The architect and contractor were chosen, the funding was in place and the reserves were met. An investor was onboard who was willing to assume the federal tax credits. The building was readied for the work, and Dwelling Place of Grand Rapids Inc. was looking forward to begin renovating the Goodrich Apartments in a few months.
“Well, that’s a little tricky because we thought we had one,” said Dennis Sturtevant, CEO of Dwelling Place, a nonprofit developer and property management firm.
“We thought we had Huntington Bank lined up to be the investor on the project. And because their appetite for tax credits has changed, we have to figure out how to keep them in and maybe bridge their equity for a couple of years until their appetite is back. Alternately, we need to talk to another bank,” he added.
The Goodrich is located in the heart of the Heartside Business District at the corner of Goodrich Street and Division Avenue, just north of Wealthy Street. Dwelling Place is managing the project as the Goodrich Limited Dividend Housing Association Limited Partnership.
Dwelling Place has owned the Goodrich, which is actually two buildings, for decades and spent roughly $2 million renovating it in 1993. Sturtevant said it’s time for another facelift, so the interiors of the 14 low-income, one- and two-bedroom apartments and the building’s exterior will be renovated. The landscaping and parking areas will also be upgraded.
“The way these projects work with low-income housing credits, every 15 years or so you can restructure the deal. So what we did, coming up on the 15 years, is we went out to see if we could line up another round of low-income credits, historic credits, and so on and so forth, to give the whole thing a facelift,” he said.
“We hope to get started sometime this spring,” he said.
The construction work will cost $1.3 million, which is the bulk of the project’s $3.2 million budget. Soft costs make up $550,000 of the budget, while $850,000 will be spent on the ownership transfer. Another hefty amount has to be set aside in reserve.
“A lot of reserves. With all the challenges with the banks and with lending and all that stuff, they’re requiring that we maintain close to $430,000 in reserves in case things go awry. So that has become a big-cost issue for us,” said Sturtevant.
“We’re also trying to make sure that we’ve got some operating reserves in place in case tenants have any problems with the rents. We never used to see this kind of stuff before. But in the last year or so, underwriting requirements have gotten a lot more stringent. So we have to include a whole lot of costs into reserves for the ‘just-in-case’ scenarios.”
The exterior will get a new paint job and a lot of tuck work. The decks on the back of the building will be replaced. The elevator system will be upgraded. New lighting and a new roof will be installed. As for the interior, all 14 apartments will be renovated.
Dwelling Place has let four of the apartments go vacant so residents can be moved to one or another of the vacant spaces while their units are being renovated. Sturtevant said each resident will likely be in another apartment for up to five weeks before moving back into their unit.
Senior Neighbors, the Mexican Heritage Society and Pine Rest Christian Mental Health Services have filled the building’s commercial spaces.
Brian Winkelmann, a partner in DTS+Winkelmann LLC, did the renovation’s design work. Fryling Construction, a division of Wolverine Building, will manage the project.
The Michigan State Housing Development Authority has granted the project up to $1 million in low-income housing tax credits and the city of Grand Rapids has awarded the work $500,000 in federal HOME funds. But to collect the housing credits, Dwelling Place has to find an investor.
The tax credits were authorized through the American Recovery and Reinvestment Act and go to a project’s investor, which typically is a bank. But today’s financial market is anything but typical.
“Because the investor market has been so bad, the prices for credits have dropped so low. The federal government gave the state housing authority these stimulus funds, and they come under the acronym of TCAP: the Tax Credit Assistance Program,” said Sturtevant.
Those dollars are meant to subsidize the prices that tax credits are currently going for, which is about 30 percent less today than before the financial crisis. In better economic times, a dollar’s worth of tax credits were worth 85 cents to a bank that needed to reduce its tax liability. Today, a dollar’s worth of credits is going for around 60 cents.
“It’s meant to bump the price up to where it would be more normal under a good time, to about 85 cents on a dollar. It’s to fill some gap, and that’s what those dollars are for,” said Sturtevant.
Also, the tax credits are good for a 10-year period.
But despite the incentive for an investor to become involved in the project, some lenders may not need to lower their tax liability as they may have enough losses on the books to do that on their own.
Still, Sturtevant said he is remaining optimistic that an investor will be found. At the same time, though, he admitted that finding one for Goodrich Apartments won’t be easy.
“If there is ever such a thing as a slam-dunk project in terms of easy to understand and well underwritten with minimal risk, this is it. It’s been operating for 50 years or more. It’s not going to change. It’s got 100 percent commercial occupancy and the apartments have stayed pretty much full, and we’re only talking about doing $1.3 million in renovations. So, it’s only going to get better from here,” he said.
“But to use housing tax credits, you have to find an investor who can predict that they’re going to have a federal tax liability for 10 years, because they take the credits over 10 years. And that, you know, is a bank, most of the time. But given how bad things have been in that industry, it’s much more challenging today than it’s ever been to try to find investors for these credits.”