Kensington Village Apartments, Winston-Salem, NC

The Finch Group ("TFG"), selected by and working with the City of Winston-Salem, North Carolina, acquired from the United States Department of Housing & Urban Development ("HUD") a foreclosed 150-unit apartment property that HUD previously closed upon. TFG rehabilitated the property creating 142 brand new units located on Old Greensboro Road approximately 2-1/2 miles east of the downtown business center of Winston-Salem.

On April 16^th, 2007, TFG received HUD approval on the final site plan and rehabilitation program. The underlying concept behind the revitalization is to build a high end residential property that because of its low acquisition cost ($10) and government funding ($4,056,000) can be leased at rents (i) dramatically below similar quality “west side” properties and (ii) consistent with challenged “east side” properties. The substantial rehabilitation hard construction costs are scheduled at $6,314,719 ($44,470pu) including a contingency of $329,203.

Below is the mix of units before and after rehabilitation, as well as proposed rents when construction is completed in the Fall of 2008:
 

Some background:

HUD foreclosed on and took title to Forest Ridge Aparments (the “property”) now known as Kensington Village Aparments as of September 1, 2005. The Property had been vacant since April, 2005. Immediately after entering into the “Chain of Title” HUD conveyed ownership of the Property via Deed to the City of Winston-Salem (“City ”), also on September 1, 2005, for total financial consideration of $10. HUD simultaneously provided The City with a grant (the “Upfront Grant ”) in the amount of $3,306,417 to assist with the planned rehabilitation. The Deed and the Upfront Grant Agreement contained other restrictions, of which the most significant two are:

1a) 75% of the units must be rented to families or individuals earning at or below 80% of the area median income, adjusted for family size,

1b) 25% of the units must be rented to families or individuals earning at or below 115% of the area median income, adjusted for family size.

As of March, 2008 median income for Winston-Salem was $57,300. With the protocol adjustment for family size, the units can be rented to individuals/families with the approximate following incomes:

While the above percentages need to be slightly adjusted for a utility allowance, the fact remains that these new units are an exceptional value.

2a) HUD would retain an Equity Participation (other than a sale as Homeownership) with the following condition:

• between the date of this Deed (September 1, 2005) and fifteen years from the date of the Deed, one hundred (100) percent;

• between fifteen years, one day and twenty years from the date of this Deed, seventy-five (75) percent;

• between twenty years, one day and thirty years from the date of this Deed, fifty (50) percent; and

• over thirty years from the date of this Deed, zero (0) (this rider no longer applies).

2b) HUD would retain some Equity Participation if an individual unit within the Property is sold; pursuant to a HUD approved plan, to a qualified homebuyer.

On November 9^th, 2005, the City transferred via Deed its right of ownership (including the Upfront Grant) of Forest Ridge to TFG-FR, Inc., a North Carolina limited liability company associated with The Finch Group. The HUD restrictions accompany the transfer plus the City committed to a $249,583 Development Loan to assist with the Property’s rehabilitation. This note is forgiven on its fifth anniversary if the Property is maintained as affordable housing. On December 16^th, 2006, the City Council approved an additional $500,000 loan (the “City Note”).

When HUD announces its intent to foreclose on a subsidized property, and, if it takes title at foreclosure, it must offer the property to the local municipality. HUD so informed the City in May, 2005, at which time the City set out to determine if it wanted to acquire the Property and to determine to what extent it would require HUD’s assistance in any rehabilitation. Shortly thereafter, in July, 2005, TFG began its involvement in Forest Ridge. Understanding that the City was desirous of changing Forest Ridge from a Section 8 Housing Project to a quality market driven affordable apartment complex and before the City agreed to acquire Forest Ridge from HUD, TFG performed due diligence to determine if the undertaking was financially prudent. TFG reviewed two specific areas.

First, TFG reviewed the market conditions for a rehabilitated Forest Ridge. It was immediately determined that the existing unit mix which, prior to April, 2005 had been occupied exclusively by Section 8 Low Income Housing Tenants, needed to be significantly changed. The chart immediately below shows the old mix and the new proposed mix.

TFG’s market study, which also included a review of area demographics (now updated), indicated that given the location, history of the property and other variables, a rehabilitated/repositioned/renamed Forest Ridge (now known as Kensington Village Apartments) could achieve the following rents.
As of July, 2008:

The second level of due diligence involved determining construction costs. While the exterior brick walls were/are in good condition, it was very clear that the existing interiors had to be completely demolished, removing all kitchens down to the “stub” plumbing, all bathrooms down to the “stub” plumbing, all existing wiring (not up to code) throughout the property, most of the wallboard and ceilings, the existing electric baseboard heating and replacing it with far more energy efficient resident controlled (and paid) heating and air conditioning systems and washer/dryer hookups in the units, etc. Additionally, all the windows and a majority of the roofs had to be replaced and landscaping and site amenities needed to be upgraded. (The full demolition has been completed).

The proposed sources of funds are:

Max O’Brien, Vice President of Construction for TFG will, in the name of the Property’s Owner, G.C. the construction. Max has been responsible for over $100,000,000 of construction projects including a $9.3 million moderate rehabilitation he G.C.’ed in Rochester, New York that was substantially completed in the summer of 2007. 

The Finch Group and its principals have over 35 years of extensive experience with HUD programs. It has already successfully completed and “closed out” four projects (two separate grants) totaling approximately $150,000,000 (including $42,000,000 of HUD upfront grant funding) for the rebuilding or substantial rehabilitation of over 1,000 units.