But Bay Area captured little in first funding round
A logjam that has stalled new affordable housing projects statewide is easing, bringing hope to the devastated construction sector and the economy at large.
So far, however, the Bay Area has landed money to jumpstart only a single effort, a $21.8 million rehabilitation in San Francisco’s Tenderloin district.
Still, the state retains approximately $600 million that it intends to dole out before year’s end to put other affordable projects back on track.
Construction should begin in the next four months on the Turk/Eddy Preservation Project, an 82-unit, senior-housing renovation, said Don Falk, executive director of the project sponsor, the Tenderloin Neighborhood Development Corp.
FineLine Construction in San Francisco is the general contractor, Falk said, and the renovation could take up to 12 months to complete. He did not know how many workers would be employed, and FineLine could not be reached.
About $10 million of the project cost is directly related to construction, including seismic upgrades and extensive work to building systems such as heating, ventilation and cooling, Falk said.
In the last year alone, the San Francisco Bay Area, including the South Bay and the East Bay, has lost nearly 27,000 construction jobs, according to the state Employment Development Department. One goal of the federal stimulus bill is to create new work and help preserve existing positions.
The Tenderloin renovation garnered $13.1 million in federal tax credits in 2007. But like other affordable housing developers regionally and statewide, Falk has been unable to put hammer to nail because investor demand for the tax credits has fallen precipitously. A dollar’s worth of tax credits that might have raised $1.10 in investor cash two years ago is raising more like 75 cents on the dollar now or can’t be sold at all. If the tax credits don’t raise enough money, the projects have insufficient funding to get done.
“It’s a sad state of affairs when a senior building like this can’t find an investor,” Falk said. “Under normal circumstances, it’s not a significant challenge. The Tenderloin can be a difficult place for investors, but we have a [federal] Section 8 contract that virtually guarantees revenue for 20 years.”
Under a provision in the American Recovery and Reinvestment Act, the U.S. Treasury has agreed to buy previously allocated tax credits to jumpstart the affordable projects. The Treasury will pay 85 cents in cash for every dollar of credits, according to the California treasurer.
Thirty-one shovel-ready projects statewide are to receive a total of $310 million in the first round of the cash exchange. But Joe DeAnda, a spokesman for the treasurer, said the state expects to allocate another $600 million to $700 million in cash-for-credits by year end. This first round of funding should be available to developers in as little as 60 days. All 31 of the projects got their original tax-credit allocations in 2007 and 2008.
“We think this is one of the first distributions of stimulus monies by a state agency within the state of California,” DeAnda said.
The state will allocate tax credits as normal for new projects in September. If those projects also are unable to sell the credits, they, too, will be able to exchange them for cash later this year, DeAnda said.
Bay Area affordable housing projects were not more broadly represented in the first round of the cash-for-credit funding because tax-credit investors typically favor urban projects aimed at a broad population, DeAnda said. Consequently, some more specialized projects have been able to sell their tax credits at reasonable rates. Senior housing, homeless housing or special-needs housing, particularly in more rural settings, have been most affected.
Los Angeles County has 11 projects among the 31, the most of any county in the state. Kern County has five; Sacramento County has two.
For his part, Falk said he sees little evidence that investor interest in tax credits is recovering or that prices for the credits are improving. He has a second Tenderloin project, a $100 million rehabilitation of an historic YMCA at 220 Golden Gate Avenue that he also would like to start. But after eight months, he has been unable to sell the approximately $30 million in affordable-housing credits that it has been allocated. Moreover, even if he manages to sell those credits or to get stimulus cash instead, he has another $13 million in historic tax credits he is unsure if he will be able to unload.
“I met with our tax-credit advisor [July 9], and he said there is no sign that investor interest in tax credits will rise in the next year,” he said.