Greening Evergreen Towers: Solar Makes Housing More Affordable

6 min read

This December, work finished on a renovation that’s likely to cut the total energy used at a home for very low-income seniors by more than a third.

Evergreen Towers I is now in good shape to operate for decades to come. It has been recapitalized with new, lower-interest financing. The property also costs much less to operate, thanks to a long list of energy improvements – including two new solar systems on the roof of the 11-story tower.

From February 2014 to August 2014 the total electrical use at Evergreen Towers I was 392,653 kilowatt hours. That’s a reduction of nearly a third from the 571,623 kilowatts hours used over the same period the year before.

The property is likely to use even less energy in 2015, once a new set of photovoltaic solar panels are fully plugged in.

Sustainable re-development
Evergreen Towers I was originally built in 1983 by Near North Development Corporation (NNDC), a local nonprofit group using a Sec. 202 seniors housing grant from the U.S. Department of Housing and Urban Develop-ment (HUD).

Back then, the seniors community located on the edge of Cabrini Green, was one of Chicago’s most notorious and crime-ridden public housing projects. Cabrini Green has since been redeveloped by the federal HOPE VI program into a mix of luxury rental apartments and public housing.

The area around Evergreen Towers I is now considered part of Chicago’s pricey Old Town neighborhood. But as the neighborhood grew more expensive, the cost of operating the inefficient, old high-rise rose higher and higher.

To renovate Evergreen Towers I, NNDC partnered with UP Development, also based in Chicago, to recapitalize the property and make the building much more energy efficient.

The renovation includes efficient plumbing fixtures to save water and energy efficient light fixtures in the lobby, hallways and amenity spaces. A new ventilation system provides more fresh air to the apartments.

The refurbishing also included a limited rehabilitation of the apartment interiors, which include 96 one-bedroom and four two-bedroom units. Ten of the 100 apartments were rebuilt to meet tough federal standards for accessibility. Nearly all were occupied during the rehabilitation process.

Worn out appliances were replaced with new models that meet federal Energy Star standards for energy efficiency. “At the end we almost replaced all of them,” says Johana Vargas Casanova, vice president of acquisitions and development for UP Development. Some of the savings came from replacing an old electric boiler with a more efficient model that runs on gas.

Now that all of the energy improvements are complete, Evergreen Towers I is expected to use 35 to 40 percent less energy in total, according to energy consultant SolarWerks, based in Chicago.

Solar panels a strong investment
A significant part of these energy savings came from solar systems installed on the roof of the high-rise, including a solar thermal system to help heat domestic hot water. It cost about $120,000 to purchase and install 22 large ten-foot by four-foot solar thermal panels.

That’s a big investment – but the solar thermal system will provide more than a third of the hot water used at Evergreen Towers I. At the current cost of utilities, that will save $24,000 every year. Even in the unlikely event the cost of energy does not rise, the panels should pay for themselves in five to six years, according to SolarWerks.

That makes the thermal panels a strong investment that makes purely economic sense.

A set of 60 photovoltaic panels are also likely to turn out to be a strong investment – with help from state and federal subsidies and new energy regulations.

It cost $81,250 to purchase and install a system with a capacity of 15.3 kilowatts that is likely to save a total of 25 megawatts a year. That will add up to 8 percent of the total yearly electrical usage at the property, saving Evergreen Towers I $2,250 a year, according to SolarWerks.

At that rate, the energy produced by the solar panels will pay for the cost of the system eventually… after 36 years (though that does not include any increase to the cost of electric).

However, tax rebates made the investment considerably more attractive. Federal tax rebates cover 30 percent of the cost of the photovoltaic panels. State tax rebates cover another 25 percent, up to a maximum of $20,000.

The State of Illinois is also considering a new system of tradable Solar Renewable Energy Certificates that could double the income produced by the panels. Coming “Smart Meter” rules are also likely to push up the cost of electricity – making the panels a much more economic investment.

Evergreen recapitalized
The rehabilitation also recapitalized Evergreen Towers I with equity from the sale of low-income housing tax credits (LIHTCs) and a new, smaller permanent mortgage with a lower interest rate.

The new deal refreshed the rental subsidies that keep Evergreen Towers I affordable for the very-low income seniors who live there. HUD extended its contract to provide project-based Sec. 8 rental subsidies for another 20 years. The LIHTC program will also reserve for 30 years all 100 apartments for low-income households earning no more than 60 percent of the area median income.

It cost a total of $25.7 million to recapitalize and redevelop Evergreen Towers I. Financing the project began with a reservation of tax-exempt bonds and 4 percent LIHTC. However, because a twist in the capital markets for municipal bonds, tax-exempt interest rates were higher than the interest rates on loans funded with taxable bonds in 2013, when Evergreen Towers I closed its construction financing.

To avoid the higher interest rate, the developers used the tax-exempt loan to Evergreen Towers I as a construction loan, to generate the 4 percent LIHTCs that come with tax-exempt bond financing. Then they replaced that high-interest, tax-exempt mortgage with a lower-interest, $8.3 million, permanent mortgage originated by IHDA through its Risk Share Program and insured by HUD.

Another $7.0 million of the financing for Evergreen Towers I came from the sale of its 4 percent LIHTC. Enterprise Community Partners, Inc., paid nearly $1 per $1 of tax credit, plus an ownership stake in the building.

“That was pretty high for 2013,” says UP’s Casanova. “The high price was largely driven by its location.”

NNDC also sold 99 percent of its ownership interest in the property to the new development partnership in exchange for a seller’s note worth $7.9 million. That’s much less than the $14 million appraised value of the un-renovated high-rise.

“This would only be possible with a nonprofit like NNDC,” says Casanova. NNDC and UP Development kept a 1 percent, general partner’s ownership interest in the property.