$3.4 Million HPD Acquisition Loan to New Owners of Kelly Street Portfolio
Loan Adds To HPD’s 2011 Tax Credit Allocation That Will Generate $9.28 Million in Equity for Substantial Rehabilitation of Five Buildings Suffering from Extreme Neglect
New York CityDepartment of Housing Preservation and Development (HPD) Commissioner Mathew M. Wambua, Workforce Housing Advisors (WFHA) principal John Crotty, Banana Kelly Community Improvement Association President Harry De Rienzo, and Monadnock Construction President Nicholas Lemboannounced a plan to improve conditions at the Kelly Street portfolio of properties in the South Bronx, keeping the five buildings’ 81units affordable to their residents. HPD is providing a $3.4 million acquisition loan to the development team of WFHA, Banana Kellyand Monadnock Construction through its Participation Loan Program (PLP)to enable the developers tobegin to substantiallyrehabilitate the buildings. This loan, made possible by the U.S. Department of Housing and Urban Development (HUD) Neighborhood Stabilization Program (NSP), comes in addition to a Tax Credit allocation provided by HPD in late 2011 that will generate $9.28 million in equity towards the rehabilitation needs of the portfolio and bank financing. The previous owner, after refinancing these properties with an unsustainable level of debt, allowed them to slide into such a deplorable state that all five had been placed in HPD’s Alternative Enforcement Program (AEP), an initiative that annually targets the worst 200 buildings in the City.
The preservation of the City’s existing affordable housing stock and the protection of the tenants is a critical component of Mayor Michael R. Bloomberg’s New Housing Marketplace Plan (NHMP). Launched in 2003, the NHMP is a multibillion dollar initiative to finance 165,000 units of affordable housing for half a million New Yorkers by the close of the 2014 fiscal year. To date, the plan has funded the creation or preservation of more than 126,900 units of affordable housing across the five boroughs; 4,245 of those units in Bronx Community District 2 where the Kelly Street portfolio is located.
“Affordable housing is an irreplaceable commodity in New York City. Over the past three decades, Kelly Street has been emblematic of the struggle of neighborhoods to exist and endure in up and down markets,” said HPD Commissioner Wambua. “In the 1970s, we nearly lost Kelly Street to the ravages of the economic crisis and the massive disinvestment that caused the abandonment and burning of thousands of units of housing. With the eventual rebuilding of the South Bronx and buoyed by the strong economy pre-2008 economy, these properties were purchased with unsupportable debt by speculators who let the buildings fall into extreme disrepair. It’s been a long and winding road for these tenants who refused to be pushed from their homes. Thanks to our partnership with Workforce, Monadnock and Banana Kelly, the end of their living in squalor is in sight and their homes will once again be secure, safe havens in a neighborhood that they helped to save.”
The Kelly Street portfolio consists of 916, 920, 924, 928, and 935 Kelly Street in the Hunts Point-Longwood section of the Bronx. In December 2010 the owner was held in default on the mortgage and the portfolio went into foreclosure. On January 7, 2011 WFHA purchased the debt on the portfolio from Ridgewood Savings Bank with a short-term bridge loan from the New York Affordable Housing Preservation Fund (NYAH), a $100 million real estate equity fund created by Citi Community Capital and L+M Development Partners to stem the loss of affordable housing in the NY region. WFHA pursued foreclosure proceedings against the original owner, eventually taking title to the five buildings after a foreclosure auction held on August 1, 2011. In March 2011Harry De Rienzo of Banana Kelly was appointed by the Bronx Housing Court as the 7-A administrator for the properties, effectively allowing him to address the unsafe and unsanitary conditions within the buildings, manage the day-to-day operations, establish legal tenancies, collect rent and perform the necessary repairs to keep the properties in stable condition until WFHA acquired title. Monadnock has joined WFHA as a partner in the project and will serve as the general contractor during the rehabilitation process.
“This new process demonstrates the ability of government to work effectively with private sector partners to achieve long term sustainable solutions to a new and evolving problem, in the case of Kelly Street overleveraged properties that had massively failed. We applaud everyone who demonstrated the courage necessary to make this renewal occur,” said Workforce Housing Advisors Partner John Crotty.“The residents of Kelly St will be the first of many tenants throughout the city who will see their living conditions greatly improve as a result of this innovative thinking. We expect the revival of Kelly Street to go beyond the apartments by including an environmentally friendly community development program for urban green space and retailat the property. ”In addition to working with these developers to redevelop the Kelly Street properties, HPD recently partnered with WFHA to assist in the purchase of a former Mitchell-Lama building at 1520 Sedgwick Avenue in the South Bronx – known as “the birthplace of Hip-Hop” – to rehab and keep it affordable to its current residents.
“I started organizing on this block in 1976. As a long-time resident and founding member of Banana Kelly, it was very discouraging to witness the deterioration of the block where Banana Kelly got its start and its name,” said Banana Kelly President Harry De Rienzo. “It was even more discouraging to discover that millions of dollars in mortgage funds had been borrowed, with no evidence of any investment in these properties; that vulnerable populations were rented apartments that were not only uninhabitable, but a health hazard, and it was equally discouraging to learn from tenants that third party rent payments continued to be collected and deposited by these slumlords even after a court order prohibited it. But now all that will change. This project was made possible due to a unique private/not-for-profit/ public partnership, with all participants working from respective strengths for one common goal – the redevelopment of these building and the restoration of dignity to the neighborhood, the block, and these long-suffering residents.”
The total cost of acquisition and rehabilitation for the five buildings will be approximately $16.5 million. HPD will provide a $3.4 million acquisition loan through its Participation Loan Program, funded by the third round of HUD’s NSP. JP Morgan Chase is providing a $9.37 million construction loan. A total of $9.28 million in equity raised through the sale of Low Income Housing Tax Credits (LIHTC) will be used to pay additional construction costs and on completion of the renovation be applied to pay down the bank loan to a supportable level. Developer equity and a first mortgage from JP Morgan Chase complete the funding package.
Now that HPD and Chase have closed on the construction financing, work on 935 Kelly Street, the largest building, will start once all of the tenants have been temporarily relocated to apartments in the four other buildings. This first phase of construction will begin in February. The second phase, which will see the complete renovation of the four other buildings, also requires that the tenants be temporarily relocated.
"The Kelly Street Project is an opportunity for Monadnock to help people improve their lives and work with partners who share our values. It is also a sound business venture that will continue the ongoing efforts to reshape the South Bronx. Thanks to Work Force Housing Advisors, Banana Kelly, HPD, Chase and National Equity Fund for making this project possible,” said Nicholas Lembo, President of Monadnock Construction.
Prior to the sale of the buildings to WFHA, all five properties had at one time been placed in HPD’s Alternative Enforcement Program (AEP), an initiative to effectively identify and increase the pressure on the owners of some of the City’s most distressed residential buildings to bring the buildings up to code. This program is credited with stabilizing the buildings, and ultimately leading to the partnership with Banana Kelly and Workforce Housing Advisors. Absent AEP, the properties would have continued to rapidly deteriorate and pose a health and safety risk, and possibly, orders to vacate the tenants may have been necessary – leaving the residents without permanent homes and threatening the stability and integrity of the surrounding neighborhood.
The AEP allowed HPD to target these properties, do roof-to-cellar inspections, replace major buildings systems (i.e. roofs, boilers, etc.) andperform emergency repairs to the most hazardous conditions which the old owner refused to address. With the transfer of ownership complete and a fully funded repair plan in place, the City will no longer need to intervene on emergency repairs and the current tenants can begin to look forward to responsive management and the promise of newly renovated homes.
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About the NYC Department of Housing Preservation and Development (HPD)
HPD is the nation’s largest municipal housing preservation and development agency. Its mission is to promote quality housing and viable neighborhoods for New Yorkers through education, outreach, loan and development programs and enforcement of housing quality standards. It is responsible for implementing Mayor Bloomberg’s New Housing Marketplace Plan to finance the construction or preservation of 165,000 units of affordable housing by 2014. Since the plan’s inception, more than 126,900 affordable homes have been created or preserved. For more information, visit www.nyc.gov/hpd.