Sunday, November 12, 2006

By Jeffrey Meitrodt

One developer plans to convert the old Falstaff brewery on Tulane Avenue into a mixed-income community with 156 apartments. Another wants to turn a downtown bank tower into 190 residential units. Others are raising money to convert apartment buildings in Slidell and Terrytown into affordable housing for the elderly.

While public attention has been centered on rebuilding thousands of owner-occupied homes, with less fanfare, rental housing developers are responding en masse to a program of tax incentives that is expected to result in a wave of apartment construction that will sweep across the city and into the suburbs.

When? Almost immediately. In December, state officials will award about $80 million in tax incentives to create thousands of units of rental housing, most of it subsidized, some of it market rate. And the incentives allow for no foot-dragging. To qualify for the tax credits, developers must complete all of the work and have their apartments ready for occupancy by Dec. 31, 2008.

Individually, these proposed developments may not do much to relieve a housing shortage that many experts fear is crippling the metro area's recovery. But in the aggregate, the 12,000 apartment units that could be added in Orleans , Jefferson and St. Tammany parishes are enough to replace the vast majority of large, multifamily properties that were destroyed by Hurricane Katrina. The storm destroyed or severely damaged about 58,000 apartments in the New Orleans metro area but the majority were singles and doubles.

Developers appear to see their greatest promise in New Orleans , and experts say the frenzy of new construction will be historic. Even in the early 1980s, when developers were throwing up projects left and right in eastern New Orleans , it took five years to add about 11,000 units to the market.

"This is unprecedented," apartment broker LAarry Schedler said. "What we are talking about is the greatest single reconstruction of an apartment market in the history of our country."

Not every proposal is a done deal, however.

Several hurdles lie ahead for some developers. Besides the need for building permits and permanent financing, many proposals must still be reviewed and scored by the Louisiana Housing Finance Agency, which awards the tax credits to developers who commit to offer a portion of their apartments at below-market rates.

Though the agency typically hands out just $8 million in credits a year, Congress steered $170 million in additional low-income housing credits to the agency in the wake of Katrina through the Gulf Opportunity Zone Act.

The housing agency has already awarded about $90 million in credits, but most of that money flowed to areas that escaped the brunt of Katrina's fury, including millions of dollars to Shreveport and Alexandria . So far, the New Orleans area has received just 46 percent of the credits, according to a list of approved projects.

Targeting hard-hit areas

That's changing. After local officials complained that the hard-hit metro area was not getting the help it needed, state officials changed the rules last summer and restricted applications for the next round of grants to the eight parishes that received the most damage from Katrina and Rita.

This time, the New Orleans area accounts for 93 percent of the $102 million in projects that are currently being reviewed. The housing agency will release a preliminary ranking of the proposals Monday and expects to award a total of $81.2 million in tax credits in December.

Developers sell the federal tax credits to raise capital for their projects, typically generating $10 million in equity from $1 million in credits and sharply reducing their debt load. In turn, they are required to reserve a certain number of units as affordable housing with reduced rents for low-income families, seniors or people with disabilities.

Local housing advocates said they're glad New Orleans will finally get its fair share of help, and they're thrilled by the overall quality of the proposals.

"After Katrina, a lot of people were asking the question: Can we rebuild New Orleans better?" said Kalima Rose, associate director of PolicyLink, a national nonprofit group that has been advising the state on affordable housing issues. "This is a concrete sign that the agency is taking that charge seriously."

Rose's optimism is hard-won. Until recently, she was convinced the housing agency was allowing developers to control the process, which resulted in the creation of too many low-income housing developments in high-poverty areas.

"While that certainly contributed to the creation of more affordable housing stock, it was also perpetuating concentrated poverty," Rose said.

Impressive numbers

Rose and other housing advocates are most impressed with the number of market-rate units mixed in with the more affordable apartments that typically dominate such developments.

Though the Louisiana Recovery Authority agreed to help spur such developments by offering hefty Community Block Development Grants to qualifying projects, some state officials thought developers wouldn't be able to respond quickly enough with quality proposals. Such developments have been a rarity in Louisiana .

But the housing agency was delighted to receive a total of 21 proposals for mixed-income projects, including 13 in Orleans Parish. Those projects -- which seek a total of more than $300 million in block grants -- would generate more than 2,900 apartment units in the metro area, with up to 80 percent of the units in some buildings priced competitively.

"That is going to create the highest quality rental housing and the best quality neighborhoods," said Adam Knapp, the chief of staff of the recovery authority.

But low-income renters won't be ignored. Public housing officials are seeking tax credits to create 1,853 units of subsidized housing, while apartments in most of the other projects would be restricted to those who earn 60 percent or less of local area median income.

Knapp said the mix of projects means there should be something for almost anyone who needs an apartment.

"We've got units for folks who are making upwards of $50,000 a year and we've got units for very low-income people in the service economy who are making anywhere from $15,000 to $25,000 a year for a family of four," Knapp said. "We've got housing that meets a wide swath of the need that's out there."

The only real disappointment, Knapp said, is the total number of apartment units that will be created. Though LRA officials had hoped that the tax credits would spur the creation of about 35,000 apartment units, that figure probably will be closer to 15,000 statewide, based on a review of the approved and pending projects.

Knapp said the predictions turned out to be too optimistic because the agency underestimated construction costs in the post-Katrina world.

Projects spread out

While housing advocates have knocked previous developments for concentrating too much low-income housing in one place, the current batch of development proposals are spread out across the metro area. In Orleans Parish, which accounts for 75 percent of the developments under review by the housing agency, developers are trying to bring major multifamily projects to neighborhoods that have seen little, if any, such development in the past.

Of the nearly 10,000 units in Orleans that have either been approved by the housing agency or are up for review, just 2,745 are in eastern New Orleans , which is where the vast majority of major apartment complexes were concentrated pre-Katrina.

Several of the proposed projects are clustered in the Lower Garden District, within a few blocks of River Garden , the mixed-income development that replaced the former St. Thomas public housing complex. Developers also are pitching projects in Algiers , Gentilly, Mid-City and Uptown.

In Jefferson Parish, where more than 1,000 units either have been approved or are seeking tax credits, the proposals are located solely on the West Bank, including mixed-income developments in Avondale, Gretna and Westwego.

On the north shore, where developers hope to build more than 1,200 units, the apartments would be clustered in Slidell and Covington .

The tax credits have drawn interest from a wide range of developers in Louisiana and from other states. Some have never done "affordable housing," to use industry jargon for housing targeted at tenants in lower income brackets. Others are major players in the business.

Provident Realty Advisors, for instance, has built 1,800 units of affordable housing in Texas . It's not a complete stranger to the region, however: The company built an Albertson's supermarket in New Orleans several years ago, as well as a Lowe's and a Wal-Mart in Slidell . But Provident didn't venture into the local residential market until this year, when it proposed building a 250-unit mixed-income project on an empty lot off Oak Harbor Boulevard in Slidell .

Project manager Matt Harris said the company was drawn by the strong rental market in New Orleans , where some apartments are fetching twice as much as they were before the hurricane.

"There are a lot of service workers out there who need places to live," Harris said. "And this is a really good location."

Local developers busy

Other companies are well-versed in the vagaries of New Orleans real estate and are using the tax-credit program to expand their holdings or add to existing developments.

River Garden developer Pres Kabacoff is seeking $2.3 million in credits, plus $26 million more in Community Development Block Grants, for a second phase featuring 310 mixed-income units at the Lower Garden District site.

Project manager Trey Langus said the units will be very similar to the first phase of the development, which has proven popular with tenants and neighbors alike.

"We'll have a one-bedroom flat on the bottom and a two-story townhome above it," Langus said. "It's a very French Quarter-looking concept with dormers on the third floor."

Some of the apartments will be built over small retailers, such as coffee shops or video stores. The commercial space will not be eligible for tax credits, Langus said.

"It's going to be a lot like Magazine Street , where you've got neighborhood retailers on the ground floor and residential upstairs," he said.

Though Langus is confident that Kabacoff's company, Historic Restoration Inc., will be able to meet the 2008 deadline -- which was imposed by the federal government -- he said other builders are less confident.

"It's a very tight schedule," Langus said. "There is some concern out there."

Mortgage banker Tim Leonhard, who has been advising the New Orleans City Council on the tax-credit program, predicts that about 15 percent of the credits will be returned to the housing agency because the projects will collapse for one reason or other.

"Given the tight time constraints put on the agency by the federal government, the agency must hand out the credits very quickly," Leonhard said. "As a result, projects got credits that the investment community would never invest in."

Among the problems cited by Leonhard: inexperienced developers, inferior sites in neighborhoods that haven't sufficiently recovered from the hurricane and spiraling construction and insurance costs.

Mortgage broker Mark Madderra, who sits on the board of the Louisiana Housing Finance Agency, said he'd be "very surprised" if the agency didn't wind up taking back some of the credits. He said it's too early to tell how much of a problem that will be, but vowed that the agency will do everything it can to make sure the credits aren't wasted. Most of the deals are expected to require that developers return the credits if they can't obtain financing by next spring.

"If we get 10 to 15 percent of those credits back, it will be our goal to reallocate them immediately to get them back into commerce," Madderra said.

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