Thomas Breen photo
Ninth Square on Monday night.
A Boston-based developer will buy over 300 Ninth Square apartments and keep more than half of them “affordable” in return for a 20-year tax abatement, under an agreement revealed Monday night.
The new prospective owner has also agreed to pay the city $2 million in exchange for the forgiveness of roughly $27 million that the current owners owe the city.
The contours of that deal came to light in a proposed order that Serena Neal-Sanjurjo, the executive director of the city’s anti-blight agency, the Livable City Initiative (LCI), submitted to the Board of Alders. The Board of Alders received the proposed deal on Monday night as a communication during its full board meeting in the Aldermanic Chambers on the second floor of City Hall. It will hold hearings and then vote on it in coming weeks.
The proposed order outlines an agreement between the city and Beacon Communities, LLC, a Boston-based real estate company, that will allow Beacon to purchase the Residences at Ninth Square, a complex of buildings along Orange Street from Center to George that includes 335 rental units, 50,000 square feet of commercial space, and two parking garages.
Beacon is under contract to purchase the complex from Ninth Square Limited Partnership, a tax-credit partnership controlled by the developers McCormack Baron and the Related Companies. McCormark Baron built the complex back in 1994, sparking a revival that transformed the rundown stretch southeast of the Green into an historically renovated, vibrant mixed-used and mixed-income neighborhood. The partnership was subsequently unable to refinance tens of millions of dollars of existing debt on the project that is owed to both the city and the Connecticut Housing Finance Authority (CHFA), which along with Yale served as the project’s major financiers over the decades.
Click here to download details on the proposed deal.
Beacon, which also owns the 339-unit Monterey Place in Newhallville, apparently beat out some 20-odd competitors for the sale, including the development arm of the Housing Authority of New Haven
The proposed deal revealed Monday night represents a coup for city officials and alders who fought to ensure that Ninth Square as a neighborhood retain its current mix of affordable housing, market-rate housing, and commercial properties. It means that the second generation of the Ninth Square revival will maintain the mix of lower-income and market-rate renters.
“Over the past year, the City has participated in the negotiations with Connecticut Housing Finance Authority (CHFA) and Related Companies to ensure the purchase of the Residences at Ninth Square remain consistent with the City’s commitment to preserving affordable housing and implementation of goals outlined in the Hill to Downtown Community Plan,” Neal-Sanjurjo wrote in a letter addressed to Board President Walker-Myers. “Based on a recommendation from BOA Leadership, we have remained steadfast in the process with CHFA to select a new Purchaser and meet the recommendations set forth by the City as a part of the acquisition.”
“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,” Beacon acquisitions chief Michael Alperin recently told the Independent. “All those discussions are still being had, but everyone is ensuring there’s a realistic understanding of how to make this sustainable going forward.”
56% Affordable
Markeshia Ricks photo
City Economic Development Administrator Matthew Nemerson.
The proposed deal includes the following terms, which, if approved by the alders, will go into effect once Beacon finalizes its private transaction with Ninth Square Partnership for ownership of the Residences at Ninth Square:
• Beacon will pay New Haven $660,000 per year in property taxes for the next 20 years. That annual Payment in Lieu of Taxes (PILOT) will increase every five years by a percentage equal to the increase in adjusted gross revenue for that five-year period.
• Beacon will reserve 56 percent of the housing units for tenants earning 60 percent or less of the Area Median Income, or around $52,860 per year out of an $88,100 annual benchmark for a family of four. The remaining 44 percent of the housing units will be available for rent at market rate.
The proposed deal notes that that breakdown is consistent with the affordability mix today and is in compliance with the federal Low-Income Housing Tax Credits (LIHTC) program.
• Beacon will pay the city $2 million in return for the forgiveness of all debt, both principal and accrued interest, that Ninth Square Partnership currently owe the city.
City Economic Development Administrator Matthew Nemerson said that the total debt owed to the city is likely around $27 million for the 20 different parcels that comprise the Ninth Square complex. However, he said, that debt number is deceptively high considering how much money the city has actually sunk into the complex over the years, he said.
He said the city invested $3.75 million in infrastructure improvements, such as sidewalk repairs, back when the project was first built in the mid-1990s. Taken at 7 percent annual interest, he said, that initial capital investment has likely saddled the property’s owners with around $10 million in debt today.
Nemerson said the city also allocated a $9 million .oan from a federal Urban Development Action Grant (UDAG) towards the project back in the mid-1990s. Running that number at 7 percent annual interest, Nemerson said, adds another $17 million to the owners’ debt.
Taken together, that’s around $27 million owed to the city. But, he said, the city really invested only around $3.5 million of its own money back in 1994.
“We thought we should get something for being good sports about it,” he said. He said the city initially asked Beacon to throw in $4 million in exchange for the forgiveness of the current city debt load. Beacon ultimately negotiated that number down to $2 million.
Parking Swaps
Christopher Peak Photo
Downtown ambassadors walk by the firehouse at 47 Crown St.
The deal also includes changes in ownership of parking facilities:
• Beacon will convey the 270 State St. parking garage to the city, through the New Haven Parking Authority, in exchange for $3.6 million paid in 30 annual payments of $120,000. The proposed deal notes that the city may at its discretion replace these cash payments by reducing Beacon’s annual PILOT.
Nemerson said the parking garage has 279 striped and permitted spaces, but that the average number of spaces used each day is closer to 300.
He said that much of the negotiation between the city and Beacon occurred around the project’s two parking garages, one on State Street and one on George Street. Beacon, he said, wanted to preserve discounted parking for its tenants. The city, he said, wanted Beacon to be responsible for fixing up any garages handed over to the city.
Nemerson said that Neal-Sanjurjo and city transit chief Doug Hausladen, whom he described as the two primary city negotiators on this project, were able come to a deal with Beacon whereby the city will take over the project’s State Street garage and will leave the George Street garage to Beacon.
While that means the city and the parking authority will likely need to invest several million dollars over the years in fixing up the garage, Nemerson said, $3.2 million over 30 years is still a steal on a garage that is likely worth $10 million to $15 million.
“Parking is still the lifeblood of Downtown,” he said about why the city was interested in taking over the garage. “Every parking lot is going to be developed.” As surface parking lots are turned into new commercial and residential complexes, he said, the city will now hold one more garage in a premium location downtown where it can charge market-rate parking prices to Ninth Square tenants and visitors alike.
• Beacon will deed the surface parking lots at 31 and 39 George St. to the city for $80,000.
“Beacon and the seller have disclosed that there are environmental hazards known at the lot,” Neal-Sanjurjo wrote to the alders. The city will be responsibility for any clean-up and monitoring of the sites, which Nemerson said are also prime locations for future development.
Other Deal Highlights
• Beacon proposes to invest over $13.2 million of capital improvements into the Ninth Square project. Those improvements will include upgrades to kitchens, bathrooms, HVAC systems, and energy-efficient windows. Those improvements will be financed by a tax-exempt bond and LIHTC transaction with CHFA.
• Beacon will commit to hiring for a one-year period all property management and maintenance staff who have not already been offered positions by the existing owners. Beacon then reserves the right to keep on or dismiss staff members depending on their performance during that one-year probationary period.
• Ninth Square Partnership agrees to release the city from all claims or liabilities which may have arisen in relation to the property, and the city agrees to do the same for Ninth Square Partnership. Nemerson said that this means that the current owners and the city absolve each other of any liabilities that may arise from an audit of the 25-year financial history of the project. For example, if the current owners learn that they accidentally double paid part of a given year’s PILOT, they will not be able to chase down the city for a reimbursement.
“We are delighted to have negotiated a structural proposal for BOA approval that meets nearly all of the requirements outlined in the RFP [Request for Proposal] issued by CHFA,” Neal-Sanjurjo wrote in her letter to Board President Tyisha Walker-Myers about the proposed deal.