Organizations looking to acquire real estate for rental housing in locations that are ideally suited for affordable housing residents to access education and employment may have a new opportunity to do so. Even before the COVID-19 global pandemic, reports at the end of 2019 indicated that enrollment in post-secondary education had declined. Thus, higher education institutions may soon find themselves in the same position as some religious organizations with excess real estate holdings. This may open the door for mutually beneficial arrangements between educational institutions and affordable housing developers.
The Pittsburgh Theological Seminary (PTS), a graduate theological school of the Presbyterian Church (U.S.A.), imagined such an opportunity and brought it to fruition. The transaction may serve as an example of what could be possible while paving the way for other conversations. Buchanan Ingersoll & Rooney PC shareholder Michelle Yarbrough Korb was pleased for the opportunity to participate in this unique transaction.
PTS determined that it had excess real estate, including three aging apartment buildings. As part of its institutional master plan process, PTS began to consider using some of this land for affordable housing. Jim Downey, who served as Vice President for Planning and Institutional Effectiveness for PTS until July 2020, led this exploration. In 2017 he attended the Housing Alliance of Pennsylvania’s Homes within Reach Conference to learn more about affordable housing where Yarbrough Korb connected with Downey. As PTS continued to explore this possibility, it engaged Yarbrough Korb to provide an educational presentation on affordable housing development to assist PTS with its ongoing considerations. Yarbrough Korb regularly represents affordable housing developers from concept to closing, and walked PTS through the entire process starting with defining affordable housing (and putting that in context with specific income data for PTS’s community), considerations before getting started (staff, experience, role, contribution(s)), preparing application(s) and pre-funding activities, satisfying third parties, closing, construction and ongoing compliance as well as potential timelines and sample structures.
PTS was looking to scale its real estate holdings to meet anticipated residential housing need, efficiently utilize its space, and address aging apartment buildings, but it also considered its mission and its community. The East Liberty neighborhood of Pittsburgh, Pennsylvania where PTS’s campus is located has been challenged with the loss of affordable housing units and rising housing costs associated with recent development efforts. PTS took note of the Affordable Housing Task Force’s findings and recommendations issued in May 2016 to the Pittsburgh Mayor and City Council. It cited “a gap of approximately 17,241 affordable and available rental units in Pittsburgh for households at or below 50% of Pittsburgh median household income.”
“This project allows the Seminary to be good stewards of our resources while providing modern, affordable, proximate, and safe housing to our students and at the same time serving a neighborhood need,” said the Rev. Dr. David Esterline, president and professor of cross-cultural theological education at the Seminary.
PTS decided to dispose of the three apartment buildings for use primarily as affordable housing via a request for proposals process; the RFP was issued in July 2019. It specified that the property would be offered for fair market value, tenants associated with PTS would lease a set number of units at market rate rent post-closing, and the affordable housing commitment made by the successful developer would be memorialized in a recorded restriction.
Four affordable housing developers responded with a variety of proposals; each had its own vision, including the number of units and financing. PTS selected a developer with a financing plan that did not include federal low-income housing tax credits (LIHTC). This eliminated the uncertainty and delay that 9% LIHTC competition would entail and would allow for expeditious renovation of the existing apartment buildings, which would be a welcome benefit to PTS students currently residing in the buildings or who would move in to the units in the summer of 2020 for the fall semester.
In December 2019, PTS executed a development agreement and an agreement for sale with the selected developer. As is typical in any transaction, there ultimately was give and take by the parties to work out the final details. This unique arrangement was consummated in June 2020 and included PTS:
- restricting the use of two-thirds of the units after the sale to tenants earning either 60% or 80% or less of area median income for forty years following completion of renovations via a declaration of restrictive covenants;
- providing a subordinate loan to cover the cost of enhanced renovations requested by PTS and not originally proposed by the developer;
- for set number of years with renewal options, providing a list of prospective tenants associated with PTS to the buyer, which prospective tenants, if accepted, will lease one-third of the units from buyer with PTS subsidizing their rent by paying the rent directly to the buyer;
- retaining an option to repurchase from the buyer (a) at the end of the affordability period and (b) if the buyer or the developer becomes insolvent; and
- retaining a right of first refusal with respect to any bona fide offer from an unrelated third party to purchase.
“Working with a developer on providing affordable housing allows us to continue the Seminary’s commitment to generous hospitality and helps to ensure that Pittsburgh remains a place for all people,” said Jim Gockley, Board chair of Pittsburgh Seminary
The transaction benefits PTS by removing itself from the role of landlord of excess real estate while maintaining some housing for those related to PTS and allowing PTS to serve a community in need of affordable housing options. It also benefited the selected developer by making available a desirable site for much needed affordable housing, providing financing for the revitalization, and ensuring a steady stream of market rate income to support the development. If you would like to learn more about this transaction and how it may translate to your institution or community, please contact Tom Hinds, Vice President for Finance and Administration, PTS at (412) 924 1369 or firstname.lastname@example.org and/or Michelle Yarbrough Korb, Shareholder, Buchanan Ingersoll & Rooney PC at (412) 562-1580 or email@example.com.