Bootstrap financing

The Caleb Foundation, a developer, preservationist and manager of affordable rental housing, is tapping a combination of funding mechanisms to finance its development projects.

167

Some, like Maine’s recently enacted state historic tax credit program, are new facilities. Others, like U.S. Department of Agriculture Rural Development’s (RD) Multi-family Housing Revitalization Demonstration Program (MPR), have been around for decades.

The MPR was formed to preserve and revitalize existing rural rental housing and farm labor housing projects, created under the Housing Act of 1949. Today it exists to ensure that sufficient funding resources are available to preserve and revitalize rental projects financed by RD to provide affordable housing for low-income residents.

With many low-income housing tax credit players likely to remain sidelined until their businesses become profitable again, the Massachusetts-based non-profit was lucky to have nailed down LIHTC investors at the end of last year for two projects that were ready to close in June 2008, said Debra Nutter, executive director of The Caleb Foundation.

They include the historic renovation and adaptive reuse of an old textile mill in North Berwick, Me., as 40 age-restricted affordable apartments and the acquisition and rehabilitation of a 116-unit affordable rental community in rural Dayville, Conn.

Although finding equity over the next couple of years may prove a bit more challenging, Nutter is optimistic her firm will endure the credit freeze.

“When you talk to investors, they are all doom and gloom. That’s really sad, but some things needed to be corrected. As for us, we have one deal in Gloucester that we are struggling to find an investor for.

It’s a smaller deal, only 34 apartments, and the third phase of an existing property. We need to raise about $5 million in equity, so it’s not as big as some of the others and I think we’ll be successful,” she said.

To finance the balance of The Caleb Foundation’s pipeline, including projects in Maine and New Hampshire, Nutter is looking to alternative sources. “First, we hope to use the MPR program, which defers principle and interest, and we think we can go FHA with mortgage rates as low as they are and be able to raise enough money, if the properties don’t need a lot of rehabilitation. Secondly, we hope to use stimulus money for the necessary weatherization work. With these two resources, we hope to be able to make them work. And maybe in the end, we will use the Tax Credit Assistance Program money,” said Nutter.

In September, renters over the age of 55 with an annual income of no more than 60 percent of the area median income will begin moving into 40 units of new housing created by the Caleb Foundation in the converted mill building in North Berwick.

Built in 1832 by John Lang, the original wooden mill structure was destroyed by fire in 1861, but rebuilt with locally made brick in 1862, when it was commissioned to weave blue woolen blankets for the Union Army during the Civil War. At the height of production, the factory had 40 looms turning out 1,500 yards of flannel daily, in addition to the blankets.

The mill closed in 1955 and, except for a cameo role in the 1995 film Jumanji, starring Robin Williams, sat vacant until Caleb breathed new live into the structure that is listed on the National Register of Historic Places.

The family-operated non-profit organization Nutter formed in 1992 with her father and mother, Warren and Joan Sawyer, paid $960,000 to a private owner last March for the four-acre property, which became the first to be funded by Maine’s historic rehabilitation tax credit program that awards tax credits for as much as 30 percent of project costs to developers rehabilitating the state’s numerous historic properties.

The program was signed into law in April 2008, after which Caleb’s mill project received $1.9 million in tax credits that were purchased by the Northern New England Housing Investment Fund. “That agency was a key player in getting the state historic tax credit program passed in Maine,” said Nutter.

But without the EPA grant that helped pay for cleanup of the site, the Caleb Foundation might never have considered taking on the reuse project in the first place. Since Congress enacted the Small Business Liability Relief and Brownfields Revitalization Act in 2001, Maine has received millions of dollars for assessment and remediation at 40 of the state’s several thousand brownfield sites.

The brownfield legislation mitigated liability rules for companies developing tainted sites and established grant and loan programs for municipalities, nonprofits and other organizations to perform site assessments and cleanup. Program funding became available in 2003 and the Southern Maine Regional Planning Commission awarded the Olde Woolen Mill project $60,000 for assessment and another $200,000 for remediation.

“It was a site they wanted cleaned, so they were ahead of the curve and did the cleaning up before we closed. Everything fell together. Maine is a friendly state to work in,” said Nutter.

Challenges of the remediation included the old boiler room that was leaching lead and petroleum into the soil, the removal of paint chemicals from the basement and the removal of asbestos and lead that lined the pipes and windows.

Once site cleanup was complete, additional funding for the project came from the sale to TD Bank North of $2.2 million of LIHTC and $1.4 million of federal historic renovation tax credits. The balance came from tax exempt bonds, subsidy and permanent debt from MaineHousing, as well as tax increment financing (TIF) that allowed Caleb to reduce its upfront costs and ensure the units remain affordable to seniors with an annual income of $27,000 to $39,999, depending on the number of occupants. Under the TIF agreement, the town of North Berwick will return to the Caleb Foundation 50 percent of the increase in taxes paid on the project, while around $17,000 in annual taxes will go to the town.

Rents for the 33 one-bedroom and seven two-bedroom apartments will start at $690. Services available to residents will be provided by an onsite and on-staff service coordinator.

Archetype Architects drafted the blueprints for the renovation work and Portland Builders was the contractor. Both companies are based in Portland, Me.

“The apartments are beautiful. Historic preservation is fun because each unit comes out a little bit differently and the contractors and architect did an awesome job,” said Nutter, who completed several historic renovations in her former life as a for-profit developer and several more under the Caleb banner.

“The historic preservations are pretty complicated. For instance, we wanted to add solar panels. Solar panels reduce the operating expenses and help your application. But the regulations for historic properties are a little more strict. It’s important that the panels don’t interfere with the historic ‘look’ of the property. In the end, we were able to add the panels, increasing the points for our funding, while maintaining the property’s historic character and look,” said Nutter.

The three-story, 53,000 sq. ft. Greek Revival-style mill with its Victorian white bell tower that once served as the largest employer in town is a reminder of the Industrial Revolution. It is located across from a town green and town hall and overlooks the Great Works River, which once powered one of the country’s first steam engines, housed in the mill’s basement, along with a floor-to-ceiling flywheel that powered the looms and washed the 1,500 yards of flannel produced there each day. Water was diverted into the base of the building via a dam, where a coal-fired boiler turned the water into steam.

In its present incarnation, the building is powered in part by solar panels that provide enough non-polluting power to heat hot water. At the rear of the structure a patio overlooks the river and a walking path allows town locals and residents access to the river for fishing, recreation and a walk to town services and local shops.

The bell tower has been preserved, enabling townspeople to continue the tradition of ringing the bell each Fourth of July. The steam engine also was preserved and is on display in a community center on the property, as part of a historical educational exhibit that is open periodically to the public.

The Caleb Foundation operates more than 2,000 units of affordable housing at 22 communities in Maine, New Hampshire, Massachusetts and Connecticut. Its affiliate, The Caleb Group promotes self-help by connecting residents with services that fill their needs and create a sense of community.