When you look around, there are few bright spots in the construction business. But the graying of metro Atlanta has created one for a for-profit/nonprofit team.
More seniors are calling this area home, exacerbating the shortage of affordable apartments for those on the lower end of the income scale. What’s more, special government tax credits can make the financing of senior projects a lot easier than it is to approach a bank in this era of tight credit.
Enter Hardin Construction and the Paces Foundation, two Atlanta-based organizations that have teamed up in the senior housing arena for the past 15 years. Given the shortage of work in the over-supplied commercial arena, senior housing is becoming more important for Hardin’s for-profit business.
“It’s all about diversification in our business,” said Brantley Barrow, chairman of Hardin. “You have to be in different markets. You got to look where the money is coming from.”
Senior housing, which used to represent just a few percent of Hardin’s business, now accounts for about 15 percent of its revenue, which exceeds $300 million, Barrow said.
“It’s helped us through this downturn,” he said. “America is aging and we have to figure out how to house seniors.”
Mark du Mas has figured out one way. As president of the nonprofit Paces Foundation, he focuses on developing and owning apartments that provide affordable housing for seniors. Du Mas puts together projects by applying to a government program that offers federal and state tax credits to investors in affordable housing.
Through the investors, the credits provide financing, but the competition is stiff, Du Mas said. In the latest round, 72 projects were proposed for tax credits that can fund only 22. The competitors range from for-profit companies to government housing agencies to nonprofits like Paces, which hires companies like Hardin to build the projects.
Paces and Hardin just started on an 88-unit project in Smyrna. They hope to get approved for two more senior projects later this year.
Here’s how the financing generally works:
If a project gets approved by the state’s Department of Community Affairs, it’s eligible for tax credits that the Paces Foundation sells to investors – often financial institutions and big companies.
Sometimes, du Mas said, “I have $20 million in tax relief I can sell. That’s tasty.”
In that example, the federal tax credit would be $10 million and the state’s would be for another $10 million, he said. Generally, he can sell the federal credit for about 75 cents on the dollar. That means an investor would pay $7.5 million for a $10 million tax credit over 10 years. The investor’s tax return also benefits from the depreciation on the project. Paces gets the $7.5 million to develop the project over about a year’s time.
Since state tax liabilities are less than federal, Paces sells those credits for about 25 cents on the dollar. That’s another $2.5 million for the project.
For seniors at least 55, the income limits to rent a unit are strict, du Mas said. A person’s annual income in metro Atlanta cannot be more than $26,680. Rent would be $566 a month.
Demand outstrips supply in this economy.
“We’re making more poor people than rich people,” du Mas said. “I have a steady stream of clients.”
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