Partners (Summer 1999)
Partners (Summer 1999)
Safe, decent, and affordable homeownership in an intown neighborhood such as Cabbagetown is no longer an elusive dream for low- and moderate-income residents in Atlanta. Cabbagetown, an old mill village, had suffered a decline for many years due to the area's high unemployment and poverty conditions. However, the Fulton Bag and Cotton Mill restoration project has helped to spark new life in this historic neighborhood largely due to the efforts of its residents and the financial commitment of both the public and private sectors.
The success of any community development project depends on the commitment of the key players. The Mill project typifies the level of collaboration necessary to structure deals that are both unique in design and financing. Although restoring the Mill initially seemed to be a formidable task, it was the cooperation among the developer, local and federal government, and a local banker among others that made the deal happen.
The central player in a community development project is the developer. Whether nonprofit or for-profit, the developer must have an established track record with similar projects as well as strong managerial skills to attract development financing from public and private sources.
Aderhold Properties, the loft's developer, brought extensive experience to the Mill project that included the recent renovation and conversion of another historic building into lofts in downtown Atlanta. Although other developers might have balked at the size and complexity of restoring the decaying structures, Aderhold Properties saw the potential to "breathe new life" into the old buildings.
However, as is typical in these types of projects, there was not a long list of investors primed to participate in the development's first phase. John Aderhold, chairman of the company, invested $1 million in equity into the project on behalf of Aderhold Properties.
The developer's reputation, expertise, and financial commitment was key to obtaining financing from other sources and will go a long way in attracting more investors in the latter phases.
Local and Federal Government
Government on the federal, state, and local level is a key player in the development of affordable housing through lending and other incentive programs, including guarantees, secondary markets, direct loans, and development grant subsidies. The private sector cannot be expected to do these deals on a "go-alone" basis. Consequently, the government's role in the partnership is to mitigate risk, attract investors, and leverage additional capital.
A total of $16.8 million in public and private loans financed Phase I of the project. The City of Atlanta provided a $400,000 loan. In addition, the Atlanta Empowerment Zone financed a $1 million loan to the project that allowed for additional funding through the Department of Housing and Urban Development (HUD).
Construction and permanent financing was provided through the issuance of $9.9 million in bonds from the Urban Residential Finance Authority under HUD's 221(d)(4) program. The Empowerment Zone loan required the developer to earmark 40 percent of the lofts in Phase I for low-income tenants, thereby qualifying the development to receive Low-Income Housing Tax Credits.
State Historic Preservation Office
Tax credits are an important incentive to developers, especially in building affordable residential properties. Low Income Housing Tax Credits have been an extremely popular incentive because they provide a dollar-for-dollar credit that reduces the federal income tax liability for equity investors. Historic preservation tax credits have also been important in the development of historic structures that otherwise would have been demolished because rehabilitation costs are often prohibitive.
The Mill is located in the Cabbagetown historic district, which is listed on the National Register of Historic Places. Thus, the Mill is considered a "certified historic structure" and is eligible for historic preservation tax credits that are administered through the Georgia Historic Preservation Office. The Tax Reform Act of 1986 provides a 20 percent Investment Tax Credit for the "sensitive rehabilitation of income-producing historic properties." Accordingly, the National Park Service is responsible for certifying that the rehabilitation work meets the Secretary of the Interior's Standards for Rehabilitation. The Mill project received $4.5 million in low-income housing and historic tax credits for Phase I of the development.
In the past 20 years, the private sector has assumed a more prominent role in community development projects. With the passage of the Community Reinvestment Act and the decline in federal resources, local financial institutions have become more active in partnerships with the public sector to provide affordable housing and small business lending. The sustainability of this capital inflow into low- and moderate-income communities will largely depend on these deals being structured in a safe, sound, and profitable manner.
SunTrust Banks, Inc., invested in Fulton Cotton Mill (FCM) Associates, a limited partnership formed to acquire, renovate, and own the 182-unit loft apartments in Phase I of the development. SunTrust is the 99 percent Limited Partner and will receive the commensurate proportion of the tax credits allocated to the project. FCM Partners, L.L.C., is the 1 percent General Partner. The capitalization of the Partnership consists of SunTrust's equity investment up to a maximum of $4.6 million and a $1 million equity investment from the General Partner.
The collaboration and partnership between the key players in the Mill project have opened a new chapter in the life of a historic Atlanta neighborhood. By drawing on the resources of the public and private sectors, as well as garnering the community support, this development will have a lasting impact on future revitalization efforts in the area.
Regulators, bankers, and developers all contribute to neighborhood revitalization programs. Above, Ron Zimmerman, vice president of the Federal Reserve Bank of Atlanta; SunTrust Banks, Inc. representatives Jim Mynatt, group vice president, and Lalla Harris, CRA officer; and John Aderhold, chairman of Aderhold Properties, meet to discuss revitalization opportunities in the Atlanta area. Federal bank and thrift regulators serve as a key role for helping encourage and promote affordable housing and investment in low- to moderate-income areas in compliance with the Community Reinvestment Act. Banks are primary sources of funding for such programs by providing equity investments and dedicated loan programs. And the developers are the key to transforming plans and resources into results.
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