Developers frustrated by the rising costs of constructing apartments are turning increasingly to rehabilitation of moderate-income apartments -- a business venture for which government financing is readily vailable.
The rehabilitation currently under way at the 2,100-unit Shirley Duke-Regina complex in Alexandria is one local, large-scale example of the use of state-construction financing and federally backed permanent mortgage funds. The new owners of that $70 million project plan to put the units back in the rental market within two years.
Another product of HUD's 221(d)(4) guarranteed financing at below-market rates is the rehabilitation of three apartment complexes in Anacostia owned by William Savage, president of Savage-Fogarty Companies Inc. Savage said the three rental projects -- Barnaby Manor, Stanton Oaks and Wellington Park -- are being rehabilitated as an alternative to "walking away." The apartments, built by Savage-Fogarty in the mid-1960s, had become financially troubled, the developer said.
He said the projects were on the verge of "going totally sour" because his firm had been unable to raise rents sufficiently to pay for maintenance and increased operating expenses.
"When we went to the area office of the Department of Housing and Urban Development to apply for 221(d)(4) financing, we had to prove to the staff that the rehabilitation would work," he said. "There were some doubts that substantially higher rents, which could be justified by the improvements, were feasible in that area.
"So we did market studies to show that income levels were high enough to support market rents in some cases while also accommodating some Section 8 subsidy tenants."
Mortgage specialist John Reilly, whose firm arranged the construction financing and the permanent tandem loan with the Government National Mortgage Association, said the 40-year, 7 1/2 percent financing was granted after surveys showed that middle-class families in the neighborhood could afford the higher rents. The apartments will have new kitchens and the complexes will be served by new air conditioning and heating equipment.
Savage added: "Maybe it's time for someone to say something good about HUD and its program. We had to fill out a lot of forms, argue our case and wait more than six months. But the funding was approved. The rents are higher than would be allowed under D.C. rent controls because HUD has its own standards for judging rents in terms of money spent for rehabbing of multi-family projects on which it guarantees loans. And HUD rent guidelines supercede local regulations."
Among the residents of the Wellington Park apartments on Elvans Road SE are Will Wingfield, a District employe, and his wife Alice, a postal service employe, and their sons. They live in a three-bedroom, 1 1/2 bath apartment that costs them $355 a month, plus the electricity costs.
"It's quiet and convenient," said Mrs. Wingfield. "I particularly like having the washer-dryer in the kitchen. But I miss the balcony of (their former) apartment in Stanton Oaks."
Julia Calabrese, vice president of Savage-Fogarty Community Construction Inc., a subsidary of the parent company, said that a $7.9 million loan enabled the 398-unit Stanton Oaks and Wellington Park complexes to be rehabilitated, paid off existing mortgages and covered delinquent bills. "There was a lot of deferred maintenance because of lack of money to pay the bills," she added.
The rehabilitation of the 126-unit Barnaby Manor at Ninth and Yuma streets SE was backed with a $2.2 million, federally insured loan that enabled delinquent financing to be paid off and provided $851,233 for construction work, Calabrese said. She estimated that construction of new apartments would cost $40,000 a unit, compared with $20,000 for rehabilitation.
Freeman Hair, a property management executive with Savage-Fogarty, said resident manager Ruby Downing had helped ease problems for tenants who had to be moved in and out of the rehabilitated buildings.
Downing said that the tenants appreciate the improved condition of the apartments and accept the higher rent structure because "they feel they are getting more for their money now. And we have plenty of qualified applicants."