900 Units in Gary, IndianaKyle Shoemaker
In November, 2015, AHIB closed on the sale of two properties totaling nearly 900 units in Gary, Indiana. The properties each had partial project-based Section 8 contracts (about 20% of the units were covered) and had been previously been financed with HUD 236 loans, which had recently matured. Concord Commons and Woodlake were sold to Merchants Affordable Housing Corporation, a non-profit started by the owner of Indianapolis’ PR Mortgage, with acquisition and rehab funding coming from tax exempt bonds and 4% low income housing tax credits, and permanent debt supplied by an FHA-insured HUD loan. The development team was headed by Barrett and Stokley, also of Indianapolis.
Even for this business, Concord and Woodlake were not an easy assignment. The properties were owned by nearly ten different individuals as tenants in common. Many of the owners were not in the real estate business full time. Some were actively suing each other. The properties had been marketed twice before by large national brokerage firms with no success. The Section 8 converge was low, and while the individual neighborhoods the properties are located in are good, they were still located in Gary, a city that lead most marketing calls to abruptly end with a hang-up when mentioned.
AHIB worked with each individual owner to deliver our message, that despite their in-fighting, if all parties wished to see the properties sold then our specialized affordable housing marketing process could get the job done. We won them over one by one, then went to the difficult task of creating a market around Gary real estate. As a result of our constant and direct contact with the universe of parties with ties to this business, we knew of the recently finalized partnership between Barret and Stokely and Merchants Affordable Housing targeting properties like these. Because of our relationship with principals at Barrett and Stokely, we were able to convince them to take fifteen minutes out of their drive to Chicago to see the properties (after they said “no way,” several times to the Gary location) because they would be pleasantly surprised. The persistence and relationships paid off as the closing occurred last week.
Compared to many deals in today’s heated market, the pricing here is not particularly impressive. On an income basis though, the trailing cap rates are around 7%. When looking at Gary real estate with Section 8 coverage low enough to scare away most affordable housing owners and developers, we’ll argue that the results are, in fact, premium prices, and most importantly, a deal that was completed.