Center-city residential programs growing

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by Maria Hoover|ret||ret||tab|

Inside Business Editor|ret||ret||tab|

mhoover@sbj.net|ret||ret||tab|

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Two government-funded programs aimed at improving residential properties in center-city Springfield are growing. |ret||ret||tab|

With a loan portfolio of $8 million through the Home Investment Partnerships (HOME) program, the city of Springfield is one of several U.S. cities that ranks No. 1 nationwide in HOME disbursements and commitments.|ret||ret||tab|

"It's one of two major grants that the city receives on a regular basis," said Chuck Marinec, city grants administrator, regarding the program. |ret||ret||tab|

The Community Development Block Grant program is the second major grant source for the city. The funding for both programs comes from the U.S. Department of Housing and Urban Development. |ret||ret||tab|

HOME loans are used for housing rehabilitation or new construction in targeted neighborhoods, which generally are described as center-city, and CDGB funds are used within the same area.|ret||ret||tab|

"It's a broad center-city boundary. It's basically Grant and West Bypass to the northern city limits and Glenstone. It does meander and jog a little bit, but those are some basic boundaries," Marinec said.|ret||ret||tab|

Marinec said 90 percent of the substandard housing in Springfield lies within those boundaries and "the area is composed solely of what HUD determines to be low- and moderate-income census tracts."|ret||ret||tab|

However, with HOME the funds are used primarily for properties that are rehabilitated by owners and then rented out to low- and middle-income families.|ret||ret||tab|

Borrowers must rent the HOME-built or rehabbed properties at 60 percent or less of the median family income, he added, "so they have a long-term affordability commitment and their return on investment, because of the ceiling caps on rent, is limited," Marinec said. |ret||ret||tab|

But the way the HOME program works enables borrowers to get better returns. Springfield City Council has established a 5 percent interest rate for HOME loans, and deferment also is involved. |ret||ret||tab|

"In order for the owner of the property to get a decent return on his investment through the loan proceeds and fixing the property up, we have to defer about half of that loan at no interest until the amortized portion is paid off. And that keeps the owner of the property in the black, usually, so they can afford to make that repayment, and the deferred portion that's interest free balloons at the end of the loan period, and that's usually 15 or 20 years," Marinec said.|ret||ret||tab|

Even with the limited return on investment, Marinec said HOME-funded construction or rehabilitation is good because "it's a method of extending the economic life of the house or the unit. We do a very thorough rehabilitation of each project that we undertake, and we extend the economic life of that unit by 20 years (as) one of our goals." |ret||ret||tab|

Periodic inspections ensure that properties are maintained during the deferred loan periods, Marinec said. |ret||ret||tab|

"The real incentive is that, number one, we defer a portion of the loan so that the property is going to return a positive cash flow to the borrower. That's attractive to them, especially in today's economy where investment vehicles that yield a good return are pretty limited," Marinec said. "And also, a lot of the properties that we deal with are the worst houses on the block. We make them the best houses on the block. That has a positive effect on the neighborhoods. You're taking an unproductive piece of property and putting it to use as affordable housing, and you're enhancing the neighborhood all at the same time." |ret||ret||tab|

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HOME history|ret||ret||tab|

The first HOME appropriation for the city of Springfield was in 1992, Marinec said.|ret||ret||tab|

"We got about $535,000 that first year. We now receive approximately $1.1 million (per year)," he said. |ret||ret||tab|

To date, more than 250 dwelling units have been rehabilitated or constructed with HOME funds. |ret||ret||tab|

"Not all of those are single-family dwellings, but most are. Most of them are one- to four-family developments," Marinec said. "The overwhelming majority are single-family units, all located within our geographic target area."|ret||ret||tab|

About $400,000 in repayments from previous loans has created a revolving fund pool, which has to be spent before new grant funds can be accessed. |ret||ret||tab|

"That generates additional loans, and I think that what makes our expenditure rate so amazing is the fact it's based on two categories commitment and expenditures," Marinec said. "We have this revolving fund money that has to be spent on a first-in, first-out basis. So we have to spend our income that comes back before we can draw additional funds."|ret||ret||tab|

Marinec said the $8 million HOME loans portfolio actually represents the total value of all loans made through the program that are still being paid on by borrowers.|ret||ret||tab|

"Eventually, through the return of principal and interest, we will have $8 million coming back. Approximately $400,000 of that occurs on an annual basis right now" from repayments, he said. |ret||ret||tab|

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CDBG funds|ret||ret||tab|

Unlike HOME loans, CDBG funds for new construction or rehabilitation "are strictly for owner-occupied properties." CDBG loans also carry a 5 percent interest rate and a deferment option. |ret||ret||tab|

"We defer, on a sliding scale, the loans that we make based on the borrower's income," Marinec said.|ret||ret||tab|

The CDBG program in Springfield now exceeds $22 million, which includes about $8 million for a separate small-business development loan program. The remaining $14 million is used for residential rehabilitation and construction. The CDBG funds have provided assistance for about 350 units, Marinec said. |ret||ret||tab|

"We get the biggest bang for our buck with our program where we wind up financing the worst house on the block and making it the best, and that seems to have a lot of spinoff activity. People are reluctant to spend money on their properties until they see other people investing, and that investment becomes contagious," he added. |ret||ret||tab|

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Qualifications|ret||ret||tab|

For both programs, properties and borrowers have to meet certain qualifications.|ret||ret||tab|

"We don't like to go beyond 100 percent of loan-to-value ratio, when you consider all debt against a property after it's fixed up. So we usually have the property appraised," Marinec said. |ret||ret||tab|

Creditworthiness and the character of the borrower also are essential.|ret||ret||tab|

"Good credit and good character of the borrower is all-important because it is a big public investment, and we feel it's important to protect that," he said. |ret||ret||tab|

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