Affordable Housing Can Be Good Business

About three years ago, a question born of a cost-prohibitive need, coupled with a desire to protect, even enhance a real estate investment, led to one of Durham's most innovative and ambitious renovation projects. The result is a three-phase transformation that is turning a 54-year-oldd affordable housing complex into a development of 144 two-bedroom apartments, with cutting edge amenities, and monthly rents of less than $500 for residents who earn less than $30,000 annually.

"We had to face reality," explained Jim Stewart, a former owner and manager of Mutual Heights that had been Durham's initial venture into affordable housing. "We had patched all we could patch. We had held the line for as long as we could. Now we had to do some major renovation to remain competitive, but when we looked at the numbers, we realized we couldn't do the usual renovations and keep the apartments affordable."

Thus the conundrum!

Since opening in 1951, Mutual Heights at the corner of Fayetteville and Cornwallis Roads, across from Beechwood Cemetery, had been Durham's showcase of a solid, stable community. Over the years recent college graduates, as well as young married couples had come to Mutual Heights to find affordable, if not completely comfortable living. Over the years, many, like Ivan Owens' family moved on to buy homes. On the other hand, others, like Cora Adams who has lived in Mutual Heights for 27 years, came to stay.

"We knew we had a stable, intact community here," Stewart explained, "but we also had some infrastructural problems, such as plumbing that didn't work as well as it once did, and we needed a comprehensive answer, not a cosmetic one."

Stewart said he began asking around, searching for ideas, and one of the persons he asked was a local real estate appraiser and investor Jarvis Martin of Martin and Company.

"When Jim spoke with me," Martin said, "I saw two things. One was the possibility of an exciting business venture and the other was an opportunity to protect, even enhance an investment, we already had in the area."

Martin and a business partner, Jim Pou of Woodland Associates in Cary, recently developed Mutual Manor, an apartment building for elderly residents. This building is on Fayetteville Street, just before you get to the Cornwallis Road turn, and adjacent to Mutual Heights.

"Jim and I discussed the possibilities," Martin said, "and decided that though this would be an extremely challenging project, it was nevertheless exciting and potentially beneficial in more ways than one."

You could summarize the challenges, from a business perspective, under the following four headings:

• Buying the property for an attractive, yet affordable price, thus transferring ownership from the Stewart family to the Martin/Pou partnership.
• Planning and executing renovations that would bring a 56-year-old apartment complex onto the cutting edge of modern living.
• Structuring the financing
• Producing a deliverable that would honor the existing community and still be attractive to new residents, with different demands.

From the beginning of negotiations to first buy the property from the Stewart family and then to arrange construction financing for renovation, the partners' vision was to unify a good business deal with maintaining 144 units of affordable housing.

"Part of the challenge, from the beginning was achieving balance between what was broke and what was not broke," explained Pou during a grand opening program in April for phase one of this three-phase renovation project. "So as we looked at this project broadly, from a business point of view, we found many things of value here such as the people, our longtime residents, the place this neighborhood occupied in Durham, particularly from a historical perspective. Later as I interviewed residents to get an even better feel for this place, one told me-it's the plumbing that don't work. That statement alone clarified the challenges for me. Protect and preserve what was working-the community, and fix what didn't work!"

In Mutual Heights a lot didn't work from a 21^st century perspective if you're trying to market affordable apartments. The apartments were small, even cramped, and provided a gas space heater for winter warmth to a market that considered central heat and air a standard amenity. The apartments had very little, if any closet space and very few cabinets. Despite this, a lot worked in Mutual Heights. Over the years, this had become a true neighborhood with fond memories, and very few disruptions, such a crime in a city with a crime-ridden reputation, however undeserved.

Undaunted by the formidable challenges, Martin and Pou began putting a team together that includes the City of Durham's Department of Housing and Economic Department, the NC Housing Finance Agency, the federal Department of Housing and Urban Development, the Charlotte office of the Richman Group and Pargon Bank in Raleigh. Other team members include Woodland Contracting, LLC, the project's general contractor and Hale Architect in Apex.

After nearly three years of negotiating, the team agreed to do the project this way:

• Organize the renovation into three phases, with each phase being virtually a separate project in itself. Phase one, Stewart Heights that includes 64 apartments, is scheduled to be completed in June. Phase two, Stewart Square, also 64 apartments, is scheduled for launch about the same time. Phase three, Stewart Circle, the final 16 apartments, is tentatively scheduled for next year.
• Organize the financing separately for each project. Thus the Stewart Heights price tag is about $3 million, according to Martin. The total cost for the three phases is estimated to be more than $15 million.
• Move existing residents within the community. Therefore, the new owners set aside 74 empty apartments for internal relocation.
• Retain the community's historical flavor, so each phase of renovation is named as follows: Stewart Heights, Stewart Square and Stewart Circle at Mutual Heights.

This last touch appears most fitting because Mutual Heights has been part

of Durham's history for more than a half century.

After World War II, affordable housing became a major issue throughout the country, and Durham was no exception. In 1949, Dan K. Edwards became Durham's mayor, and one of his first actions was to organize the Durham Housing Authority that would play a key role in producing affordable public housing. But it's first development-Few Gardens-didn't open until 1953. Meanwhile, in 1950, a private group, headed by W.E. Witt, a local real estate owner and developer, along with William Muirhead who would later own one of Durham's largest contracting companies, organized a firm called Clearview Housing, Inc. James S (Shag) Stewart, president of Mutual Savings and Loan, was a member of the original board of directors.

Working with a new program of the Federal Housing Administration-Section 608 of the National Housing Act-this group, an integrated business coalition during a time of racial tensions throughout the South, opened Mutual Heights in 1951. North Carolina Mutual Life Insurance Company put up the $692,000 for the project, guaranteed by the FHA. And as they say, the rest is history.

"I remember it like it was yesterday," said James Bolden who moved into the apartment at A-2 Mutual Drive in December 1951. "I had recently graduated from college, but the only job I could find at the time was working as a stock room clerk for about $.65 per hour. So it was great for me to be able to move into a new, furnished apartment for about $50 per month. I lived in Mutual Heights for about five years."

So affordable housing proved to be good business in 1951, and that fact remains true 56 years later. It took an integrated team of visionaries to produce Mutual Heights, and today a similar team is producing Stewart Heights, Stewart Square and Stewart Circle at Mutual Heights. So truly, the more things change, the more they remain the same.

But in this case, that's a good thing!