After building or renovating more than 1,000 subsidized rental dwellings — largely in apartment complex settings — Omaha developer John Foley aims to take a new approach to housing the working poor.
Foley said he got the idea while talking to landlords in the city's most blighted areas of north Omaha.
Instead of rehabilitating a single multifamily property to rent, he thought: Why not rehab dozens of individual houses with the goal of selling them?
“Take an existing product and make it better; give somebody a chance to own something,” said Foley, of Central States Development LLC. “It just seems like a no-brainer.”
He and business partner Phyllis Peterson plan to present the rent-to-own concept to the Nebraska Investment Finance Authority, which would have to allocate federal low-income housing tax credits worth about $6 million to pull off the project.
While backed by several city and federal officials, the Central States plan faces challenges, in part because its scale and style are beyond the typical project financed through the highly competitive tax credit process.
NIFA each year has a limited amount of tax credits to award to developers of low-income housing. Executive Director Tim Kenny called the indirect federal subsidy “deep and extremely scarce.” He said only one of three applications generally is funded after the NIFA board analyzes per-unit cost and target populations.
As outlined by Foley and Peterson, Central States would buy 52 north Omaha houses from three property owners that include a bank. All are foreclosed or distressed houses that have at least three bedrooms and have been deemed structurally sound by an architectural firm.
After an extensive renovation, each home would be leased to a family that meets income-restricted guidelines favoring people who earn less than 60 percent of the area's median income. On average, a tenant would be charged $850 a month in rent, and a portion would be set aside in a homeownership account.
Whoever is living in the home at the end of 15 years would have the option to buy it at an average cost of $20,000.
Most of the project's cost would be covered by investors who get their investment returned through credit on federal taxes over 10 years. Foley said he already has investors committed for the project.
Central States also is seeking another subsidy, public tax-increment financing, or future property taxes from a development, from the City of Omaha.
As landlord, Central States would be responsible for major maintenance and would provide homeownership and other support classes. Foley said the company maintains a strict eviction policy.
Supporters, including Rep. Lee Terry, R-Neb., Omaha Mayor Jean Stothert and City Councilman Ben Gray, say the rent-to-own project would promote stability in neighborhoods and improve property values.
The promise of someday owning the house should motivate residents, Terry said, to push positive change where crime and blight is disproportionately higher.
Terry worked with Foley on a recent project for homeless veterans. He said Foley's creative financing package made that New Visions Center in downtown Omaha happen, despite resistance from federal officials. Terry expects the north Omaha rent-to-own project to also face tough scrutiny.
“It's just one of those weird things in that it doesn't fit, squarely, into the box,” he said. “But it is clearly allowable.”
Gray, whose council district would be most affected, backs the project as another tool needed to end substandard conditions in neighborhoods east of 72nd Street.
“We're not going to be able to demolish our way out of the problems we have,” said Gray. “There has to be a number of tools in the toolbox.”
City planning records show that the project area contains a large concentration of deteriorating housing.
In an area generally bounded by 16th, 48th, Cuming and Kansas Streets, about 600 housing units have been deemed unfit and unsafe, City Planning's James Thele said. Of those, about 315 have demolition orders against them.
About 2,500 vacant lots are within those same boundaries, Thele said.
By comparison, the city as a whole contains 650 units with demolition orders, meaning that about half are in the northeast part of the city.
NIFA has yet to see Central States' latest proposal, Kenny said, so he would not comment on details. He said Foley and Peterson have built a record of delivering worthy projects for the low-income, but this is more a matter of paring down a list of numerous worthwhile projects.
“Who is more important? Victims of domestic violence, the homeless, chronically mentally ill, handicapped or the ordinary citizen? Those are the things we have to balance,” said Kenny. “And how much are you going to spend a unit?”
Foley said he is bracing for an uphill battle because Central States submitted a similar plan a few years ago and it was rejected. He said the proposal lost points for such things as not offering wi-fi and a community garden. While other of his projects have offered such amenities, Foley said it was not economically feasible for 52 homes spread across various neighborhoods.
Kenny, in response, said points for wi-fi and gardens were “negligible.” But, he said, a project stands improved odds if it was backed by a financial commitment from the city in which the project is located.
“We love the letters,” Kenny said. “We love the checks more.”
Omaha officials have not approved TIF financing, although Thele said the city was working with Foley on the possibility.
Meanwhile, Foley and Peterson continue to fill rental units in their latest projects that were financed with NIFA-allocated tax credits. The old Park School at 29th Street and Woolworth Avenue and the former Roseland Theater on South 24th Street both are historic preservation efforts. Both target the working poor and offer affordable rents, but lack a homeownership option.
Foley, whose affordable housing projects also reach into Iowa and Kansas, sees the rent-to-own house concept as a better solution for low-income families of north Omaha.
“We're known for doing the impossible,” he said. “Say it can't be done, and we'll find a way.”