CASE STUDY: Foothill Villas in San Bernardino, CA
California Rehab Food for the Environment While Saving Residents Money
By Mark Fogarty
Residents at Foothill Villas Apartments in San Bernardino, CA stand to save more than $1,000 apiece in electricity costs after a solar photovoltaic system is installed as part of an extensive acquisition and rehab made possible by Low Income Housing Tax Credits.
The photovoltaic system installed on the community’s roofs and carports “will offset the equivalent of 968 metric tons of carbon, which is the equivalent of cars driven 2.4 million miles annually using 109,000 gallons of gasoline,” according to Jeffrey E. Jaeger, cofounder and principal of acquirer Standard Communities.
The upgrade will be part of a $20 million makeover of the 239-unit apartment community. Standard’s acquisition has a total capitalization of approximately $97 million with over $30 million coming from LIHTCs and tax-exempt bonds. PNC was the investor in the deal.
Jaeger notes that Standard’s inclination is to use the least amount of subsidies possible and stick to just tax credits and bonds to raise the money for its acquisitions.
Affordability of the units has been extended by 55 years. That is the typical amount for these kinds of deals done in California.
In addition, sustainability is a core company value for Standard, says Jaeger. “We have asked our team to prioritize that across the board. Anytime you take an existing property and reduce its footprint in a meaningful way is a huge win.”
He points out there was a risk of the project being turned into market rentals that the Standard acquisition has prevented.
Project Is a Classic Example
“This is a classic example of an owner who has owned the project since it was built,” Jaeger says. “We were excited by the opportunity to invest a large amount of capital into the project, update the community, and preserve the affordability for the residents,” he comments.
He continues, “Typically as these owners who have built these projects from origination look for their options as the affordable covenants are expiring on the project, they have multiple options available to them, among them converting the property into a market-rate community.”
Standard Communities, the affordable housing arm of Standard Companies, worked with the Federal Department of Housing and Urban Development to extend a Section 8 Housing Assistance Payments (HAP) contract on Foothill Villas for another 15 years. Standard often executes public-private partnerships, and Standard worked with two state agencies, the California Tax Credit Allocation Committee and the California Debt Limit Allocation Committee, on the LIHTC and bond aspects of the deal.
The California nonprofit Housing on Merit was also a partner in the deal as a co-developer.
All residents of the property are at or below 60 percent of area median income (AMI), with Jaeger estimating that most of them are below 50 percent of AMI on average, given that the project is covered by a Project-Based Section 8 HAP contract.
Under a HAP contract, “Typically what we see is that100 percent of the residents are under 50 percent AMI,” he explains.
The project is gated and is in “a nice enclave of San Bernardino, “Jaeger says, near residential and industrial neighborhoods. It is located within an Opportunity Zone at 2601-2705 West 2nd Street in San Bernardino, a city of 216,000 in the Inland Empire section of California, east of Los Angeles.
Built Back in 1966
Foothill Villas was built in 1966 and “has been maintained to a good standard,” Jaeger says. The sellers, he says, are a group of families descended from the original ownership, but he would not identify them further.
“The amenities, as well as the interiors, show the fact that the community was built in the 1960s,”he notes.
Upgrades will include modern kitchens and bathrooms and amenities that will allow more social services to be offered.
Additional upgrades include new fitness areas and a walking trail, as well as a playground and a volleyball court. Wi-Fi will be extended to the whole community, he says, another potential savings for residents. There will also be space to conduct social service classes and other services for the residents.
The rehabs will come to an average of more than $83,000 apiece for the units, which are in 37 separate two-story buildings on a 22-acre site and include one-, two and three-bedroom apartments. The bedroom mix is a third of each of the three kinds.
Jaeger says the makeovers will be extensive. In addition to the photovoltaic system, amenities will be upgraded, and substantial work will be completed in the units themselves.
No residents will be relocated. The rehabs will be done with residents mainly staying in their own homes and not getting moved around the community as work proceeds. Their reaction? Quite positive. “It’s ‘when can you start and when can you finish?’” according to the executive.
Completion Set for Next Year
The construction work has just started and is scheduled to finish in 2022. Standard’s portfolio of California affordable housing units stands at more than 3,300 now, Jaeger says.
The company is looking to expand that considerably, with an additional 3,000 to 4,000 units in the next two years and a target of 50,000 for the next ten years.
The firm has recently acquired Villa Raymond Apartments in Pasadena and Renaissance at City Center in Carson, CA via a public-private partnership with the City of Carson and CSCDA.
The Los Angeles- and New York-based Standard Companies has a total portfolio of more than 14,700 apartments, including 11,000 affordable ones, and has completed $2.6 billion of acquisition/rehabs nationwide.
Co-developer Housing on Merit, started in 2011, has offices in Los Angeles, San Diego and Washington, DC. Jaeger is a member of its board.
HOM has co-developed 4,122 units of affordable housing in 23 senior or multifamily projects and provides services to 8,635 residents. It has closed more than $475 million in debt financing.
Resident services include Learning Centers and a pandemic-generated Virtual Resident Services program to assist residents with problems of loneliness and isolation. Housing on Merit has a special focus on housing women veterans. Women take an average of three months longer than their male counterparts to find employment, it says, and 60 percent of California’s women veterans report housing instability.
In addition, women veterans are two to four times more likely than non-veteran counterparts to be homeless, so Housing on Merit provides funding to them with its Award of Merit Housing Assistance Program, started in 2016.
Originally published in Tax Credit Advisors May 2021 Issue
