A year after constructing The Baldwin at St. Paul Square, developer NRP Group is selling the apartment building for $62 million to Virtus Real Estate Capital of Austin, one of the investors in the project. NRP Group, a Cleveland-based developer with a strong presence in San Antonio, will remain a minority owner.
People started moving into the four-story, 271-unit Baldwin in May 2018. The development, which is exempt from paying property taxes, has added what some housing observers consider affordable apartments—those priced for people making 80 percent or less of the area median income (AMI), or $56,800 for a family of four—to the downtown market.
The sale, which is expected to close on Sept. 15, now triggers a decision by the San Antonio Housing Trust Public Facility Corp. (PFC), a city-created nonprofit that partners with private developers such as NRP Group to create affordable housing. The San Antonio Housing Trust PFC is a 10 percent owner in The Baldwin, and also is the sole owner of the property at 239 Center St., on which The Baldwin was built.
[ Editor’s note: For an explanation of how PFCs work, scroll to the bottom. ]
As a 10 percent owner of The Baldwin, the San Antonio Housing Trust PFC has two options now that a sale is imminent.
One is to cash out its 10 percent interest, which would yield a one-time payment of roughly $949,000, attorney Jim Plummer of the law firm Bracewell LLP told the San Antonio Housing Trust PFC board, which is composed of five City Council members, earlier Wednesday. Doing the math, that amounts to roughly a $10 million profit for NRP Group, Plummer said—an observation that drew a snicker from District 3 Councilwoman Rebecca Viagran, who serves as chairwoman of the PFC board.
The area median income (AMI) for a family of four in the greater San Antonio area (Bandera, Bexar, Comal, Guadalupe and Wilson counties) is $71,000, according to the U.S. Department of Housing and Urban Development. Here’s how it breaks down for lower-income households:
» 80% – $56,800
» 70% – $49,700
» 60% – $42,600
» 50% – $35,500
» 40% – $28,400
» 30% – $21,300
Editor’s note: For a complete AMI breakdown that shows other household sizes, scroll to the bottom of this article.
The PFC’s other option is to receive a portion of the rent revenue for the remainder of the 75-year lease, which Plummer said totals $37 million, which is worth an estimated $6.3 million in today’s dollars.
“The investor partner (Virtus) in the deal likes the deal so much, they are buying the rest of the portion of the project,” Plummer, who represents the PFC in these deals, told the board. “We didn’t know how quickly they would sell/ It turns out they sold pretty quickly.”
If the sale goes through, Virtus Real Estate Capital would own 90 percent of The Baldwin; NRP Group and another partner would own the remaining 10 percent. When asked via email to identify the other partner, Plummer didn’t.
Because the San Antonio Housing Trust PFC owns the property, the land is tax exempt under state law, which provides the no-taxes incentive to PFC partnerships in exchange for affordable housing. At The Baldwin, half of the 271 units are priced for people making 80 percent AMI, while the other half are market-rate priced.
The tax exemption is one that can be stacked with other incentive programs. For The Baldwin, it also received $626,202—a combination of SAWS and city fee waivers—under the city’s Center City Housing Incentives Policy.
[ Related: The Baldwin adds 271 apartments to east downtown ]
During the discussion, District 1 Councilman Roberto Treviño said he needed more analysis in order to decide on one of the two options—take $949,000 now, or receive payments over 75 years equal to at least $6.3 million. Plummer estimates it would take eight years for the PFC to accumulate the $949,000 sum if it chose the annual rent payment option.
Treviño said it wasn’t as simple as choosing the greater sum.
“To me, the most precious thing is not money, it’s time,” Treviño said. “Understanding, money can play a role in how time is utilized. In a case where we’re trying to save somebody’s house, it matters that we put a good roof over that house today, not three months from now.”
Plummer said the PFC will soon have a balance of $4.6 million—$2 million of which is allocated for the Under 1 Roof program, a roof repair program Treviño fathered. That would leave $2.6 million for the PFC to play with. Viagran suggested it could use the funds to buy down rents—which is another way of saying the PFC could subsidize deeper affordability levels of existing apartments it co-owns or future apartments it builds with developers.
District 9 Councilman John Courage lightly chided Plummer for not briefing the board members in advance of the meeting. Treviño also said newly-appointed District 2 Councilwoman Jada Andrews-Sullivan, whose district includes The Baldwin, needed to be briefed.
Viagran’s concern was with optics of taking $949,000 in cash up front.
“Allowing this giant entity (Virtus) to not pay taxes … I don’t know how I make that argument,” she said. “We already took our (cut)—not even $1 million—and having them tax free for 75 years for a $62 million sale?”
In order to receive the tax exemption, The Baldwin would have to keep providing the affordable apartments.
District 5 Councilwoman Shirley Gonzales then made a motion to proceed with the annual rent payments option. Viagran seconded the motion. The two voted in favor, while Treviño and Courage voted against it. District 4 Councilwoman Adriana Rocha Garcia, the fifth council member on the PFC board, did not attend the meeting.
The PFC board will now have to hold a special meeting before Sept. 15, the closing date, in order to choose one of the options. The PFC board cannot stop the sale, according to the agreement. It will, however, retain ownership of the land. Unless …
A big what-if
According to Plummer, Virtus Real Estate Capital wanted some guarantees from the PFC should the Texas Legislature change the tax-exempt law in the next 75 years and disallow the exemption.
If that were to happen, the San Antonio Housing Trust PFC would be forced to sell the land to Virtus for $1. Virtus would then—by not being restricted any longer by the tax exemption restriction—rent all of the units at market-rate prices. The flip side to that scenario, Plummer said, is that The Baldwin would go back on the city’s tax rolls, which he said would yield more revenue to the city than the annual rent payments.
“We don’t think the Texas Legislature is going to take away the exemption on property taxes, so we don’t see that as (a big risk),” Plummer said.
What is a PFC?
The San Antonio Housing Trust PFC has partnered with other developers on other projects, but NRP Group has taken a big chunk of the agreements to date. The Cevallos Lofts in Southtown and on The Flats at River North, the project currently under construction at Broadway and Jones Avenue, are other San Antonio Housing Trust PFC-NRP Group projects.
Under state law, a PFC pays no property taxes on a property if it builds affordable housing, which is considered to be units priced at 80 percent AMI or less. Many housing observers, including the Mayor’s Housing Policy Task Force, and the Housing Commission, consider 80 percent AMI rents to be market rate, and not “affordable housing.”
Experts also consider the savings developers receive from not paying property taxes in PFC projects as a major incentive. In a recent presentation, Assistant City Manager Lori Houston told the council that PFC projects have combined for a total of $299 million in forgone property taxes. But it was unclear if that figure includes all PFCs in the city.
The city of San Antonio isn’t the only holder of a PFC. The San Antonio Housing Authority, Hemisfair, and Alamo Colleges District have all built projects using PFCs.
Here’s roughly how they work:
In one other instance, NRP Group sold a PFC development—The Upton at Longhorn Quarry—within the first five years of building it.
NRP Group declined an interview request for this article. Virtus Real Estate Capital could not be reached for comment.
Clarification: The estimate for the rent revenue over the 75-year lease has been adjusted to include the total amount and the amount in current dollars.
Read about other PFC deals:
» SAHA board gives nod to build St. Mary’s Tower with Dallas developer JMJ
» An apartment development at Broadway and Jones Avenue has a name: The Flats at River North
» How The ’68 at Hemisfair will offer true affordability to some