Council Approves Another MHO Refinancing - TribPapers
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Council Approves Another MHO Refinancing

Asheville City Councilwoman Gwen Wisler was the only one on the board not to fall under the spell of Tuesday’s magic numbers.

Asheville City Council unanimously approved modifying terms of its $140,000 loan to Mountain Housing Opportunities (MHO), originally awarded in December 2001. Like most MHO loans, this one was set up for low interest-only payments for 20 years, and a balloon payment at the end of the term. Also, like many MHO loans, the balloon payment would not be made to the lending government entity at the end of the term, but refinanced. According to the original terms, MHO had been paying $3,150 in interest each year. According to the terms of deferral, MHO would now pay $3,962 a year, for the next ten years, in interest; and then, barring supersessory renegotiations, make a balloon payment of only $100,380.

This loan originated to support the construction of Compton Place, on Eliada Home Road. The development was designed to provide 40 units of affordable housing for senior citizens earning between 50% and 60% of area median income (AMI). MHO, which has been in the business of constructing government-subsidized housing for decades, observed, “Compton Place’s cashflow does not support a loan large enough to pay off this loan and other debts.”

Councilwoman Gwen Wisler asked if staff had performed due diligence on the proposed financing package. She asked, “How reasonable is it that MHO is going to pay the capital back in 10 years, given the fact that in the first 20 years, they don’t feel like the cashflow is going to work for Compton place?”

Community Development Director Paul D’Angelo conceded cashflow would always be a problem for developers of affordable housing and then suggested that low interest rates, combined with the 4% tax credits MHO is pursuing, as well as income MHO might generate by constructing new units in the interim, could make payment possible.

Not much else was said about this project, although it foreshadowed some of the discussion council would have later about another affordable housing project. That developers traditionally struggle to pay off rent-controlled housing construction is actually a data point supporting free markets. Nevertheless, developers’ attempts to explain to council that their math simply doesn’t work have only spurred a doubling-down on extraordinary inventions to force false equations. The staff report listed five “Pros,” and zero “Cons.”

Flash from the Past –

Back in January 2019, the Buncombe County Commissioners were hit with a surprise ask for $2.2 million from MHO for its East Haven project in Swannanoa. With turnaround artist George Wood serving as interim county manager, Cindy Weeks of MHO explained the organization had been used to dealing with members of county management that by then were awaiting or serving sentences, and it hadn’t figured out how to navigate the new system.

The late Mike Fryar, who was then serving as a commissioner, saw things slightly differently. He said in a conversation he and former manager Wanda Greene had had about a previous request from MHO for refinancing, she had told him she had no expectation that the county would ever be repaid. The financial model was to iterate refinancings until a future board of commissioners wrote off the debt.

This was when MHO’s Eagle Market Place development was deep in controversy, a debacle beset by years of delays. Fryar showed photographs of how the building finally procured its certificate of occupancy, with plywood for a sidewalk, one number over one door as an address, scaffolding over the entrance, no carpet, no paint, holes for HVAC, hanging light cords, improper plumbing, and a thermostat reading 25oF. After receiving numerous grants for affordable housing, Eagle Market Place was finally completed by raising half its rents to $1,000-$1,500.

This time, the county did do due diligence. Over the next month, staff counted up how much the county had loaned MHO over the last 15 years and how much had been repaid. At the time, the county had been repaid $963,025 of $3,482,000 loaned. Staff also pulled together all other sources of subsidy for East Haven, which came close to $13 million. None of the above included the $2.2 million ask on the table.

Wood took it even one step further. He argued if the commissioners were intent on making investment in residential real estate a role of government, then the county, “should leverage our taxpayers’ money to provide as much housing as possible as quickly as possible.” This suggested the use of revolving loans. MHO’s model, with the balloon payment, tied taxpayer money up for 20 years, paid no interest, and left the county, as fifth lienholder, with high exposure.

If, instead, MHO were to repay the county $110,000 in principal each year, with 2.25% annual interest, the general public would get something back from the investment. MHO would also benefit; if it were indeed intent on paying the balloon payments, the revolving loans would provide more liquidity. Wood explained MHO, instead of saving up for the balloon payment, would be able to reinvest $2 million in each of four additional projects during a single 20-year loan term.

Weeks presented the board with a counteroffer, still at 0% for 20 years, but Wood said that would reduce the potential for constructing affordable housing even further. Bewilderingly, a majority of commissioners remained sold on the higher-risk plan for creating a smaller amount of affordable housing. None cared to explain why, but instead argued that affordable housing was a right and that the inefficient path, for whatever reason, was the moral one.

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