A city nonprofit decided Tuesday to keep collecting rent from The Baldwin at St. Paul Square apartment complex after it is sold to an Austin investor.
Virtus Real Estate Capital, one of the equity providers for the near-Eastside mixed-income development, is purchasing 90 percent of the Baldwin for $62 million from NRP Group. The San Antonio Housing Trust Public Facility Corporation (PFC) will get an estimated $37 million over 72 years, the remainder of its 75-year lease, from rent revenue. That’s $6.3 million in 2019 dollars (adjusted for inflation).
The sale is expected to close on Sept. 15.
“Absolutely nothing will change [for people who live there],” Debra Guerrero, NRP’s vice president of government affairs told the Rivard Report. NRP will continue to manage the 271 apartments, which are 97 percent leased, she said. “It’s really been a success.”
The PFC, comprised of five City Council members, voted unanimously in favor of that option, rather than take 10 percent of the net proceeds of the sale after debt payments and other terms. That would have yielded a nearly $950,000 lump sum payment. The terms of the original agreement with NRP gave the nonprofit corporation those two options.
The Baldwin, which opened in May 2018 at 239 Center St., was developed by the PFC in partnership with NRP. The Cleveland-based development firm – which has several established and in-construction projects in San Antonio – will still retain 10 percent ownership of the project and stands to make $10 million from the sale.
In exchange for the exemption, half of the Baldwin’s apartments must rent for below-market-rate to households earning 80 percent of area median income. For an individual, that means their income is $39,800 or less. On top of the property tax exemption, $630,000 in development fees were waived to build The Baldwin.
The PFC will continue to own the land on which the apartment complex is built for the foreseeable future, said the PFC’s attorney Jim Plummer of the law firm Bracewell LLP.
The PFC could decide to sell the land, and the new owner could start renting out all 271 of the units at market rate, Plummer said, but it would have to give up the incentives.
“[Virtus] really can’t make the deal work without the tax exemption,” he said. “That’s not to say they couldn’t make the offer to buy us out.”
Plummer said he renegotiated some of the terms of the sale with Virtus to better protect both sides in the “unlikely” event that the State legislature ever decides to take away cities’ authority to grant property tax incentives.
For the next five years, the PFC will take on all the risk and pay for the property tax if the legislature changes that law. If that occurs after five years, Plummer said, “their value goes down [and] our value goes down because of increasing expenses. We have given them the option to buy us out of the deal at that point … for an amount equal to the taxes on the project [not paid] from day one to whatever day this happens.”
In other words, the PFC would get back what it gave to the project in the form of property tax exemptions, Plummer said. “If they buy us out of the deal it would be as though the property tax exemption never happened.”
Over the remaining 72 years of the PFC’s lease of the land, Plummer said he expects the Baldwin will change ownership many times – meaning further negotiations lie ahead.
The near-Eastside has experienced exponential public and private investment in recent years, causing property values to increase. The PFC partners with private developers to establish affordable housing projects across the city.
PFC board members had discussed the options at length during its last meeting in August, but some felt they did not have enough information about the terms of the agreement to make a decision and did not have enough members present to break a tie vote.
Tuesday’s meeting was called to allow Council members time to meet with Plummer and dig into the details.
Councilman Roberto Treviño said his main concern was that Councilwoman Jada Andrews-Sullivan (D2), whose district includes the East Side, was not briefed on the project.
“That was my initial hiccup in all this,” he said. “We found out late, actually at the start of the meeting, that the [District 2] representative was no longer on the PFC board. I have a problem with that. … Nothing against Councilman Courage, but I just feel we’re going to see projects like this in the future.”
Councilwoman Adriana Rocha Garcia (D4) and Councilman John Courage (D9) were placed on the PFC board after a unanimous City Council vote on Aug. 18. Garcia was replacing Councilman Rey Saldaña, who termed out of the District 4 seat this year. Councilwomen Shirley Gonzales (D5) and Rebecca Viagran (D3) also serve on the board as vice chair and chair, respectively.
“Councilman Courage is a housing champion with demonstrated experience in affordable housing issues from last term,” Mayor Ron Nirenberg said. “His representation will bring a fresh perspective as we continue to coordinate and assess affordable housing strategies citywide.
Treviño and Plummer said they confirmed with Andrews-Sullivan and her staff that she is supportive of the choice the board made.
“There will be no displacement and those relying on the tax credit [to receive lower rent] won’t be affected,” said Andrews-Sullivan via text. “That’s what mattered most.”
She did not attend the meeting on Tuesday.
Council members – whether on the board or not, Treviño said, should be notified and briefed if a future PFC project is in their district before they are voted on.