Rent increases felt by tenants of modest means

Oct 05, 2008 (The Fayetteville Observer - McClatchy-Tribune Information Services via COMTEX) -- BBT | Quote | Chart | News | PowerRating -- James Hurst got mad when the new owners of Adams Court Apartments told him his rent would rise by 10 percent.

The 89-year-old bachelor then began to worry that he might have to move if his rent -- which has increased to $475 a month -- rose any further.

"I'd like to stay if the rent is reasonable," said Hurst, a retired funeral home director.

When he moved into his one-bedroom apartment 15 years ago, Hurst assumed his rent would remain steady and below the market rate because of the special financing that was used to build the 40-unit complex off Bragg Boulevard.

When it opened in 1993 on Ames Street, Adams Court Apartments was billed as Fayetteville's first affordable-housing project for the elderly. It was built for about $1.7million with a mix of private investment and city and state money in the form of low-interest loans. One of the investors received federal tax credits.

All of those perks meant the rent had to be limited based on each tenant's income and other factors.

So it was a surprise -- and sticker shock -- to longtime residents such as Hurst when they learned a few months ago Adams Court would no longer operate that way.

The reason: Local investors had bought the complex in a foreclosure auction.

Some of Hurst's longtime neighbors saw their rents go up nearly 50 percent to $475.

"I'm not happy about it, but we do what we have to do," said Lois Melvin, who has lived at the complex since 1993.

The sudden transition of Adams Court to a market-driven apartment complex has diluted Fayetteville's stock of rental housing for older people on fixed incomes.

A 2005 study by the city's Community Development Office showed demand outstripping supply by nearly 3 to 1.

That's despite more than a dozen affordable-housing projects with rent controls being built in Fayetteville and Hope Mills since Adams Court broke ground.

"Certainly, there continues to be a need for affordable housing, so we would certainly hate to see the loss of any of those units," said Victor Sharpe, the city's community development director.

The effect of the change at Adams Court may not be so severe. Some longtime tenants said they intend to stay because they like where they live. Other tenants receive Section 8 housing vouchers, which will continue to subsidize their out-of-pocket costs with the higher rents.

At least two tenants moved out last month because they couldn't afford the higher rent, said April Meza, district manager for Bear Investments, a Fayetteville corporation that manages Adams Court.

Meza said some of the tenants had not seen their rents raised in years, so many were naturally upset.

"We thought we would lose more," she said.

Meza conducted a meeting at the complex last month to answer questions and offered some of the residents more time before their rents increased if they sought additional public assistance.

New owners

The new owners of Adams Court are a group of local businessmen led by James H. Smith, a pharmacist at Massey Hill Drug Co., and Dr. John E. Poulos, a gastroenterologist, operating under a corporation called Bear Plus One that formed in July. They bought the apartments at auction for $1 million this summer after the property went into foreclosure.

Meza said Smith, through Bear Investments, has bought seven other apartment complexes -- six in Fayetteville and one in Dunn. They are marketed to renters with moderate incomes. All accept Section 8 housing vouchers. In the past year alone, the company has increased its portfolio four-fold to more than 400 apartments.

Meza said it is not Smith's practice to raise rents every year.

She said Smith's business plan is to fix up the properties and keep the rates modest.

"He believes a lot of decent, hard-working people who don't make a lot need a place to live," she said. "Not everybody can afford a luxurious apartment."

Adams Court Apartments are in single-story buildings, with a paved parking lot and a trimmed lawn. They are on the edge of Haymount, an older and popular section of town.

Hurst said the previous management did little to maintain the place except cut the grass. He wonders what the new owners will be like.

He said the new owners could have warned the residents sooner about the rent increases.

"You work for your money," he said. "So don't try to kill the people at once."

Bare necessities

Hurst, who reads a newspaper every day and drives a 1996 Buick, has a recliner and two worn sofas in his living room. To save money in the summer, he keeps his apartment around 80 degrees. His walls are mostly bare, except for a cluster of family photos.

One of his neighbors, Lee Evans, moved into the complex in April. She said she didn't think she could afford the same 10 percent increase to $475. But she has until spring, when her lease expires, before facing the higher bill. The 79-year-old is visually impaired and receives about $850 a month in Social Security.

"When I moved in, I thought this was really a great place to live," she said. "But I'm finding out that I don't have much for food at the end of the month."

According to Housing and Urban Development guidelines, someone with half the median household income of $49,300 in Cumberland County could be charged no more than about $350 a month for a one-bedroom apartment at complexes with comparable public financing and tax credits. That figure assumes the tenant pays all of the utilities, as is the case at Adams Court.

Evans' rent had been $431 a month under the old ownership. Why she wasn't being charged less, under the HUD guidelines, is not clear.

The previous owner, Adams Court Apartments Limited Partnership of Raleigh, went through foreclosure. Efforts to reach some of the remaining partners were unsuccessful. The company's president, Gordon L. Blackwell, died in 2006.

Meza said Smith originally wanted to keep Adams Court in the affordable-housing program while he was bidding for it. But just before the sale closed, he decided he lacked the expertise to operate the program's myriad rules and certification processes, she said. The new owners needed to raise the rents, she said.

Scott Farmer, director of rental investment for the N.C. Housing Finance Agency, said the foreclosure absolves the new owners from continuing the affordable-housing program. He said the federal tax credits one of the investors received with the project would have expired about five years ago.

Section 8 units

The new owners still must follow a restrictive covenant the city placed on the land in 1977. That's the year the city bought the 4.6-acre tract and razed old houses on it. The covenant, which stays in place with the new owners, says at least 20 percent of the housing units that would be built "shall be for low-income families and individuals."

Smith said Friday he was aware of the covenant and, as a result, rents at least eight of the 40 units to tenants receiving Section 8 vouchers. When that number drops below eight, he said, he calls the Fayetteville Metropolitan Housing Authority for another prospective tenant eligible for the subsidy.

Smith said he charges between 5 percent and 10 percent below market rate at all of his apartment complexes.

"I'm not a greedy guy," he said. "I don't try to squeeze someone to the nth degree."

Farmer said the state Housing Finance Agency has helped fund more than 1,700 housing projects aimed at older residents and families with low to moderate incomes. He said foreclosures of such projects are rare -- only five to 10 have happened in the state since the program began in 1987.

Adams Court Apartments Limited Partnership stopped making mortgage payments in 2005 to BB&T, which was owed more than $500,000, court records show. A foreclosure proceeding commenced in April.

The auction paid off the BB&T loan. Officials with the city and the N.C. Housing Finance Agency, both of which loaned the original investors money to build the complex, said they intend to seek any auction proceeds through Cumberland County Superior Court. The city is owed $235,000. Farmer didn't know how much the Housing Finance agency is owed.

One of the original investors, John A. Loving, a Raleigh real-estate developer, said Adams Court Apartments was never profitable. The HUD guidelines prevented it from raising rents fast enough.

"Those rents were never enough to cover the expenses, even though they stayed well-occupied," he said.

Loving said he divested himself of the partnership, and his interests in apartments, in the mid-1990s.

Another problem was competition, Loving said. Other affordable-housing projects sprung up around Fayetteville that benefited from better public financing. They offered newer housing with lower rents, he said.

Loving was referring mostly to Murray Duggins, president of United Developers, which has built more than 900 apartments across Fayetteville and Hope Mills that cater to older tenants or families with low to moderate incomes. The occupancy rates on his 17 apartment complexes average 96 percent, Duggins said.

Last year, Duggins obtained a $112,000, zero-interest loan from the county's Community Development Office toward the construction of Southview Villas, a 64-unit complex on Elk Road that will open soon.

"It is really the only way you can bring the rents down," Duggins said. "The subsidy is up front."

The rent at Southview Villas will range from $330 to $495 for two- and three-bedroom apartments.

At Adams Court, new tenants pay $495 for a one-bedroom dwelling.

Duggins said one-bedroom units are harder to operate because they generate less revenue.

"So long as you keep the rents competitive and have good management, you can make them work," he said.

Hurst said he wished the prior owners of Adams Court could have made it work, too.

Staff writer Andrew Barksdale can be reached at barksdalea@fayobserver.com or 486-3565.

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