Villa Victoria in Boston's South End consists of close to 700 bright town houses and apartments and a rare sense of community. Most of the families that live there are low- and moderate-income Puerto Ricans whose rents are federally subsidized. Many of the residents helped plan and build the community, and they all can share in running it.
Across the Charles River in Cambridge, a modest rehabilitation project has kept 60 older apartments in the low- and moderate-income rent range. Unlike Villa Victoria, the project is at scattered sites with no direct links, and the tenants, a diverse group, are not involved in the planning or management of the buildings.
What the two projects have in common is that nonprofit community organizations developed them, using a financing device normally associated with upper-income individuals looking for tax shelters.
Nonprofit organizations trying to provide low-income housing in the past have relied largely on government funding, but with an end to much of that funding, the groups have had to look to new sources of financing for their projects.
One method some are considering now is syndications--pools of funds from individual investors who get large tax write-offs for these real estate investments. Usually, these are limited partnerships, with a general partner that assumes responsibility for the properties and up to 35 small investors who have no voice in the management of the partnership.
With last year's tax bill, allowing faster depreciation of real estate, real estate investments of all kinds, including syndications, have become more attractive. And while syndication has been available for many years as a way of funding low-income housing, the need for it became greater as government funds dried up.
"There have always been two types of subsidies, grants from the Department of Housing and Urban Development and tax incentives. Now that HUD is cutting back, but there is faster depreciation, the balance of the two is shifting," said Pat Clancy of Greater Boston Community Development Inc. "In the current environment, syndication certainly is a bigger piece of the puzzle for low-income housing."
Some direct federal subsidy is still needed to make low-income projects work, but it can be shallower assistance if the nonprofit organization finds a way to take advantage of tax breaks, he added.
In the past, if a nonprofit group was involved with a syndicated investment group, it generally was just a matter of selling to the syndication rather than taking an active and aggressive role in developing and controlling the project--and in preserving proceeds for itself for future development, said Lee Reno of the National Housing Law Project. What some are trying to do now is become the developer themselves, turning over ownership shares to private investors but not control.
"If you can't beat them, join them," said Florence Roisman of the law project in describing the new interest of nonprofit organizations in this method of funding.
Because of their nonprofit status, the groups might bring benefits of donated land or government aid or other valuable assets, but would not take maximum advantage of these plusses in their negotiations with developers, Reno said. The law project, based in California, has put on seminars for nonprofits to learn how to take advantage of the syndication method and is working on putting together materials for them.
In the Washington area, the technique has generally not been used yet, though a tenants' group at the Garfield Hills complex in Southeast considered becoming a partner in a syndication to buy and rehabilitate the apartments, said Paula Scott of the Neighborhood Legal Services Program. The tenants recently decided not to participate in the syndication, because they did not want to wait for the proceeds to come in over time, she said. Instead, the general partner, National Housing Partnerships, will form a syndication and the tenants will get some fees upfront, Scott explained.
In Boston, Villa Victoria was a forerunner in a nonprofit organization that developed a project itself using funding from a syndication. Pat Clancy, then a law student, helped develop the financing package for Villa Victoria more than a decade ago, when the area was a run-down slum facing urban renewal plans of private developers.
The community in 1967 organized into a group later called Inquilinos Boricuas en Accion (IBA) in an attempt to prevent demolition of the housing and displacement of the residents. The tenants wanted to develop the area themselves, but the use of a syndication of investors' funds was not immediately accepted.
"It was difficult to sell the idea, because it was like selling a share of the community to rich people," said Ann Kerrey, IBA housing development director. "People finally accepted it by separating the idea of ownership and control."
IBA, through a subsidiary, did all the planning with the continual input of the residents. Then a contractor was hired to do the building and rehabilitation. Management of Villa Victoria stays with IBA, and residents' control is assured because the board of directors is elected by members of the community organization. While all the residents are renters receiving HUD Section 8 rent subsidies, theirs is a structure that is really more like communal ownership, Kerrey said.
The residents' involvement is apparent in the design of the project, consisting of town houses, some mid-rises and one 19-floor apartment building for the elderly. A Spanish-style plaza was added because the tenants wanted to use it as a focal point of their community life, Kerrey said. They rejected the idea of cul de sacs because they wanted to be sure police cars could cruise through the community on a regular basis.
IBA now is between plans, having just finished Villa Victoria. But through the syndication, funds will keep flowing in, eventually giving IBA enough seed money to start a new low-income development project.
In the Cambridge project, the philosophy is different but the development tactics are much the same.
The Riverside-Cambridgeport Community Corp., a nonprofit group in existence for about 11 years, wanted to prevent displacement in its neighborhood. That group's goal was simply preservation of low- and moderate-income housing stock at reasonable rents, not tenant control or ownership of housing.
"In the '60s, too many social goals were put on the back of housing, and housing may have been sacrificed to some of those goals," such as racial equality and jobs, said Henry Joseph at RCCC. "We are out to provide people with sound, affordable housing, not exploring models of tenant participation and management."
To accomplish its goal, the group decided three years ago it would buy, develop and manage multifamily housing in the neighborhood. The properties it finally bought were all part of one estate, most of them with wood structures but one of them a fine old brick building that qualified for funding from the National Trust for Historic Preservation. The tenants were of all ages and ethnic backgrounds, students and professionals, as well as blue-collar workers, and some, but not all, receive Section 8 subsidies.
Syndication was just one piece of a complex financial package, but it was a critical one. The total project cost was $700,000. The group had some federal and local grants, and banks were willing to loan $500,000 over the life of the project. To get the bank loans, however, the group needed to raise a certain amount of up-front funds, and the grants were not enough. To start, they needed another $100,000 in cash.
After the banks said they were not interested in providing grants of their own or in taking an equity share of the project, RCCC started looking at the idea of syndication. Eventually, they found five investors willing to put in $235,000 over five years. With the help of loans from the Local Initiative Support Corp., a nonprofit group with affiliates across the country, RCCC then had the $100,000 up-front cash it needed.
Eventually, RCCC will take in $135,000 from the syndication, to be used for future projects, taking care of the problem with upfront cash.