The District government, under an innovative program, plans to spend $5 million this year to buy vacant, privately owned apartment buildings, then sell them back to landlords or developers who will renovate them.
The D.C. Department of Housing and Community Development recently launched the program by inviting interested developers to meet with city officials for an explanation of the program.
The program comes at a time when the federal government, once the major source of money for building and renovating low- and moderate-income housing, has slashed its funds.
Only a handful of new apartments are now being built in the city, while thousands are vacant.
"I think it will be very helpful, especially for those of us who are concerned with all the vacant and boarded-up buildings in the city," said Alice Vetter, executive director of Ministries United to Support Community Life Endeavors (MUSCLE), a nonprofit housing association in the District.
Eugene Ford Sr., of Mid-City Financial Corp., who has built subsidized housing projects in the city, said the new program is "a potentially useful tool in an area that needs a lot of tools right now." He was among 65 developers and property owners who attended the housing department briefing.
City housing officials said they hoped to stimulate the production of at least 250 units per year at the average cost of $20,000 each.
William Hobbs, who is heading the program for the city, said the cost per unit was high because the city was conservatively estimating the number of apartments that would be renovated under the program.
"That number 250 was purposely set low, so that we could see what people come in with," Hobbs said. "If our expectations are met, we will do much more than that."
The program, officially called the Land Acquisition for Housing Development Opportunities Program, allows the District, which is the city's largest landlord, to get vacant apartment buildings back on the market and help ease the city's critical shortage of rental units priced for low and moderate income families without the government have to own and operate more units.
Under the program at least 20 percent of the units in a project would be priced for low and moderate income families.
Vacant apartment buildings of 20 or more units or vacant lots would be eligible for the program. The city would buy both land and buildings at the appraised value of both.
Then the city would sell the buildings back to the previous owner or to a new developer for the same price. The city would lease the land to the owner or the developer for 50 years.
The buildings would be renovated into apartments or cooperatives with funds loaned largely from private banks, Hobbs said.
In the past most city banks have been unwilling to lend money to improve properties in the city's poorer areas, such as Anacostia and the 14th Street corridor, where most of the vacant buildings are located.
But Hobbs said, "We have spoken to some of the lenders about it and were assured they were very interested in it," he said.
"The attitude of many of the banks is improving regarding financing in the city" because of interstate banking, Hobbs added. He was referring to a city requirement that out-of-state banks seeking to do business in the city must pledge to finance projects in underserved areas of the city.
The city has tried to make the program attractive to developers by giving them cash for their properties and by buying the land.
Since the city will own the land the developer will pay no real estate taxes and the lease payments to the city are tax deductible. The owner can rapidly depreciate the building. Rapid depreciation of real estate is one of the country's most lucrative tax writeoffs.
In return, the property owner must give the city a complete plan for renovating the property, including rent schedules and how the renovation will be financed.
Participants in the program may be eligible for federal and city financial assistance, Hobbs said, but "We encourage deals where they won't need as much financial assistance from us."
Applications for the program are due on Feb. 28. They will be reviewed by a panel of experts in appraisal, construction, law and other housing-related fields, then sent with recommendations to Madeline Petty, the city's housing director, who will make the final selections.
The first awards should be announced about April 15, Hobbs said.
The buildings selected for the program will not be subject to rent control. But the property owner will be required to sign a "rent regulatory agreement" that details rent increases planned for the low and moderate income families.
The District, as owner of the land, also will require that program participants filed an annual, audited operating report and financial statement. These, along with routine housing code inspections made by the city's Department of Consumer and Regulatory Affairs, should alert the housing office to any managerial negligence, Hobbs said.
He added that taxpayers can "be assured" that careful attention will be paid to the condition of projects.
The program excludes apartment buildings that are occupied, because "We want to to add to the net stock" of housing, Hobbs said. "And it is much more efficient to work in a building that isn't occupied."