The Price of Liberty is Eternal Vigilance
"Affordable housing"- Strong initiative by the City
City will have to look to the Neck and Daniel Island for future developments in longer termWarwick Jones, Editor
One must applaud the recent efforts of the City to boost the availability of "affordable housing". At the same time, we have to note that its ability to provide "affordable housing" is becoming restrained. It is not only a matter of finance, but also availability of affordable sites. As we have noted in earlier comments, the Neck area is the only part of the Peninsula that holds real prospect of hosting housing that is affordable for families that fall well below median income levels. The right of the City to buy another 17 acres of land on Daniel Island for "affordable housing" at the developer's cost should give rise to more rental units, we believe.
The initiatives announced by the City recently are:
1. The construction of 28 rental units on Daniel Island by the Humanities Foundation. The land we understand was acquired from the developer of Daniel Island at the developer's cost, possible through an earlier agreement between the developer and the City.
2. The renovation of 10 homes on Romney (St Charles apartments)
3. The construction of 26 units (13 duplexes) on the William Enston Homes property on Meeting Street.
4. The construction of possibly 30 to 50 units at Longborough on the Westside. The City has an agreement with the Beach Company to buy the equivalent of 40,000 sq ft of construction at $125 a sq ft. The size of each unit will depend on the number of units.
5. The construction of possibly 100 units on Ansonborough Field.
Some housing will be beyond the means of families earning below the median income
We have some issues with the last 2 projects. We wonder just how affordable they will be. It seems to us that prospective buyers will have to be earning above median income levels to qualify for financing. The object of "affordable housing" should be the provision of housing for those people that are the most needy. Somehow, families earning median incomes or above, don't fall into the truly needy, in our view.
It is unlikely that any of the above projects will be completed this year. Indeed, that of Ansonborough Fields is unlikely to start until next year. The Daniel Island, Romney Street and William Enston Homes projects are also predicated on a successful bond issue. A referendum in 2002 authorized the City to raise $10 million. Presently the City is wrestling over some legal problems that relate to the term of the bonds. The City would like the bonds to mature in 30 years but it seems a shorter term may be necessary.
Where does City turn for affordable sites in longer term?
So after this and next year, where does the City turn in its quest for "affordable housing" sites? "Affordable housing" is needed most in the East and West Sides. But with gentrification accelerating and property values rising, housing that is affordable may not be possible. The City will have to turn to Daniel Island and the Neck.
A trip through the Charleston Trident Area Multiple Listing Service shows the values and availability of property in the downtown areas. The story is pretty obvious. The values of the residential area below Calhoun Street are high. There are about 60 properties presently for sale above $1 million. In the Wraggsborough and Harleston Village areas, there are many houses selling for between $500,000 and $1 million. Move now to the adjacent East and West Sides, values drop off sharply. But values are much higher than they were a few years ago. There is little vacant land available in this section of the Peninsula and although the prices are low for some lots, less than $50,000, they are small and present a challenge to construction. There are many properties for sale between $70,000 and $100,000 but most are major restoration projects. And just about every listing notes the interest in the area on the part of investors or homebuyers seeking a place on the Peninsula at a reasonable price. We also note that there are fully renovated homes on the East and West Sides appearing on the Listing Service with asking prices in excess of $200,000.
Rising land values on Peninsula are pushing up subsidies
Our point is that values have reached levels on the Peninsula that preclude the City or "affordable housing" providers from moving to acquire properties that can be redeveloped and sold as "affordable housing". Of course, the City can up its subsidies. Subsidies in recent years have been around $30,000 a property, sometimes more. But they would now need to be much higher if say a family earning 80% of the median income were to qualify for financing, Indeed, a recent agreement between the City and Pastors Inc, an "affordable housing" provider for a property on Nunan Street had an estimated subsidy of $48,000. But the City sold the property to Pastors for $38,000, not the $72,000 that the City paid for the property. So in effect the subsidy that is being passed to the prospective buyer is well over $80,000.
Buyers very vulnerable to interest rate increase
In very broad terms, an average sized family earnings say about 80% of the median income cannot afford to borrow much more than about $120,000 to buy a house. And that is assuming interest rates on special mortgages provided by Banks or The Charleston Banking Consortium remain around 5% a year. If rates we to rise to say 6%, the borrowing capability would decline roughly by 11% or so, we estimate.
So that leaves us with Daniel Island and the Neck
The City has an agreement with the developer of Daniel Island whereby 20 acres must be made available at the developers cost for "affordable housing". We understand that the 3 acres sold to Humanities Foundation by the Diocese of the Roman Catholic Church is included in this acreage. So it seems that the City can call on another 17 acres. We doubt that "affordable housing" for purchase could be constructed on Daniel Island, Even though the land may be available at cost, it is likely to be high enough when added to construction costs to take the final value of a house to beyond what is affordable. More likely in our view, is the construction of more condominium units similar to those proposed by the Humanities Foundation and which can be rented.
Neck holds the greatest promise
It is the Neck area that holds the most promise for "affordable housing"- for both purchase and rentals. The redevelopment plans of the area are now under consideration. A partnership comprising the local realtor Clements Crawford and Thornhill (CC&T), and financiers Cherokee Fund Partners and Green Hawk Partners have bought some hundreds of acres so far. The investment by the partners in property purchases on the Neck probably has been about $60 million. There are other sites in the area which are presently used by industry but almost certainly over time will be redeveloped for residential and commercial uses.
City should insist of a sizable acreage for "affordable housing
The City and the developers have stated that some provision will be made for "affordable housing", But nothing specific has been revealed. And indeed it is possible that it is only the intention that has been defined. We feel strongly that the City should make a firm claim for a considerable acreage to be set aside for this housing. Yes, we know that the partnership has paid a sizable sum for its land and is taking on risk by moving to develop an area which contains many polluted sites. But this venture also involves considerable public funding for infrastructure.
Public "investment" in The Neck will be very high
The City has created a Tax Increment Financing Law TIF) area to facilitate the raising of funds for infrastructure. Bond issues have been projected at $58 million though total spending on infrastructure is projected at $117 million, the balance of funding coming from other governmental bodies such as HUD, the State and the County. The County has initiated a plan to divert taxes over a certain base level on property in the Neck to fund infrastructure. The investment by the City and County can only be guessed but over the next 10 years or so, it could be over $50 million. But the assessment of public monies cannot ignore the generous Federal tax breaks that the investors will receive by virtue of the Neck being an Empowerment Zone. Amongst other thing, the partnership can write off for tax purposes 50% of the construction cost of commercial buildings within the first year. And the there are funds available through the EPA for assistance in identifying and cleaning polluted sites.
The TIF that has been created covers 1347 acres - most of the Neck area in the City. However, it does not include that part of the Neck in North Charleston. We are unsure of the acreage owned by the partners of Magnolia. Reported purchases by CC&T add up to near 1000 acres but some of this could be set-aside as wetlands or committed green space. The actual developable area is probably much less.
Magnolia Project has three partners
What we do know about the owners - at least of the Magnolia Project, which comprises some "330+ acres"- is that the lead partner is CC&T. It is credited with putting together the partnership, managing the acquisitions, and working with the City. Mr. Clements, the principal of the firm is well known in Charleston as a prominent commercial property realtor. He also lives in the Peninsula. Information on Magnolia can be accessed through the firm's website www.cctre.com/ here
The other owners are not so well know, at least in Charleston. Cherokee Investment Partners is a major private equity firm by US standards, and prominent in investing and rehabilitating blighted areas. Its web site, www.cherokeefund.com, here indicates a long and a successful record. It has been active in many states of the nation. It has also invested and cleaned sites overseas. The company may well be a principal in some of these investments but it seems the major investments are made through funds, which have been formed for outside investors. These investors are largely institutions in the US and we suspect that none have a dominating position in any fund. There are three major funds operated by the group. Fund 1 was formed in 1996 and raised an unspecified amount. Fund 2 was formed in 1998 and raised $250 million and Fund 3, formed in 2002 and raised $620 million. The firm refers to over $1 billion is assets.
The remaining investor is Green Hawk Partners LLC. This is a North Carolina company whose principals are Craig Briner and James Lumsden. Its web site is www.greenhawkpartners.com.here There is no description of the company or its activities.
Magnolia - a $400 million project
The Neck development will be big and a lot of public money will be involved. The Magnolia project web site talks of a $400 million project involving residential, commercial and retailing activities. Substantial public monies are supporting this investment. It seems to us that the partnership has some obligation to give something back to the community- and indeed its comments on plans to create green space and "affordable housing" suggests that it recognizes this. But at this stage, and as far as we know, this is only an intent, not and obligation. It needs to be the latter.
Should the City invest directly?
Perhaps the City should also consider an investment directly in the Neck. Not all land is owned by the partnership. Values already have risen but as Magnolia gets underway, we suspect values will rise further. A purchase now may be timely and help considerably the ability of the City to meet the need for "affordable housing" in the long term.
Could we have more details of the ownership of Magnolia?
And finally, considering the investment of the public and the importance of the Neck to Charleston, could we have a little more detail about the Magnolia partnership? What is the breakdown of ownership of the Magnolia project and other projects planned? And who are the investors that comprise Green Hawk Partners? Where do they derive their funds?
For the record, we are not suggesting there is any impropriety. It is natural curiosity. And in today's corporate world, full disclosure of ownership and interests has become a more necessary requirement. Should Magnolia and other Neck developments be excluded?