Case Study 15

ECDO Partners with a Major Developer to Upgrade 254 Apartments

Background:

Ecumenical Community Development Organization (ECDO) is a not-for-profit community organization with over 30 years’ experience providing neighborhood-based social and economic services to residents of Harlem. ECDO has developed over 600 units of affordable housing and over 20,000-sq. ft. of retail space in Harlem.

Not-for-profit organizations like ECDO often partner with private investors who seek tax credits to shelter income when undertaking affordable housing developments. Through this partnership, a not-for-profit benefits from the private investment, while an investor can reduce its taxable income through a stream of Low Income Housing Tax Credits (LIHTCs) over a period of years. Developers utilizing LIHTCs are subject to an initial 15-year compliance period, during which the property must satisfy affordability requirements among other conditions or the private investor risks the recapture of previously claimed credits. By year 15, tax credit investors often exit the partnership because they have fully realized the tax benefits. Consequently, the project’s managing member often reevaluates a project’s ownership structure and financing at that time.

Three common financing paths after “Year 15” are to:

Refinance. Developers who choose this option can take advantage of rate savings or replace potentially maturing debt while also using equity to perform minor to moderate rehabilitation;

Resyndicate. Reapplying for tax credits can provide repair dollars for a property that requires substantial rehabilitation, but developers often face stiff competition for this limited resource; or

Sell. In certain circumstances, a developer can dispose of the property by selling either its partnership stake or the property itself.

Strategy:

Pursuing resyndication, ECDO formed a partnership in 2015 with L&M Development Partners, a major private developer of affordable and market rate housing that injected new tax credit equity into the rehabilitation of 254 affordable apartments in 15 buildings that ECDO owned across Harlem. The new financing paid for capital improvements to apartments, building systems and grounds. By bringing in L&M, ECDO was assured of new tax credit investment in its properties and benefited from being part of a larger project L&M was undertaking which was easier to finance. L&M bought a fifty percent (50%) ownership interest in the ECDO apartments. In addition, L&M assumed management of the properties and was able to significantly reduce operating expenses. As L&M explains, the company does not necessarily take the lead in its joint ventures, but rather assesses a project’s needs and partner’s preferences. Such flexibility and consideration has garnered long-lasting relationships with many non-profit organizations.

Conclusion:

Today ECDO maintains a fifty percent (50%) ownership interest in the properties and provides support services and programs for tenants. In this case, ECDO utilized L&M’s strengths in underwriting, financing, and construction to rehabilitate one-third of its housing portfolio. ECDO was able to leverage its existing buildings and community presence to form a lucrative partnership with L&M and upgrade languishing properties to serve the housing needs of the neighborhood.