An affordable housing dream dating back 15 years is now facing foreclosure on Nov. 2.
The historic Imperial Hotel — a place where the poorest among us have lived since December 1996 — is the latest victim of the recession.
Progressive Redevelopment Inc., which renovated the Imperial Hotel into 120 single-room occupancy residences for the poor, can no longer pay the bills on the property.
“We are out of gas,” said Bruce Gunter, PRI’s president, adding that the non-profit has invested $150,000 of its own funds in the project. “We had a big increase in costs and a decrease in revenues. All of a sudden, we were in a world of hurt.”
The Imperial Hotel, now 99 years old, had been vacant for about 15 years when PRI bought the building for $1 million in 1995. It spent $9 million to restore the property, which was opened six months after the 1996 Summer Olympic Games.
This past June was the first month that PRI was unable to pay its mortgage. The remaining balance on the first mortgage, which is owned by Fannie Mae, is $575,000. Gunter estimates that the building would need $1.1 million to stabilize the building by paying off that first mortgage, making needed repairs and covering the most pressing bills.
But PRI was unable to raise that money and work out a financial solution to save the Imperial. “We realized it was a losing battle,” Gunter said. “Because of the financial squeeze, we weren’t able to reinvest in the plant. It needs a new boiler, and the elevators need maintenance.”
The reasons are multifold. Thanks to historic tax credits, property taxes had been about $6,000 a year. But in 2007, when the credits ran out, taxes jumped to $85,000. Simultaneously, water and sewer bills went up by $70,000 a year.
“The final nail in the coffin were the rents,” Gunter said. “Many tenants could no longer pay the rents.”
Once the Imperial is foreclosed upon, the city and state also will lose their subordinated lending position and their $2 million investment in the property. It will be up to the new owner of the Imperial to decide whether it will remain as affordable housing over the long term and how the building will be redeveloped.
Unfortunately, the Imperial is not the only one of PRI’s distressed properties.
PRI has been one of Atlanta’s leading developers of affordable housing, and it has won numerous awards over the years. It has been recognized for providing supportive services — counseling, job training, medical assistance — in several of its properties to help tenants get back on their feet.
“Literally half of our portfolio is under water,” Gunter said. “We are just bone dry.”
In all, PRI estimates that 963 of its 2,100 units are “under stress.” Either PRI will be able to financially restructure the projects or they too will be “lost.”
In short, PRI’s business model did not hold up during a recession. Its operating margins were so slim (because they were trying to keep rents as low as possible), that there was little room for error.
“Our developments can’t withstand that kind of stress because we are marginal at every level,” Gunter said. “The recession just hammered us.”
Gunter, who has spent his whole career trying to provide affordable housing for the poor, is devastated by the latest turn of events.
“As advocates of affordable housing, we would first say: ‘Don’t lose what you’ve got. That’s going backwards,’” Gunter said. “That’s 20 years of work.”
During its heyday, PRI earned development fees, which provided a revenue stream for its operations. But with the recession, development stopped, and so did that revenue stream.
Gunter, however, is able to take a long view. Although PRI will lose that portfolio, he is hopeful that most of its distressed properties will be retained as affordable housing.
“The shelf life of what we did was not forever. It was 10 to 12 years,” Gunter said. “We were able to provide affordable housing for that period of time.”
In the past year, PRI has restructured itself. It cut its development arm, and those former staff members have now gone on to establish a new company — Tapestry Development Group.
“The good news is that when we sever the stressed properties, the 50 percent we have left is in good shape,” Gunter said. “Going forward, it will be much simpler. We want to tend to the 50 percent that we have.”
There also has been a silver lining to this recession.
“More affordable housing is being created now,” Gunter said. “Rents are down. Housing prices are down. The net effect will be more affordable housing stock that is available through the private market.”
But the for-profit sector does not provide the supportive services that PRI has been able to offer through its subsidiary — CaringWorks. Two of its most successful developments — Welcome House and Hope House — are models of how lives can be transformed along with affordable housing.
“It’s a profoundly sad moment,” Gunter said in an off-guarded moment before quickly adding, “we will emerge in a new role, maybe as an investor in affordable housing. We are going to have a new model. I want to build broader relationships in the community. We are not stopping. There are no regrets. We are going to move forward.”