HUD decision to demolish draws protest

Real Estate Weekly, June 26, 1996

The HUD decision, which would replace the Hill Manor apartment tower in the city's Central Ward with 75 subsidized town-houses, was termed "capricious" and "unconscionable" by Vincent Lane, president of the American Community Housing Associates (ACHE), current owners of the property.

In a strong letter of protest to HUD Secretary Henry Cisneros, Lane charged that the action came after four years of intensive effort to raise sufficient equity to rehabilitate the project, and less than two weeks before a proposed closing with ocean Financial Corporation, of West Palm Beach, Fla., which had agreed to invest more than $17 million.

"We are shocked that this action was initiated only after our proposed equity partners and ACHE submitted our final Transfer of Physical Assets application to HUD," Lane wrote. "We speculate whether HUD intended to demolish this property all along, believing we would fail to find an investor willing to underwrite an investment based on Newark market rents without project-based Section 8 subsidies."

According to lane, if not reversed the decision by HUD-Newark would remove 420 viable low-income housing units from an already strained local housing market, result in the loss of $30 million in federal low-income tax credits already allocated by New Jersey to the property and more than $20 million in HUD-held mortgages, and cost HUD approximately $28 million of taxpayer money which could be used for other pressing housing needs.

"The availability of tax credits is what allowed us to get Ocwen's financial commitment," Lane declared. "Our proposal required not one red cent of new HUD funds. Clearly demolition is not the least costly alternative."

HUD-Newark's letter on the decision suggests that the action is in the best interests of the tenants and the surrounding neighborhood, according to Lane. However, both tenant groups in the building and advocacy organizations in the neighborhood are opposed to the demolition and are preparing similar letters of protest, he adds.

"We are prepared to close on the Ocwen investment and invest millions of dollars to improve the property," Lane asserts.

Must spend $8 million by July 31, 1996 or lose the allocated tax credits. Either we resolve this or we are prepared to pursue legal remedies to either allow us to carry out the proposed renovation or to recover damages we have suffered."

Lane's organization is a key participant in the unique approach to save Hill Manor, which involves the largest private investment tax-credit plan ever conceived for a single HUD administered housing project.

Under the plan, a private/public partnership would undertake the revitalization of the complex, which has languished in default for 12 years.

Sparrow Construction Corp., a New York City construction firm which specializes in affordable urban housing, put together the deal and would serve as developer of the renovation effort and distributor of tax credits for the project.

"Instead of producing a positive cash flow for the building, HUD seems willing to take a $50 million hit to demolish the building, relocate its tenants, build the new town-houses and continue to cover Hill Manor's mortgage and carrying costs," said Randolph J. Silverstein, Sparrow's president.

"The agency also apparently favors permanently dispossessing 350 Hill Manor families, assuming current tenants will get first crack at the 75 subsidized townhouses it plans for the site. What kind of economics is that?"

The renovation program for Hill Manor is designed to turn the building into a modern, attractive living environment that will appeal to tenants with the ability to pay market rents, while at the same time securing financing for the work from a very skeptical lending community.

The work would he divided into two components - extensive rehabilitation of the 20 residential floors of mostly two and three-bedroom family sized units to bring apartments up to modern standards, and the redesign and reconfiguration of the site and ground floor to introduce centers for resident activities.

"With Federally-assisted housing projects across the country falling victim to Congressional budget-slashing, new approaches to providing affordable housing are becoming increasingly critical," Silverstein said.

"The Hill Manor plan could have become a prototype for salvaging subsidized housing everywhere. Now that's all gone and it's a sad day for everyone involved."