquiring as to when these units are going to be ready.” Pioneer Group’s first project on the campus involved the historic rehabilitation of 16 of the 38 buildings into affordable apartments, again with an occupancy preference for veterans and using housing and historic tax credits. It received the Kansas Preservation Alliance’s 2007 Award for Excellence. “It’s been 100% occupied for at least the last three years and there’s always been a waiting list,” says Freeman. “In terms of occupancy it’s been just absolutely great.” Pioneer Group’s second project involved the historic rehabilitation of two additional buildings, one a former mess hall, into a Consolidated Patient Account Center for VA that employs 400 people. The project won multiple awards, including a 2011 J. Timothy Anderson Award for Excellence in Historic Preservation from the National Housing & Rehabilitation’s Association. The company hasn’t decided when and how to redevelop the remaining leased buildings, but several more projects are likely. Similarly, Freeman is alert to any new offerings of properties by VA under its enhanced use lease program. “We’re always open to opportunities,” he says. “We think – and the VA has basically said – that our enhanced use lease at Leavenworth is one of the most successful that VA has had.”