Credit crunch threatens N.O. housing plans

Rebecca Mowbray, The Times-Picayune
Date Published: 
April 8, 2008
Credit crunch threatens N.O. housing plans

Although demolition of the sturdy brick buildings at Lafitte is scheduled to begin this week, developers still have not secured all of the financing to replace the "big four" public housing complexes with mixed-income communities.

The rapid decline in financial markets has upset plans developers made last year to remake the public housing developments with a mix of public and private money. Since the City Council voted to demolish the complexes late last year, a spiraling credit crisis has made banks uneasy about making new loans. Meanwhile, the value of low-income housing tax credits that will be used to finance the projects has declined.

In recent weeks, the Louisiana Housing Finance Agency, the state entity handling the award of tax credits, has said that any affordable housing developers who have not yet closed on their financing plans may find themselves unable to do so.

Developers say that prices for tax credits are "significantly lower" than they would have been a year ago, creating the potential for financing gaps in projects, but they are confident the plans will come together. "At the moment, we're anticipating that everything is going to be fine," said Kevin McCormack, president of McCormack Baron Salazar, the St. Louis company that is leading the redevelopment of C.J. Peete.

As backhoes claw away at complexes, preservationists who had advocated remodeling rather than demolition question whether developers may be forced to reduce the number of units they build or delay construction.

"It's a problem in several ways," said urban planner and Treme resident Robert Tannen. "How will it affect the overall planning of the project?"

In December, Mayor Ray Nagin required developers to submit copies of financing plans before the city would issue demolition permits, but those were not signed deals proving that the financing was actually in place.

The Times-Picayune filed a public records request for copies of the financing plans submitted by each developer, but the mayor's office did not make them available within three days as required by law.

City Hall more optimistic

City Hall says the financing is more solid than what developers have indicated. Becca O'Brien, executive counsel to the mayor, said in an e-mail message that much of the financing is "fairly secure from market downturns" and that contingencies are built into budgets.

"The developers also presented updated commitment letters for their construction loan financing as of January 2008," O'Brien said. "All in all, we are comfortable based on what we have been shown that the financing is there to move these redevelopments to completion."

The financing challenges have kicked off a new round of battles about the fate of the complexes. Preservationists argue that the city might have avoided this predicament if it had been open to remodeling rather than razing the complexes. The U.S. Department of Housing and Urban Development counters that if protests over demolition hadn't delayed implementing plans for new public housing, developers might have been able to get their financing in place.

Regardless of who's to blame, financing is not yet in place for the housing that is supposed to be constructed in place of Lafitte, St. Bernard, C.J. Peete and B.W. Cooper.

HUD said it is monitoring financial markets to ensure the developments get done. "We're looking at whatever might be necessary to make the funding sufficient," said Jeffrey Riddel, director of the agency's Office of Capital Improvements.

Waiting for demolition

Jim Kelly, president of Providence Community Housing, which plans to redevelop Lafitte, said his nonprofit felt that it couldn't really get going on the financing until the site was cleared.

While Providence is only in the early stages of assembling its financing, Kelly said he has a "strong commitment" from both a lender, Bank of America, and an experienced tax credit syndicator, Enterprise, to sell the tax credits to investors.

Providence should be able to weather the storm because it has been conservative in its projections and because the cost of building has declined as new home construction has slowed across the country. "We've been watching this for a while," Kelly said.

Gerard Barousse, managing partner of the Bayou District Foundation, which is redeveloping the St. Bernard complex, said the market has gotten tougher, but he hopes to close on financing in July and begin construction at the end of summer. "There's a little bit of a gap that we're working with, but it's not an insurmountable number," Barousse said.

But Bayou District is still shopping for a lender and tax credit syndicator, making it harder to nail down figures. "We're still sorting through a lot of that," Barousse said.

Ex-official involved

Another question is whether the project will be affected by the participation of Columbia Residential, an Atlanta company tied to former HUD Secretary Alphonso Jackson, who resigned last week in the face of a federal investigation. Barousse said he has no reason to think the inclusion of the apartment developer will hinder Bayou District's efforts to move forward.

Efforts to redevelop C.J. Peete got a lift a few weeks ago when HUD announced that the project won a $20 million Hope VI Revitalization grant to build 50 additional housing units and further subsidize the original project. HUD said the grant is unrelated to the current financing environment.

McCormack, the developer, said the market downturn will probably cost his team about $3.5 million in equity for the project, but that change will probably be offset by the fact that bids for streets, sidewalks and public lighting have come in lower than budgeted.

"We're hoping to get something finalized in the next month, and we're looking to close and be under way at the end of the summer," McCormack said.

Keith Key, chief executive of KBK Enterprises, the Ohio, company leading the redevelopment of B.W. Cooper, which is being demolished this week, did not return phone calls requesting an interview.