An entire neighborhood could soon have a new owner.
Beacon Communities, LLC, a Boston-based real estate company, is under contract to buy the Residences at Ninth Square from the current owners, who are mired in debt from the project’s original construction loans. The agreement was signed on June 29.
If state and local governments both approve the deal, writing off tens of millions of dollars they’re owed, Beacon would take over 335 rental units in several buildings, 50,000 square feet of commercial space and two parking garages, all along Orange Street from Center to George.
“The City of New Haven, the Connecticut Housing Finance Authority, and the Ninth Square Project Limited Partnership, the current owner, are in discussions with Beacon Communities concerning the acquisition of the Ninth Square property,” said Michael Alperin, Beacon’s acquisitions director. “As part of the plan, Beacon Communities will undertake necessary capital improvements and preserve the affordability of this important mixed-income, multi-use community in downtown New Haven.”
The properties are being sold by McCormack Baron and the Related Companies, two developers who built the Ninth Square properties in the 1990s and succeeded in transforming the area into a vibrant mixed-income neighborhood.
After years of negotiations, they were unable to refinance to satisfy the Connecticut Housing Finance Authority (CHFA) and the City of New Haven, the two major debtors, forcing them to offload the properties.
Last fall, CHFA issued a call for qualified purchasers.
Beacon, which also owns the 339-unit Monterey Place in Newhallville, apparently beat out some 20-odd proposals, including one by the development arm of the Housing Authority of New Haven, which wanted to enter into a partnership with the Hamden-based Belfonti Companies to take over as 50-50 co-owners. At the time, the housing authority estimated the total cost to be around $30 million.
Despite watching McCormack Baron and Related fall into a debt they couldn’t escape, Beacon is still willing to take on the challenge of lining up the right financing to make structural upgrades and keep more than half the units affordable.
While Beacon said it couldn’t comment on the history of the Ninth Square’s finances, the company said it is working with government partners to make sure the financing is done right on the second go.
“In our discussions with both the city and the state, we’re ensuring that we’re appropriately underwriting the project going forward so that it can be a sustainable asset,” Alperin said. “All those discussions are still being had, but everyone is ensuring there’s a realistic understanding of how to make this sustainable going forward.”
Working out the numbers with CHFA, who offers bonds and tax credits, could be the last major sticking point before a sale is finalized. But the quasi-public state agency won’t say a word about what’s going on, declining to even confirm details about the process that happened months ago.
Lisa Kidder, a CHFA spokeswoman, directed questions to the developers. Related Companies declined to comment, saying it’s company policy not to talk about deals. McCormack Baron declined to comment too.
(Technically, a tax-credit partnership will be selling the Ninth Square properties; the developers are simply the controlling partners.)
Initially, back in 1993, the city used $4.6 million in special obligation bonds to help McCormack Baron and Related Companies fix up historic but neglected buildings and construct some new brick ones throughout the district.
Soon, the area southeast of the Green filled up with renters with a wide range of salaries, plus a lively mix of stores, restaurants, bars and galleries. The influx of people kicked off a broader rebirth of downtown into a place where people choose to live and hang out at night, even as store-owners now worry that business closures and increased crime are driving shoppers away.
For the last five years, as the developers sought a bailout, the city struggled with what to do about the Ninth Square: whether to sink more resources into the neighborhood or to let market forces alone determine the survival of affordable housing there.
Since 2013, the developers have been looking to refinance a total of $86 million they owed, while seeking forgiveness for all unpaid interest, totaling $10 million when discussions began years ago.
With so much owed, it looked unlikely anyone would get their full payment back.
That didn’t come as a surprise at City Hall. Because of the way the original tax-credit deal was structured, policymakers had to offer loans rather than grants. They expected they wouldn’t see the money again, despite what was said in public hearings.
“The missing component is not anything that the developers did wrong, other than it never had enough public financing,” said Development Administrator Matthew Nemerson. “It was probably much too optimistic in what money it could pay back to people. The sobering analysis here is that, between local, state and federal governments, we just have to be allocating more actual money to affordable housing.”
This time around, before the properties even went on the market, the Harp administration set out exactly what it believed the city could offer, making concessions like a lowered tax bill and and loan forgiveness in exchange for keeping rents at a price low-income families could afford.
Those conditions have already been vetted by the Board of Alders leadership, who will have to convince the rest of the body to approve the transfer of ownership.
“We got our negotiations up front,” Nemerson said. “We didn’t want to have to do it after Related Companies and CHFA already picked a winner.”
Most importantly, 55 percent of the units must remain affordable for the next two decades, Nemerson said. “One of the wild cards here was whether a new owner would pay off CHFA and turn it into market-rate housing,” he said.
The city said it’s willing to extend a 20-year tax abatement deal that will be crucial to making the numbers work.
According to the terms of the prior deal, McCormack Baron and Related Companies would pay $789,000 a year in taxes, rather than the full $1.39 million the city calculated they would otherwise owe (before the latest reassessment). After the deal expired, they asked the city to set taxes at $750,000 a year.
Based on calculations he made with Livable City Initiative Executive Director Serena Neal-Sanjurjo, Nemerson said, the city offered a fixed payment in lieu of taxes similar to the money the company paid before — with a provision stating that, if gross revenues go up, the payment will rise accordingly on a five-year cycle.
New Haven is also willing to forgo most of the debt it’s owed out of the estimated $25 million it racked up in interest and penalties, Nemerson said.
“There is no way to collect that money,” he explained. Because New Haven is fourth in line, other debtors would have to be repaid first. That is, unless the city filed for foreclosure first. But the city doesn’t have at least $60 million in cash that would be necessary to pay out the others.
Nemerson offered a comparison. “If you loan your brother-in-law $1,000 to buy a $10,000 car and your father loans him the other $9,000, and if he then totals the car that’s only worth $5,000, your father gets the money,” Nemerson said. “Unless you buy the wreck and pay your dad.”
Without a real alternative, any payment would be at least “a gesture of fairness.”
Other conditions require that the new owners:
- Offer current employees the opportunity to keep their jobs.
- Invest in long-overdue upgrades, like modernizing the apartments with new windows, roofs, toilets and insulation.
- Turn over management (or even ownership) of the parking garages to the city, which will help spread fixed overhead costs across another 500 spaces.
- Sell parcels of land on George Street that are currently surface parking lots back to the city for development.
Board of Alders President Tyisha Walker, who plays a crucial role in approval of any deal, did not return a call for comment.
One group who feels out of the loop are the business-owners, already struggling to stay open as restaurants, clothing stories and yoga studios close up around them. They don’t know how they factor into the company’s plans for the neighborhood.
At a meeting of the merchants association on Wednesday, they agreed to send a letter to the mayor reminding her to watch out for their interests.
“There’s a lot that’s being negotiated with the city and the new owners, and we would like the city advocating on our behalf,” said Helen Kauder, Artspace’s executive director.
Those are very real concerns, Nemerson said. Once a buyer finalizes its relationship with CHFA, he said, the city plans to work closely with the company on a plan to make sure every storefront is “marketed and curated, linked to the streetscape and parking.”
“Whoever the owner is will have to bring in specialists to make sure it stays strong,” he said. “We have great anchors and great restaurants, but we’ve gotta keep working to keep the entire Ninth Square strong.”
Nemerson said the city’s continued investment in the Ninth Square, costly as it might be, is well worth it.
“It has made an enormous impact on New Haven. You could almost say that it was the most impactful thing that’s been done in the city because so much else has played off of it: restaurants, other housing, 360 State St., so many other things,” he argued.
“I think you just have to say this is what governments should be doing. This is how cities get stabilized. This is how you get to have a mixed-income, mixed-use community. This is how you get good housing that’s walkable,” he went on. “If we really want to be dedicated to having mixed-income communities in our cities in high-rise buildings, we’re going to have to find ways to come up with more capital for these projects.”