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When Rockville Housing Enterprises, the City of Rockville’s public housing agency, purchased the Fireside Park Apartments, it ended up paying taxes associated with the sale that it had not anticipated.

RHE closed on the sale Dec. 24.

To close, RHE had to pay recordation and transfer taxes to the state. Initially, RHE Executive Director Ruth O’Sullivan said it appeared that the taxes would be $500,000, but RHE got some of them waived and ended up only having to pay $340,000.

To cover the additional taxes, RHE added $340,000 to a loan it already had secured from the county.

Rick Nelson, director of the Montgomery County Department of Housing and Community Affairs, said RHE had not included the recordation and transfer taxes in its original estimate of the cost to close on the purchase.

O’Sullivan said the apartments officially belong to a separate nonprofit organization set up by RHE.

“Even though it is wholly owned by Rockville Housing Enterprises, it is not a government entity per se, and it is liable for government taxes,” O’Sullivan said.

To purchase the apartments, RHE borrowed $32.4 million from Citibank and put up $500,000 of its own money. Rockville provided $2 million in grant and loan money, and Montgomery County loaned RHE $2.85 million, plus the $340,000 to cover the taxes.

The total cost for RHE to buy the property, including taxes, fees and renovation costs, was just under $38.1 million.

Before Rockville’s Mayor and Council agreed to financially support the purchase, some residents opposed the deal over fears that the housing agency would be unable to repay its loan and keep up maintenance on the aging apartment complex.

Nelson said the deal has been structured to make sure RHE will maintain the apartments, even with the added taxes.

“I don’t think it would have changed the discussion at all,” he said.

RHE also raised the number of units it plans to rent out at rates considered affordable to people making less than the area median income. That likely will not change the rental rates, however, as the apartments already are less costly than others in the area, O’Sullivan said.

The Fireside Park Apartments include 236 units.

RHE earlier said it planned to rent 60 percent of the apartments at market rates and 40 percent at more affordable rates. Now, half of the units will be classified as affordable, with 24 units renting to people making 80 percent or below AMI, 84 units for those making 60 percent or below AMI, and 10 for those making 50 percent or below AMI.

“Citibank wanted to earn Community Reinvestment Act credits for this deal, and so when they were doing their final due diligence and underwriting, they realized we were doing a 60-40 deal, and they needed a 50-50 deal,” O’Sullivan said.

RHE is conducting a survey, but O’Sullivan said she thinks half of the residents are at 80 percent AMI already.

“It doesn’t change anything,” O’Sullivan said. “... We always presented this as a housing preservation activity. We wanted to preserve what is now an affordable housing development — preserve it as is — and that’s exactly what we did.”

O’Sullivan said she is scheduled to give an update on the Fireside Park Apartments purchase to the Mayor and Council in February.

ewaibel@gazette.net