Crain's on Richard Hosey, Lafayette Bldg
Great piece by Nancy Kaffer in this week's Crain's:
Richard Hosey is a numbers guy, a senior vice president and senior originator for tax credit investments based in Bank of America's Detroit office.
He's also a historic preservation guy, whose résumé includes stints at prominent historic preservation and real estate companies in New Orleans and Baltimore.
And when Detroit's historic buildings are slated for demolition, Hosey thinks it's a waste.
When the Lafayette Building — the latest historic building to make the city's demo list — was still in play, the native Detroiter wanted to prove that it could be rehabilitated, the economic climate notwithstanding.
Detroit Economic Growth Corp. officials have said rehabilitation of the Lafayette isn't financially viable, an assertion to which Hosey objects.
“The markets are really frozen up and projects are hard to do, but in terms of the viability of the building, I think it's definitely viable,” he said.
So he ran some numbers.
“It was something to show the guys in this city that it does work,” Hosey said. “So I ran the numbers, I thought it worked and I thought it was viable.”
What he devised was a formula he says can work to convert many of Detroit's historic buildings — pre-1936, significant architecture, a good story — into residential rental units, even in a moribund lending climate that's required ever-more-complicated layers of financing to get deals done.
Hosey's calculations figure gross size, average size of units and rents at a rate the current market would bear.
He compared those costs — an estimated $60 million to rehab the Lafayette, $50 million with a deferred developer fee — to the available arsenal of state and federal tax credits and tools, including a larger state historic tax credit made available this year and a U.S. Department of Housing and Urban Development loan insurance program designed to help private industry construct or rehabilitate moderate-income rental housing.
“The big assumption in the project is that we would be the beneficiary of the new state historic tax credit, at the enhanced size,” said Hosey, ticking off elements of the formula.
“That's a state historic credit at $11.5 million which would generate about $8 million in net funding into the deal … a federal historic tax credit that I would have on the low side at $12.5 million, a brownfields state credit that would come in at $6 million, and a $19.5 million HUD 221[[d)[[4) loan.”
The U.S. Federal Housing Administration has become one of the country's most viable lenders, he said, but it can be a long process.
Brian Holdwick, DEGC vice president of business development and finance, said Hosey has good ideas but that the lending market is still a problem.
“He's mostly trying to leverage new market tax credits to bridge these gaps, and hopefully it does, but the key problem now isn't the ability to get tax credits, it's first position financing,” Holdwick said.
The DEGC routinely uses such tools, he said.
“They're all good tools. [[Hosey) brings new energy to trying to aggressively market those tools and trying to solve the gaps, but it's not something different and new,” Holdwick said.
“He's trying to put a whole bunch of layers of financing together that are needed to do these projects, and he brings a tremendous amount of energy, but I haven't seen any of these projects get over the finish line, either, in recent months. But that doesn't mean we won't keep trying.”
Developer Fred Beal's experience with the 91-year-old Broderick Tower bears out Hosey's theorem.
“Traditionally, it was difficult to put HUD [[products) together with tax credit scenarios like new market tax credits,” said Beal, president of J.C. Beal Construction Inc., based in Detroit and Ann Arbor. “But right now, the developer that's going to get something done is very likely to be doing it with HUD.”
Beal's Broderick, a 34-story neoclassical/Chicago school/Beaux Arts skyscraper in Detroit's Grand Circus Park, stalled when the credit market dried up.
Beal said he'd started to assemble financing for the project using the 221[[d) program, but then-low appraisal value put a crimp in the works.
“Today, knowing all the things we know about tax credit and new market tax credits, that same loan would work,” he said. “But we'd have to start all over to get it.”
The Broderick has received a federal tax credit worth 20 percent of the cost of the $55 million project and a $2 million state tax credit that can double or triple under the new state guideline — and that means the project may be on track to close this summer.
Hosey admits his formula isn't a magic bullet. Historic tax credits aren't always a sure thing, and city support or social lending could be required to leverage the historic tax equity credit.
But, he said, he'd like to see the city's historic buildings recognized as economic development tools.
“I understand [[the DEGC) has seen a lot of [[deals) fall apart,” Hosey said. “I've seen a lot of things fall apart in this market, but I want to get a project done and off the ground. Even with things falling apart, I want to help them see that things are possible, and see what we've been able to do in cities around the country.
“I think Detroit is a prime spot for things to happen, and even in these hard economic times, we have what need to go forward with this.”
Nancy Kaffer: [[313) 446-0412, nkaffer@crain.com.
