Helping CDC of Brownsville acquire and preserve much-needed affordable apartments in the nation’s poorest city
For 44 years, CDC of Brownsville (CDCB) has developed and invested in affordable single-family homes in Brownsville, Texas, which persistently has some of the highest poverty rates in the nation.
One-third of Brownsville’s residents live below the federal poverty line. In the rural areas, 90% of residents live below the poverty line, and the housing needs there are even more extreme. Some residents still do not have indoor plumbing.
Despite these conditions, Brownsville is in close proximity to job centers, and the residential communities are near commercial retail, social services, and parks, as well as several airports and Valley Baptist Medical Center, ranked one of the top 100 hospitals in the U.S. Those assets have made Brownsville a draw, combining immigration from the south and good weather bringing those from the north, increasing its population by 30 percent annually in recent years. This growth has caused a massive housing shortage, especially in areas of extreme poverty.
“The need is immense,” said Nick Mitchell-Bennett, Executive Director of CDCB. “The lack of affordable housing means the region can’t build them fast enough, and what is built fills up quickly. At the same time, without subsidies, many people here can’t afford what is built.”
Last year, CDCB served 900 first-time clients and over 3,000 returning clients.
They have a history of successful development of for-sale affordable homes and two LIHTC projects, totaling 2,282 affordable homes. They were interested in expanding into development and preservation of much-needed affordable multifamily properties, as well as property management. To do this, they needed flexible capital to invest in new opportunities, as well as generating cash flow and reducing debt.
Enterprise Loan Participation
After meeting with CDCB earlier this year, NeighborWorks Capital decided to participate $500,000 in a $1.5 million enterprise loan with the Housing Partnership Network. Establishing a relationship and gaining knowledge about the organization through our meetings, made the participation an easy decision.
“CDC of Brownsville is a great organization with a long history of real results. Given the need for affordable housing in this region, we wanted to provide better financial support in order to support their ongoing mission and help the organization steadily grow,” said Tamar Sarkisian, Senior Loan Officer.
“We know lots of organizations and ways to get capital. What really made us want to work with NC first was their mission and bottom line is the same as ours: investing in financially stable projects that provide as many affordable homes as possible to help as many people as possible. When both goals are the same, it helps the process from the beginning,” Mitchell-Bennett said. “Second, the product was great. We had a plan, NC’s product fit that perfectly. The permanent terms with 30 year amortization works really well for us. It allows us to build a portfolio of units, which we can then turn into a long-term mortgage, which will in turn be more appetizing for banks, or FHA-insured mortgages.”
Multifamily Permanent Loans
After the enterprise loan, we started discussing other investment properties that CDCB identified. They were looking in low-income neighborhoods for apartments in relatively good shape that were owned by private developers. CDCB wanted to ensure they could preserve affordability and provide higher standards of living and quality of life for residents, including upgrades, without raising rents.
“Our bottom line is, ‘how do we make people’s lives better?’ We want to let people flourish beyond simply having a roof over their heads,” said Mitchell-Bennett.
NC provided CDCB with initial guidance and a lender’s perspective. Together, we kept the lines of communication open early on, allowing for as much information gathering as possible.
“We went to them to see if they’d be willing to work with a team relatively new to multifamily,” Mitchell-Bennett said. “NC helped us understand what we were doing, and to look at opportunities and challenges in a broad way. They helped us look at things we might not have thought of. Their perspective really helped. They are really good at answering questions and being willing to work with us.”
The State of Texas has some unique development requirements, and NC was very willing to work with and listen to CDCB’s expertise on that front as well, which was invaluable, Mitchell-Bennett added.
Two opportunities worked for CDCB to get started: La Posada, seven apartments in four single-story buildings in the lowest-income neighborhood in the city, and La Ceiba, a 46-apartment complex of nine single-story buildings occupied by seniors. We worked with them on 10-year permanent loans for each property, to ensure CDCB can continue to hold the properties and provide the much-needed affordable housing. To manage the properties, CDCB established Every Step Counts Inc. They will initially be supported by two full time CDCB staff, with plans to expand in the near future. CDCB will also bring their community services to each complex.
“The enterprise loan really allowed us to start investing in our long-term mission to increase our rental portfolio and manage it ourselves,” Mitchell-Bennett said.
Our first acquisition loan was for a $400,000 10-year loan to acquire La Posada, an existing 7-unit multifamily property in four single-story buildings with 100 percent occupancy. Three apartments were built in 2004 and four in 2015, and are in good condition. CDCB will make a key capital investment, installing new air conditioning.
Then CDCB requested $2.6 million permanent loan for La Ceiba, an existing 46-apartment complex in nine single story buildings, constructed in 2013. All apartments are one bed/one bath, designed for ease of movement for seniors, with parking right out front. The community includes gated access and security cameras, which provides peace of mind to the residents. CDCB will invest to catch up on some deferred maintenance. Rent is discounted about 10 to 15% from market rents in the neighborhood. The complex primarily serves seniors at 50-80% AMI ($19,500 – $31,000), though there are no formal age or income restrictions on the property.
Again, the need is great: there are currently nearly 250 seniors on the Brownsville Housing Authority’s Section 8 wait list, five times the number of apartments at La Ceiba.
“No one else is meeting the need for senior housing. We felt it was an opportunity to provide that,” Mitchell-Bennett said.
There are many opportunities in Brownsville, and CDCB is always on the lookout for the next affordable homes they can help preserve. They just put in another contract for the next property that will help them do that.
CDCB was formed in 1974 and is a private, 501(c)(3) nonprofit and a community housing development organization. For the past 44 years, CDCB has provided safe, decent, affordable housing, primarily within Texas’s Cameron and Willacy Counties. With considerable award-winning housing development experience, CDCB operates six business lines to the housing needs of the Rio Grande Valley residents, including: homeownership, rental development, lending, homeowner rehab, property management, and community initiatives. Over the last ten years CDCB has built, mortgage financed, or preserved 1,204 affordable homes in the Rio Grande Valley. From its early beginnings in Brownsville, CDCB has evolved into Texas' largest producer of single-family affordable housing. Since 2013, CDCB has completed two LIHTC properties that provide 136 affordable rental units to the Cameron and Willacy rental market.