Affordable Housing Institute : US

 

 

Kent Hance, Chancellor of Texas Tech University, is an unlikely owner of LIHTC properties, but back in 1994, he made a financially brave decision, to take over as controlling general partner of Cornerstone Apartments in Haltom City, Texas, a small town northeast of Fort Worth.  As described in an article from the Fort Worth Star Telegram:

 

Hance rescued the apartments from the wrecking ball in 1994.

 

At the time, the city was trying to condemn the complex, which had been boarded up for years. It had become an eyesore, attracting transients and crime to what was a country-club neighborhood.

 

I’ve previously posted about the necessity for some properties to go somewhere to die, and I’ve commented on the challenges of post-mature LIHTC properties, or zombie properties, as the Star-Telegram quoted me. 

 

Why have some complexes — whose owners have included a government official, high-profile real estate developers and an affordable-housing advocate — fallen into disrepair?

The agency has lost its clout with many complexes, because all the tax credits have been cashed in and the period of IRS oversight has ended. That means an increasing number of owners have little incentive to make repairs.

 

“My informal name for them is zombies — you can’t hurt them,” said David A. Smith, chief executive officer of Recap Advisors, a Boston firm that specializes in tax-credit properties.

 

I eat your compliance records

 

Fortunately – or unfortunately? – sometimes properties that should have gone somewhere to die are in fact revived, instead of being demolished and rebuilt, with acquisition-rehab financing. 

 

Rehab money?

 

A Houston developer who was a former business associate of Hance’s had first tried to rehabilitate the property. He sank more than $1 million into it but ultimately hacked off the city, which sued him for not completing the project.

 

Acquisition-rehab is a highly difficult business, because unlike new construction or greenfield development, you do not know what’s inside the building envelope until you open it up.  With the economic gravity of trying to close the cost-value gap, rehab tends to be squeezed down, and only those who really know what they are doing can make slimmer rehab work. 

 

Neighbors called the rehab attempt botched, saying workers masked fire damage in two units.

“They just left all the burnt Sheetrock up there and put more stuff right over it,” said Charles Bolton, who has lived by the apartments since 1967.

 

Charles Bolton’s house is behind Cornerstone. He and his wife, Margie, say they’re unhappy with the complex’s upkeep, and find trash and drug paraphernalia on their property.

 

Hance said that, having made a lot of money working with the Houston developer, he was confident about taking over the project.

 

“Back then, the hook was in my mouth pretty far,” he said.

 

That’s what happens when you swim with the sharks

 

He won federal tax credits over the protests of the Diamond Oaks Homeowners Association and city leaders, who were skeptical that the $1 million Hance would invest was enough for an adequate renovation.

 

Out of curiosity, I looked up Cornerstone in our national LIHTC property database.  It’s a total of 74 apartments — 24 one-bedroom, 44 two-bedroom, 6 three-bedroom — that was placed in service in 1996, meaning it delivered annual LIHTC’s through 2006 and has recapture exposure (declining) through 2011.

 

A million bucks over 74 apartments is only $13,500 apiece.  Even by 1996 standards, that is very low, particularly in light of a property that had been boarded up.  (Money spent by the previous developer may be regarded as lost, since a building that sits open is always a target for clandestine occupancy, and usually suffers more damage than any interim rehab could have been worth.)

 

In other words, very likely it was a minimal rehab, a form of housing that has been plagued with problems ever since the mid-Sixties. 

 

Affordable housing amidst attractive single-family homes, with a golf course to the east

 

Today, nearly fourteen years later, evidently it wasn’t enough, as the Star-Telegram documents:

 

Dismal conditions

 

No one would ever confuse Cornerstone with any hoity-toity Dallas suburb.

 

Residents say some downstairs apartments flood every several months when sewers back up.

One recent weekend, with temperatures in the 40s, heat was out for a family of five. They said the property manager told them that the maintenance man would not be available until Monday.

 

If true, that’s highly abnormal.  Most professional management companies process work orders on a twenty-four hour basis.  Something essential, like heat, I would expect to be processed within six hours — or less.

 

Too bad the utilities are individually metered

 

UAH Property Management President Mike Clark [told] the local property manager … that it is against company policy to allow anyone to go without heat.

 

Not to mention a violation of applicable building codes.

 

I went looking for UAH Property Management, to find information about them.  The Web site listed for the company (www.uahmgmt.com) does not work.

 

We respond as soon as you succeed in finding us

 

If the Star-Telegram’s interviewees are representative, the property has been plagued by problems ever since it was completed, with the neighbors saying I-told-you-so:

 

“I just knew … they would never do anything they promised,” said Ann Blackwell, who was the leader of the association. “We fought it and fought it, and we lost.”

 

After Hance entered the picture, city leaders knew that the battle was over, said Trae Fowler, who was then Haltom City’s mayor.

 

“I’m not saying he exercised any political pressure,” Fowler said, “but I’m sure that people were aware at the time that he was a pretty powerful political figure.”

 

Mr. Hance is certainly no stranger to the program, nor to the mother’s milk of politics:

 

Jess Unruh of California, who knew a thing or two about politics and lobbyists

 

Landmark Affordable Housing, run by lobbyist and ex-Congressman Kent Hance and his children, has received more than $36 million in tax credits for four TDHCA projects during the time period studied.  Hance has contributed almost $335,000 to Texas political committees and candidates since 2004.  Over the past decade he also has lobbied Texas officials on behalf of three low-income housing interests: Kilday Realty, Lankford Interests and the American Housing Foundation.  TDHCA tax-credit recipient Edgewater Affordable Housing also hired Hance to lobby federal officials in 2005.  Hance took a leave of absence from his firm after Governor Rick Perry appointed him chancellor of Texas Tech University in late 2006.

 

Mr. Hance’s lobbying was not just for others, but also for himself:

 

Why are you lobbying for an allocation for Myles Standish, John, when you yourself are much more worthy?

 

Hance said that over the past decade, he has gotten 14 such awards, most for new construction.

 

All on the merits, I’m sure.

 

While it’s by no means mandatory for a general partner to live close to the properties he owns, nor even necessarily to be in the business of developing and operating affordable housing, it is – to say the least – quite remarkable that a general partner not steeped in the affordable housing business would be able to provide high-quality supervision over his properties and his management company while holding down a full-time job several hundred miles away.

 

320 miles, five hours of Texas driving

 

This would be more tolerable if the management company were doing an outstanding job and the residents were expressing their gratitude, but they are not:

 

Earlier this year, a mother of three dislodged a dead rat from the back of her stove after the maintenance man did not address the foul odor in her kitchen, she said.

 

Water bugs are the size of your thumb, several residents say.

 

“My cat eats them,” one resident said.

 

Shown actual size — yuck

 

Security is also a challenge:

 

The complex has had 22 reports of assaults in four years and several rapes, police reports show. Last year, a 17-year-old resident was shot by another resident in a field behind the apartments. Break-ins in the parking lot are common.

 

A very dense site, with a shopping mall across the street

 

Actually, there’s compelling evidence that the management company is inclined to ignore the property and the residents, as illustrated by the Star-Telegram’s opening paragraphs:

 

HALTOM CITY — When the manager of the Cornerstone Apartments learned that state housing inspectors would pay a visit today, she switched into high gear.

 

Griselda Chairez sent a bilingual flier to tenants telling them of the visit and warning that Child Protective Services would be called “at the spot” on any parent with a “filthy” unit.

 

On it went: All tenants must make sure that electrical outlets work and that doors properly shut.

 

Sorry, but that’s the owner’s responsibility.

 

You have mold? Bleach it out.

 

Owner’s responsibility, owner’s legal liability.

 

Leaks?  Make sure they’re gone.

 

Owner’s responsibility.

 

Holes in the wall?  Get rid of those, too.

 

Owner’s responsibility, although the residents will be liable for damages. 

 

In short, Ms. Chairez’s flyer is just about the worst imaginable thing one could send – I can’t begin to count the number of implicit violations of proper procedure and program requirements are captured within it — and the attitude of fearful belligerence that lies behind it is even more damning. 

 

It’s mind-boggling the paperwork I have to put up with

 

Several mothers were panicking. “How am I going to fix a leak?” one woman asked. Another woman, smoking outside her unit, said: “I’ve just had a baby. What am I going to do?”

 

Residents, of course, aren’t responsible for most of the problems detailed in the flier, as the property management company later acknowledged.  The ones who should be scrambling, residents say, are the owners who promised to maintain the apartments and the state officials charged with ensuring that they do so.

 

Well, who is responsible?

 

Now, Chancellor, if your property were something kept in the refrigerator …

 

[Continued tomorrow in Part 2.]

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