|Franklin Square House|
11 E. Newton Street
Boston, MA 02118
Franklin Square House is a 193 unit elderly housing development in the South End of the Boston. The historic property consists of two well-maintained, connected brick buildings. The property was originally built in the 1890’s as a hotel for women and was substantially rehabbed in 1976 for its current use as apartments. The property currently houses one of POAH’s most linguistically diverse resident populations. POAH is meeting the translation needs of residents by contracting Mandarin, Russian and Spanish interpreters and hiring a bilingual staff. The property operates at 99% occupancy.
The Preservation Challenge
Franklin Square House is one of the six Massachusetts properties acquired by Preservation of Affordable Housing Inc from State Street Development in the summer of 2012. The six property portfolio is composed of 841 apartments which house seniors and low- and moderate-income families.
Franklin’s central location in the City of Boston and proximity to major hospitals, entertainment and shopping areas made it a prime candidate for market rate conversion. The risk of conversion was even more imminent around the time of its sale because the HAP (Section 8) contract and mortgage financing was scheduled to mature in 2018.
By securing this property as a member of a portfolio transaction from a Seller liquidating their portfolio, POAH was able to purchase this property at a discount to its ultimate worth in a market-rate setting in a few years yet to come. POAH financed the acquisition of Franklin Square House by renewing the HAP Contract for 20 years and using tax exempt bond financing and low income housing tax credit equity.
The preservation of Franklin Square House was contingent on POAH’s ability to quickly execute an acquisition strategy for the six property portfolio. This proved to be a challenge because the seller was in ongoing litigations with the lender which created implications to refinancing the portfolio and applying for low income housing tax credits. To assure that the transaction and renovations were completed in time to be eligible for the 2013 tax credit rate, POAH became engaged in resolving the litigations.
The acquisition also required POAH to renew and negotiate the terms of the property’s 121a tax agreement with the City of Boston. The tax agreement stabilizes the real estate tax liability of the property in exchange for the provision of low-income housing and served as an important preservation tool in the transaction.
In addition to engaging in negotiations, POAH had to mitigate several financial risks associated with the portfolio in order to secure an equity investor and mortgage lender. The Boston properties, including Franklin Square, face a large Section 8 overhang risk. The Section 8 rents issued to the properties are significantly higher than their maximum tax credit rent eligibility. If the HAP contracts were not approved for renewal, the properties’ rental income would be dependent on the lower tax credit rents. To reduce the impact of this risk, POAH created a special reserve to help transition the properties in the rare event the HAP contracts were lost.