On Monday, 20 local residents spoke against a proposed project to rehabilitate the Friedrich Air Conditioning Co. site into an apartment complex, arguing that its rents wouldn’t fit the budgets of East Side residents and that it would speed up the area’s gentrification.
It wasn’t enough: The five City Council members who lead the board of the San Antonio Housing Trust Public Facility Corp., or PFC, voted 3-1 to let the project go forward, with District 4 Councilwoman Adriana Rocha Garcia abstaining.
The Housing Trust PFC and its partner on the project, Dallas developer Provident Realty Advisors, plan to transform the derelict industrial site, which has sat vacant for 31 years, into 358 apartments, 155 of them reserved for those making up to 80% of the area median income (AMI), or $57,600 a year for a family of four—and 24 for those making up to 60%, or $43,200.
[ Scroll down for a chart showing AMI levels. ]
But as is often the case with the PFC’s deals, it is up for debate whether the units will qualify as affordable housing. A two-bedroom apartment in the complex, reserved for 80% AMI households, is expected to rent for $1,420 a month, according to the agenda for the Monday meeting. That is 22% above the average rent of $1,163 a month for a two-bedroom apartment in the San Antonio region in the first quarter of this year, according to Austin Investor Interests, a research firm.
Friedrich Lofts rents
|60% AMI (24 units)||$767||$822||$987|
|80% AMI (155 units)||$1,100||$1,375||$1,420|
|Market-rate (179 units)||$1,100||$1,500||$1,800|
|Source: San Antonio Housing Trust; anticipated rents two years from now.|
A studio apartment reserved for 60% AMI is expected to rent for $767 a month, slightly above the current average rent of $737 for a studio in the local region. The rents for one-bedroom and two-bedroom apartments reserved for 60% AMI would be below the local averages.
The project, named Friedrich Lofts, will receive a full property tax exemption because its land will remain owned by the Housing Trust PFC. Construction work is expected to begin in a couple weeks, and the project will take an estimated two years to be completed.
“Affordability is in name only. It’s not the reality,” said Irasema Cavazos, who identified herself as a senior citizen living in District 2. “The area, District 2, has historic poverty. It will not benefit us. It will benefit the tourists, and people that come that are way beyond the District 2 culture.”
Pete Alanis, executive director of the San Antonio Housing Trust, said in an interview that the PFC couldn’t achieve lower rents with the financial tools at its disposal. In order to achieve lower rents, the city needs to invest more money in affordable housing projects to offset the cost of land, construction and debt, he said.
To create housing affordable for those making 30% or 50% AMI, “we need to see a higher investment—public investment, or low-cost equity—come into the field,” he said. “We need to see more work from our nonprofit community, and more tools available to our nonprofit community. This is a question of math. It’s a question of financing.”
When the PFC board considered the project on June 8, District 9 Councilman John Courage asked for the vote to be delayed so that an attempt could be made to lower the income thresholds. Later in the meeting, District 5 Councilwoman Shirley Gonzales called his request “flat-out racism” after he approved a complex in his own district with income restrictions only as low as 80% AMI.
“It makes me so angry that a council member will fight for not as much affordability in one area, but then demand it in another,” she said. “Every council district deserves to have quality spaces. Having an abandoned building for 30 years is not OK for that community.”
The leaders at Provident Realty were “not very happy” about renegotiating the terms of the deal, which has been in the works since at least 2017, Alanis said.
Nevertheless, the developer reached a new deal in which the Housing Trust PFC would give up 5% of its equity stake in the project—in other words, its share of the apartment complex’s cash flow—in exchange for 24 of the units being tagged to 60% AMI, rather than 14 as before. The PFC would also take 1% percent of the sales price each time the complex was sold.
For at least a decade, East Side leaders such as former Mayor Ivy Taylor have been searching for ways to redevelop the site in order to revive a blighted stretch of East Commerce Street. But there are risks involved in converting a former industrial site into apartments, Alanis said.
“For years, the last 31 years, no one has been able to develop this thing. It’s because the project is extremely high-risk,” he said. “There’s environmental risks, there’s definitely market risk. You can see that there’s political risk.”
Many of those who spoke against the project on Monday complained that it was being approved the day before Jalen McKee-Rodriguez is sworn in as the new councilperson for District 2, after defeating Councilwoman Jada Andrews-Sullivan in a runoff on June 5.
Some time in recent years, Mayor Ron Nirenberg made a slight change to the PFC board, which had traditionally been represented by council members serving Districts 1-5, by replacing District 2, whose seat was held at the time by Andrews-Sullivan, with District 9, which continues to be held by Courage.
McKee-Rodriguez said he was “pretty disappointed” after the board’s vote.
“I don’t believe that this development meets our affordable housing needs,” McKee-Rodriguez said in an interview. “My stance is, I believe the affordability threshold needs to be below 60% AMI. I think that was a decent compromise on John Courage’s end. I’m glad that he fought for that.”
He said he would have liked for at least 20% of the complex’s units to be affordable. “And even then, I think that’s a fraction of what’s needed,” he said.
Rocha-Garcia said she abstained from voting on Monday because she didn’t feel comfortable without the project being considered by McKee-Rodriguez. District 1 Councilman Roberto Treviño voted against the project.
Three of the Housing Trust PFC’s other board seats are set to change hands after the recent runoff, in which Mario Bravo defeated Treviño and Teri Castillo prevailed over her opponent Rudy Lopez in District 5. Phyllis Viagran will take the seat of her sister, District 3 Councilwoman Rebecca Viagran, after her victory over Tomas Uresti, leaving Courage as the only incumbent on the board.
Along with McKee-Rodriguez, Bravo and Castillo have criticized the way the city and the Housing Trust PFC have been giving tax breaks to developers.
Calling the Housing Trust PFC’s tax exemption a “blunt instrument,” Alanis said he thought it likely that the new board will “take a very close look at that.”
“They are probably going to be a lot more willing to say, ‘We are only going to use that blunt instrument in very rare cases, if it achieved certain outcomes that we’re looking to achieve,'” he said. “I think that we are going to have a very honest conversation with our new board, with the public.”
The Friedrich Lofts project has followed a tortuous path through the Housing Trust PFC’s approval process. In 2018, the board approved a deal to redevelop the site with Provident Realty, but for nearly two years the partners were unable to attract financing under those terms, Alanis said. They then found an equity firm, American South Real Estate Fund of Atlanta, that was willing to offer financing, if the Housing Trust PFC and Provident would lower their equity stakes from 25% each to 16.5%. The Housing Trust PFC bought the property in 2020.
Meanwhile, the rising cost of construction materials drove up the project cost by $8 million, forcing Provident Realty to seek an additional $5.5 million in loans from the U.S. Department of Housing and Urban Development and another $2.5 million from American South, Alanis said.
On June 8, the board was scheduled to vote on whether to adjust the terms of the deal so that the project could proceed under the new financing conditions when Courage raised his concerns, leading to it being renegotiated.
The initial deal with Provident Realty was negotiated during a time when there was less pressure on the PFC to get more out of its deals with developers, Alanis said.
“I would say that what was negotiated way-back-when was a different time,” he said. “Obviously, there’s a lot more pressure—which is a good thing—to figure out how can we extract more out of these deal structures as much as humanly possible. And our board has tasked me with doing that.”
2020 Area Median Income
|1 person||2 person||3 person||4 person||5 person||6 person|
|Source: U.S. Department of Housing and Urban Development|
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Richard Webner is a freelance journalist covering Austin and San Antonio, and a former San Antonio Express-News business reporter. Follow him at @RWebner on Twitter.