Thursday, July 18, 2024

Jefferson Park Federal public housing is due to be remade like Jefferson Park State, seen in the background. (Photo: Marc Levy)

The huge project to replace and expand the Jefferson Park public housing development will be split in two, the Cambridge Housing Authority has decided. Executive director Michael Johnston said it is the only way the agency could get the state-allocated bonds necessary to tap into millions of dollars in private investment necessary to finance the long-delayed $222 million project, which will create 103 low-income units along with replacing 175 existing apartments that were deteriorating.

The authority will be able to complete construction in three years as planned, because construction of each phase will overlap, director of planning and development for planning Clara Fraden told CHA commissioners before they approved the split on Nov. 28. But the financing problems have delayed the date construction will finish. CHA first expected residents to start returning to apartments early next year; now the first phase will reach “substantial completion” in April 2026 and the second phase in April 2027.

The first phase, with four of the six new buildings and 195 units, will close financially next April. The second phase, made up of two new buildings with 83 units, will close a year later, according to a presentation of the complicated process to the commissioners.

Financial closings were postponed three times as CHA sought the state-sponsored bonds, first scheduled for the end of 2022, then March or April this year, then early this fall. One delay occurred because authority planners were dissatisfied with higher-than-expected bids.

A major problem for the authority and other low-income housing developers is competition for tax-exempt “private activity bonds” allocated by MassHousing, the quasi-public agency that helps finance affordable housing in Massachusetts. The federal government caps each state’s authority to issue the bonds.

The bonds back up construction loans for affordable housing and entitle developers to get federal low-income housing tax credits, which they can sell to investors such as banks and financial companies. The proceeds from the sale of the tax credits gives developers the equity they need for projects – money that doesn’t have to be repaid.

Private investment is necessary because federal aid for low-income housing has dwindled to a trickle in recent years. Federal officials have encouraged developers to turn to the private market, though it increases the cost of projects because of fees for lawyers and other professionals who must draw up the paperwork for the loans and equity. The tax credits bought by investors also reduce federal tax revenue from those taxpayers, which could end up raising everyone else’s tax bill.

Complication, not “significant risk”

Fraden said CHA needs $123 million in bonds for Jefferson Park. The need to split up the project is “related to bond scarcity,” she told commissioners. “It would be better to provide the bonds over two years.” In an email, Johnston confirmed that “we would not have been able to move forward without splitting up the project.”

Johnston said CHA has a written commitment letter from MassHousing for $85 million in tax-exempt bonds for the first phase of the Jefferson Park project, expected to close financially next April. “We would not expect to have a commitment letter for Phase 2 at this stage,” he said. MassHousing has given “official action status board approval” for both stages, Johnston said. Getting official action status is the first step toward getting an allocation of bonds and tax credits.

Johnston acknowledged that splitting up the Jefferson Park project “creates complications around having to manage two construction contracts and two sets of closing documents, but we are working with the same team on the design, construction and finance side for Phase 1 and Phase 2 so we do not see significant risk here.”

Lowered cost

While financing was up in the air, CHA has whittled down the cost of the entire project and avoided some construction delays by starting demolition and site preparation this year and removing that work from the construction contract. The work will be finished this month, Fraden said.

CHA has authorized spending $23.6 million on the demolition and site preparation and has deducted that amount from the Jefferson Park construction contract, leaving $198.8 million. At one point the estimated cost of the new development was as high as $250 million.

The housing authority is paying for the demolition and site preparation out of its own funds. Johnston said removing that work from the main project and starting it this year not only prevented construction delays but reduced the need for the tax-exempt state bonds.

A good look for banks

Though the first financial closing won’t occur until April, CHA will hold an unusual “equity closing” this month with The Richman Group, which has assembled banks to buy the tax credits. The main reason for the separate closing was to help the banks that are buying the credits to win a good score under the Community Reinvestment Act, which encourages banks to provide credit to their local communities by making such investments, according to a memorandum about the plans from the Nov. 28 meeting. Examiners assess banks on a three-year cycle, and this year is the end of the current cycle for one of the banks buying tax credits for Jefferson Park, the memo said.

The investors will not provide any real equity at the closing. Instead they will give CHA a loan of $7.9 million, which Johnston called “the first installment” of their contribution. The authority won’t need to repay the loan; it will change into equity when the investors actually provide the cash – about $78.7 million. Johnston said that is expected shortly before “substantial completion” of the first phase in April 2026.