How Did They Do That? Determined Developers

6 min read

Winn Saves Worcester Landmark

The crumbling Worcester Vocational High School loomed over Worcester, Mass. The 117,000-square-foot complex was one of the most prominent abandoned buildings this state’s housing officials had ever seen.

Broken, partly boarded-up windows stared out at local landmarks, like the Worcester Art Museum and Worcester Memorial Auditorium, along with several major streets and an elevated highway.

“Tens of thousands of people drive past this building every day,” says Tom Gleason, executive director of MassHousing.

Last year, the historic school re-opened as Voke Lofts. Winn Development, based in Boston, turned the classrooms of the vocational school into a new mix of affordable housing and apartments renting at market rates.

“The redevelopment completely transformed the gateway to this particular part of Worcester,” says Gleason. “It changes the whole perspective as you go through this part of the city.”

The redevelopment saved a local landmark, finished an important part of Worcester’s master plan for the neighborhood and provided much needed housing. It would seem to be a slam dunk for tax credit financing. But it was not. The determined Winn Company had to fight hard to finance the project facing four years of rejection for 9% LIHTC before finding an alternative funding solution.

The Financing Struggle
The Worcester Vocational High School opened its three buildings in 1909, 1912 and 1926. The complex has been abandoned since 2006, when the school moved to a new campus in Worcester.

Squatters broke into the empty school and vandalized it. “There were still books in the lockers and desk chairs. It was all still there,” says Elizabeth Fish, vice president for Winn. “It was almost as if there was a fire alarm and everyone left and never came back.”

Winn first applied for funding to redevelop the old Vocational School in 2009 from the federal 9% low-income housing tax credit (LIHTC) program and the Massachusetts housing tax credit program, through the competition held by the Massachusetts Dept. of Housing and Community Development (DHCD). Every year developers apply for more than three times as much 9 percent LIHTC as the state had to reserve for affordable housing developments.

The plan to redevelop the school didn’t win LIHTCs in 2009 — or in 2010, 2011 or 2012. “The 9% LIHTC program is terrifically oversubscribed,” says MassHousing’s Gleason. Finally in 2013 state officials came up with a plan for the property.

“Massachusetts has a surplus of 4%t LIHTCs,” says Gleason, whose agency oversees the state’s 4 percent LIHTC program. “DHCD asked us to take several 9% applications and try to do them as 4% deals.”

It cost a total of $33.8 million to redevelop the old vocational school into 84 mixed-income apartments – or roughly $402,000 per apartment. Even with help from historic tax credits, it took more money to save the prominent landmark building than low-interest tax-exempt bond financing and 4% LIHTCs typically provide. “This was a natural 9% LIHTC deal,” says Gleason.

Soft financing filled the budget gap: Voke Lofts received $2 million from the Massachusetts Affordable Housing Trust Fund. MassHousing provided another $780,000 in Priority Development Funds. “We will get that back in the future when the deal is refinanced – probably in 15 years,” says Gleason. The City of Worcester also contributed $1.2 million in HOME Funds.

The strong reputation of the developer and the prominent location helped officials become comfortable with the financing. “Winn is one of our largest borrowers… and Worcester is not just the second biggest city in Massachusetts, it’s also the second biggest in New England,” says Gleason. “There was a lot to like about this deal.”

Silver Lining
Winn found a silver lining to the years it spent applying for 9% LIHTCs: As year after year passed in the recovery from the financial crisis, investors became willing to pay much more for tax credits. In 2009, when Winn sent in its first application for LIHTCs, the developer expected to get less than 80 cents per dollar of LIHTCs. By the time the financing actually closed in 2013, tax credit investor Bank of America paid about $1 per $1 of LIHTC.

“Our credit pricing increased by about 20 cents,” says Fish. Of course, the cost of construction has also increased since 2009, when very few developers were bidding to hire contractors or buy building materials.

Bank of America paid $25.4 million for the package of tax credits from the property. That included a $5.3 million in federal historic tax credits, $4.3 million in state historic tax credits, $3.7 million of 4% LIHTCs, and $3.5 million in state housing tax credits.

Good Results
The redevelopment is a large part of Worcester’s Gateway Park Master Plan for the area around the school. The complex is especially prominent because it is set back from the edges of its two-acre site—empty sky frames the giant buildings. The open space now makes room for surface parking and a playground for the new residents.

The apartments opened June 2014. Three months later all the apartments had signed leases, including both the affordable and market-rate units.

Half of the 84 apartments are affordable to households earning less than 60 percent of the area median income. The other 42 apartments have no restrictions on their rents. “There is also need for market-rate housing,” says Gleason. “The market-rate units were the first apartments to top $2,000 a month in rent in the City of Worcester.”

Winn companies had to repair the vandalism at the complex, in addition to removing the remnants of the old vocational school. Some of the textbooks and quaint, old machines found in the remains of the vocational school are now on display in the common areas of the apartment complex.

Winn removed asbestos insulation and lead from the old buildings. The renovation also meets the tough standards set by the U.S. Green Building Council for its Leadership in Energy and Environmental Design for Homes certification, according to Fish, however, like many affordable housing developers, Winn has not pursued certification for the building.

The rules of the federal historic tax credit program required Winn to take special care with the windows. Voke Lofts includes windows in 52 different sizes. All of those windows needed to be replaced, and to qualify for federal historic tax credits, all the replacements needed to be approved by officials at the National Park Service. They rejected one set of windows, because the casements were too thin.

The results of the rehab, including the nice, new windows, are helping attract new residents to Voke Lofts and Worcester’s growing neighborhood downtown. “There are a lot of families moving to this area,” says Fish. “The views from these units are incredible.”