The firms specialize in community development and mixed-income projects. "Opportunities to preserve affordable housing in New York City are very few and far between. Market pressures have been causing a lot of owners or developers to opt their projects out of the affordable housing programs," explains Matt Schwartz, principal of the Domain Cos. Spring Creek was attractive, he says, because it was "in an area where we saw a lot of long-term potential given the amount of development taking place and investment going into the area."
When Domain and Arker bought the nearly 20-year-old community in late 2006, the affordable programs used to develop the property had reached the end of their regulatory period. The asset was also in need of significant upgrades due to deferred maintenance issues. "We saw this as an opportunity to take this complex and present it to the state and city agencies that provide funding for affordable housing and try to come up with a plan to preserve the complex while addressing all of the serious issues it faced," says Schwartz.
The JV was able to put together a creative mix of financing from eight sources and several local and state agencies to help it in its endeavor. Through its Low-Income Affordable Marketplace Program, the New York City Housing Development Corp. issued $24 million in tax-exempt bonds for the redevelopment. Those bonds allowed the project to receive $18 million in federal low-income housing tax credits through the New York City Department of Housing Preservation and Development. Further, Centerline Capital Group shelled out $17.9 million in tax credit equity and arranged for permanent credit enhancement for the bonds from Freddie Mac, which also credit-enhanced a swap contract that fixed the rate of the permanent debt on the asset. Citibank provided the credit enhancement for the bonds during reconstruction. The community also qualified for 420c Tax Exemption through HPD, making its residential portion exempt from property tax for 30 years.
The entire redevelopment effort for the property, which includes 8,000 sf of commercial space and two garages, cost nearly $26 million, says Schwartz. "When we arrived at Spring Creek, among the primary challenges were the physical issues," he relates. "For instance, the original developers had used a panelized façade system that had completely failed by the time we took over. The building had substantial water infiltration issues that were creating quality of life and life safety issues for its residents. In addition to that, the development had gone through 20 years of wear-and-tear because it didn't have the capital to deal with the deferred maintenance issues. It also suffered from a reduction in services to tenants and a reduction in the quality of management, the quality of security--generally, the quality of life. We were able to address all of those issues."
Among the improvements are the replacement of the building's entire façade, the addition of new roofs, windows, exterior doors, balconies, HVAC systems, elevators and kitchens and baths in the units. Common areas also received upgrades, as did the exterior landscaping and parking facilities. The property's two community centers--one for youths and one for seniors--were revamped, with new furnishings, supplies, pool tables, computers and flat-screen televisions, as well as also implementing programs for both senior and youth activities in both centers. Interestingly, all of these improvements were done with all of the tenants in place.
In addition to the physical changes, Domain and Arker upgraded the community's security systems, property management and resident services. Tenants at Spring Creek now have a new on-site management office, a resident website with an online community, online rent payment and online maintenance requests and a community newsletter.
The JV employed green practices in the redevelopment and injected environmentally friendly features into the project, thanks to nearly $2 million in additional funding from the New York State Energy Research and Development Authority and the New York State Division of Housing and Community Renewal's Weatherization Assistance Program. The energy-saving features of the property will result in increased savings on energy costs for the residents.
"What's unique about this development, and almost all the ones we do, is that we did everything we could to maximize green and sustainable design features and energy efficiency enhancements," says Schwartz. "That's one of the core missions of both companies."
And as for those units that were leased prior to the property's sale to Domain and Arker, Schwartz says fewer than 10% of the units have market-rate tenants living in them. Those residents can continue to live in those apartments, but the rate will remain the same until they move out. Should one of those units become available, the executive says, it would revert to affordable status.
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