joy, to the world (plantyhamchuk) wrote in atlanta,
joy, to the world

Low-income housing developer defaults to cost taxpayers : Defaults will force thousands from homes

City and state taxpayers will have to cover $5 million in bad loans, and potentially much more, as one of the state’s largest private developers of low-income housing faces a slew of defaults.

More than 1,000 poor families will be turned out of six metro Atlanta government subsidized apartment complexes in default. Some were just boarded up by the developer, the Atlanta-based Progressive Redevelopment Inc. The state has taken control of three other PRI properties.

The largest project headed for foreclosure is a signature renewal development in downtown Atlanta, the 99-year-old Imperial Hotel. Its high-profile, $9.4 million refurbishment in the mid-1990s produced 120 units of low-income housing. It’s slated to be sold at a foreclosure auction in January.

Most of the money to rehabilitate the Imperial — about $8 million — came from low interest loans, tax credits and grants from Atlanta and the state. About $2 million is still owed to the city and the state, most of which will be lost in foreclosure.

“We’re fighting for our survival,” said Bruce Gunter, founder and chief executive of PRI. “We’re out of money. We made the mistake of trying to do too much with too little. And when the housing market tanked, we got shot full of holes.”

The company, ranked by the state as Georgia’s largest nonprofit developer, built or refurbished 38 projects with 4,000 apartments in 21 years, most in metro Atlanta.

PRI and a few partners owe more than $74 million and PRI is in default on at least 10 loans worth $8 million, including $5 million in government-backed loans. If, as some state officials foresee, PRI goes out of business, city and state taxpayers will be on the hook for another $17.4 million in publicly-backed loans.

Taxpayers also will pay directly or indirectly to relocate displaced low-income families and to demolish at least three PRI properties that recently have been boarded up.

PRI’s largest financial backer, the state Department of Community Affairs, cut off its funding early this year.

Scathing internal DCA memos cite a litany of troubles, including mortgages that hadn’t been paid for two years, unpaid utility bills and taxes and deteriorating buildings. Some buildings had become uninhabitable because of broken pipes, leaking roofs and sinking floors.

“We didn’t assess why things got like they are, but the conditions and their performance dictated that we had to stop funding them,” said Carmen Chubb, an assistant commissioner for housing for DCA.

Gunter said losing the backing of the DCA was like “getting punched in the face after you’ve been knocked down.”

$100 million worth

At its height, PRI owned or controlled about 30 metro Atlanta properties worth $100 million. Gunter’s company also owns three subsidiaries that manage PRI’s properties and contract with local and state agencies to provide social services to low-income residents.

Gunter, 56, a banker, got involved with low-income housing in the 1980s while volunteering with the charity Habitat for Humanity.

“I was looking at the problem of affordable housing, and I thought, if we try to build a house for every single family who needs one, we’ll be at it for 10,000 years. The solution is multifamily units.”

He founded PRI in 1987 and he became its full-time director two years later.

Using local, state and federal loans, grants and tax breaks, PRI bought older apartment buildings and refurbished them. Tenants were selected under DCA rules prescribing who qualifies as low-income and what rents should be.

One third of the Imperial’s rooms, for example, are reserved for homeless people. Rents are capped at about $500 a month but many residents pay far less, based on the state’s income-based formula.

As PRI grew, Gunter traveled the country for speaking engagements and earned the humanitarian awards that line the walls of his Decatur office.

While the company got financial gifts from large donors like Home Depot, PRI’s primary financial backer was the state.

Over two decades, PRI developed $100 million worth of property and about 60 percent of development costs were covered by taxpayer-backed loans, tax breaks and other public programs.

‘Started getting bad’

Gunter blames both a failed business model and recession for his company’s troubles.

“We were doing fine as long as the economy was growing,” he said. “But when things started getting bad in 2007, that’s when we started to get into trouble.”

“One of our big mistakes was to not hold anything in reserve for hard times.”

Operating without reserves and on razor-thin margins meant that when residents started losing their jobs and couldn’t make the rent the company started losing money, he said. Many of the properties were older buildings that needed expensive repairs.

“We tried to keep our head above water, but the costs were getting too high,” Gunter said.

A routine 2008 audit commissioned by PRI showed the company was spending about $1 million more annually on operations and maintenance than the properties were generating. As the housing market weakened, the properties lost about $3.5 million in value, making it more difficult to refinance.

Of PRI’s 24 remaining properties, six are in default, including three that are boarded up. PRI relinquished control of three others to the state.

Among the failed properties is an 84-unit complex in East Point called Delowe Place. PRI stopped making payments on an $800,000 DCA loan in February 2008.

The state tried to work with PRI, allowing a temporary forbearance, hoping Gunter could rework the debt. But DCA memos say residents began complaining to the state more than a year ago about serious maintenance problems.

Delowe Place became uninhabitable. In March, PRI boarded up the buildings and asked residents to leave. In addition to a $700,000 private bank loan, PRI still owes $500,000 to the state and another $200,000 to the U.S. Department of Housing and Urban Development — money that taxpayers won’t get back.

Gunter said they simply didn’t have the cash to fix the place.

“We were charging about $200 a month in rents, and that just wasn’t enough to keep the place going,” Gunter said.

It’s a sore spot in East Point; city officials have complained to DCA that PRI isn’t cutting the lawn, picking up trash or keeping the boards nailed down.

Other properties were falling along the same path.

In mid-October, 50-unit Delano Place and 64-unit Forest Heights, both in Decatur, were shut down. Both buildings need repairs that would cost far more than their market value.

Since PRI stopped paying on some DCA mortgages, the state agency cut off its access to a federal subsidy program designed to promote private investment in low-income housing. The program assigns each property a tax credit, which can be used to pay local property taxes or sold to investors. The last tax credit payment was for $280,000 in February 2008.

After that, tax bills on all PRI properties shot up. Taxes on the Imperial Hotel, for example, went from $6,000 in 2007 to $85,000 the next year.

If the Imperial is sold as planned, it likely will go for pennies on the dollar and taxpayers will take the loss, said Carl Hartrampf, a former member of the Atlanta Housing Authority familiar with PRI.

PRI owes about $700,000 to Fannie Mae on the hotel’s mortgage, plus $2 million on two subordinate mortgages from the city and the state. The company owes the city $300,000 for water.

“That’s one of the sad things about this,” Hartrampf said. “We will lose that investment and this is a time we should be investing more into affordable housing.”

Chubb said her office has formed a task force to try to keep the Imperial operating.

“We’re trying to see if some other entity could take over the operations of the building and pay the note,” said Chubb. “We don’t know if that will happen.”

Lanie Thomas, a spokeswoman for the city’s Planning and Community Development Department, said, “There’s really not a lot that the city can do at this point. We’re working with the DCA in the hopes that we can find someone who’ll take the property.”

Homeless hurt

Anita Beaty, the executive director of the Metro Atlanta Task Force for the Homeless, said the people hurt most by PRI’s problems are its tenants.

“The people who are the most vulnerable, the ones who have no other place to go, are the ones who’ll suffer,” she said.

“This city traditionally has had a bad reputation for turning a blind eye to the homeless problem. If we lose the Imperial, that’s a shame because it was one shining example of doing something right.”

One third of Imperial’s room are reserved for homeless people. The rest are reserved for the disabled and working poor. Rents are capped at $500, but most pay far less, based on their incomes, with state and federal subsidies making up the difference.

The Imperial, a once posh hotel built in 1911, had been an abandoned shell for 15 years before PRI bought it in 1995 for $1 million. It was the scene of a protest by homeless people as the city geared up for the 1996 Summer Olympics.

Traci O’Conner, who lived in Delano Place, another PRI property, with her two young children, said that they’d heard for months that the place would be shut down, but no one officially told them until August.

“We moved in here a few months ago,” she said. “They shouldn’t have let us move in if we have to turn around and move out. My boy is in kindergarten. I need to find a place on a bus line.”

Beaty said the city needs to do more to protect people like O’Connor.

“There are scarcely any places people working low-wage jobs can afford to live,” she said. “We’re in the middle of some dark days.”

City Commissioner Aaron Watson said that the city should pay attention or its homeless problem will get worse.

“I see PRI as a victim of this economy” Watson said. “Low-wage workers are usually the first to get let go in a bad economy. And if they can’t pay their rent, then it has a cascading effect.”

Gunter’s plan is to hold on to about 12 properties and start rebuilding PRI’s reputation. He’s taking a salary cut from $107,000 to $60,000 and he’s slashing his staff of 140 in half.

“Our mission remains the same,” he said. “We want to improve the lives of the poor through good, affordable housing.”

But with a series of mortgage defaults and no backing from DCA, Gunter knows that no one will give his company a loan for a long time, if ever.

By Rich McKay

The Atlanta Journal-Constitution

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