Strategic Development & Construction Group
New York City is one of the most densely populated and desirable cities in the world and properties are always at a premium, which is precisely why a company like Strategic Development & Construction Group (SDCG) specializes in helping bring more affordable housing options to its citizens. The Brooklyn-based company, which was founded by John J. Frezza in 1985, has made a name for itself in the affordable housing industry by building award-winning properties that ultimately help to enhance and revitalize the area’s neighborhoods. As a hybrid real-estate development and construction company, SDCG provides a comprehensive approach that enables the company to combat the most challenging of economic conditions.
In 2006 SDCG partnered with real-estate development and property management specialist Lemle & Wolff. Together, the team was awarded a site through a competitive RFP process by the New York Department of Housing Preservation & Development (HPD) to build two affordable housing properties in the heart of historic Harlem. NYC Housing Development Corporation (HDC) provided the developers with approximately $58 million to fund the development of the project. NYC HDC and NYC HPD, the country’s most active municipal affordable housing agencies, provide low-cost financing and subsidies to developers that help facilitate the production of much-needed affordable housing.
Land acquisition was finalized by June 2006 and construction began just five months later. The first completed building was the Beacon Mews, an eight-story rental building housing 125 units made affordable to low-and middle-income families, as well as two large community facilities currently occupied by Jewish Board of Family & Children Services and Harlem Children Zone. The building offers tenants a fitness center, attended lobby for extra security and convenience, a landscaped courtyard, an underground parking garage and interior finishes and amenities, which are more common in expensive market-rate buildings.
Taming the Beast
Across the street the developers were tackling a beast of a different kind. The company was also building an eight-story cooperative with amenities and modern aesthetics to attract buyers. The original plan was to create 54 units for middle- and moderate-income families, leaving 19 for market-rate buyers.
However, the project’s timing was a little off as the units came on the market for sale in the latter part of 2008, just after the sub prime mortgage crisis in 2008 had blossomed. The company’s timing delivered an unexpected dilemma: the collapse of the Lehman Brothers.
“Suddenly we found ourselves with units whereby financing was almost nonexistent,” says Amandine DiSanto, director of business development and marketing at SDCG “People were reluctant due to their general perception of the economy and their expectation that real-estate pricing will weaken further. Many buyers who were under contract found themselves unemployed, while others lost most of their savings and retirement monies in the stock market. At this point, many could not obtain financing and/or didn’t have the cash for the required down payments.” Instead of allowing the units to languish on the market, the team pulled out every means and method it had available and mobilized to develop a strategy to sell the Beacon Tower units.
“We looked at the big picture,” continues DiSanto. “We noted that buyers’ confidence in the market was down and that first-time home buyers, whom were offered a stimulus package of $8,000 in direct tax credits by the government, would want to take advantage of the credit and be most likely one of the rare potential buyers to enter our sales office. Additionally, since banks were toughing up criteria for conventional financing, we decided to suggest to our first-time home buyers to seek financing through the SONYMA Low Interest Rate Program.”
The program is available to qualified low- and moderate-income first-time homebuyers and features below-market interest rates, low down payment requirements, no prepayment penalties, and down payment assistance, all of which makes home purchases more affordable.
With SONYMA in mind, the developers went back to the drawing board and asked both HDC and HPD to restructure the deal. “We decided to make 15 of the market-rate units affordable to middle-income families, allowing us to reduce pricing, which made the units financeable through the SONYMA Program,” says DiSanto. “Almost one-third of the units were financed through this program, which was basically the only source of financing at that time. The SONYMA Program really made a timing difference in the construction debt payoff of the Beacon Towers.” Simultaneously, SDCG brought on the experts from Halstead Property as the development’s exclusive realtor, armed with its award-winning Terra Marketing division.
Putting Creative Ideas to Work
The developers marketed the project as if it was a luxury condominium development, which is usually not needed when building affordable housing. Aside from generating awareness in the social media sphere, Halstead Properties consulted with SDCG and Lemle & Wolff to develop the right incentives to attract a new buying demographic. SDCG started small by offering free parking for up to a year, and when the government stimulus program ended the developer decided to continue offering buyers its own “stimulus package” in the form of reduced maintenance fees to the tune of $300 a month for the first year of ownership.
After one financial domino continued to topple after another and Americans realized that stable was the new growth, SDCG decided to up the ante. Instead of offsetting maintenance costs, the property offered buyers a straight-up $8,000 Beacon Towers tax credit that came in the form of cold, hard cash upon finalizing the purchase. Though not technically a federal or state tax incentive, the firm developed the initiative to replace federal tax incentives for first-time homebuyers that expired in April 2010.
The property also threw in a new iPad for every contract signed over the three-day period of Memorial Day weekend 2010. Ultimately, the unusual marketing efforts paid off, and within 12 months the building reached 93-percent occupancy. As of late 2011 there were just five units left on the market. “Halstead Property was a strategic partner for us and played a crucial role in helping us fill these vacancies and retain our financial stability,” beams Ken Saperstein, CFO of SDCG.
In the coming years SDCG plans to continue expanding its portfolio of affordable housing properties, especially because demand continues to strip supply and is now at an all-time high. Without the team’s innovative strategy to restructure the affordability of the units – which was facilitated by HDC and HPD, SONYMA’s financing, along with the team’s tenacious marketing efforts – the Beacon Towers would have been like one of many New York’s new construction buildings: a ghost property.
Due to the company’s hard work ethic and its eye on the prize, SDCG continues to flourish. Strategic Development & Construction Group can breathe a small sigh of relief and rest comfortably in its ability to collaborate with others and deliver affordable housing to those most in need.
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