Potential Buyer Of East Baltimore Apartments Seeks City Tax Deal To Maintain Affordability

A Michigan-based nonprofit intends to spend $56.8M to purchase and rehab the Waters Tower senior apartments in East Baltimore, but it wants the city to approve a payment-in-lieu-of-taxes agreement to make the deal work. 

Baltimore’s Department of Finance submitted a request to the Board of Estimates dated Aug. 7 at the behest of CSI Support & Development. It asks the board to sanction an agreement during its Wednesday meeting in which the nonprofit pays the city a set fee instead of the entire tax bill for the 11-story, 203-unit low-income apartment building.  

Brandon Moss, CSI’s Maryland regional director, declined to comment on the potential sale or the PILOT request.

The building at 1400 East Madison St. is a short walk from Johns Hopkins Hospital and Dunbar High School. It is also near a pair of new apartment projects that are part of the Perkins, Somerset, Oldtown Transformation Plan. 

Before buying the property, CSI wants the city to approve a deal in which the organization pays 10% of rent collected annually instead of satisfying its entire tax bill.  

CSI proposes that the PILOT agreement remains in place as long as Waters Tower, which is restricted to disabled people and residents at least 62 years old, remains low-income housing under the terms of an existing Housing Assistance Payments Contract that runs through 2036. 

That contract allows residents earning up to 50% of the area median income to pay up to 30% of their earnings on rent, with the difference covered by the Department of Housing and Urban Development.  

CSI also wants the PILOT agreement to extend through a potential 4% Low-Income Housing Tax Credit financing term, which the nonprofit expects to last at least 40 years.    

According to Maryland property tax records, a subsidiary of Maine-based Preservation Management Inc. purchased the property for $5.95M via a non-arm's length sale in December 2001. 

In July, the state assessed the building and the surrounding property’s value at more than $18.8M. Baltimore’s real property tax rate is $2.248 per $100 of assessed value. City property tax records show Preservation Management paid $21,136 in property taxes last year and $18,984 the year before.

If approved, CSI expects the PILOT to save more than $8.9M, which would cover additional debt proceeds “necessary for project feasibility.” That includes a planned $9.1M renovation financed with Low-Income Housing Tax Credits. Preservation Management last renovated the 46-year-old apartments in 2002, according to CSI’s PILOT request.     

According to the PILOT request, additional debt sources include a Fannie Mae mortgage topping $25M, a Rental Housing Works loan of roughly $2.5M and a seller’s note exceeding $7.3M. 

Meanwhile, CSI projects the 4% Low-Income Housing Tax Credits will generate more than $19M in equity along with $1.24M from rents paid during the rehab and $1.25M in deferred developer fees.

The request comes as elected officials, activists and developers look for ways to boost the quantity and quality of affordable housing in Baltimore, which some argue represents a housing crisis. 

More than 20% of city households spend over half their income on housing. At the same time, 92% of the 51,000 households in that category earn only half the area median income, according to the Baltimore City Department of Housing & Community Development. 

Meanwhile, roughly 30% of the city's rental inventory of 131,000 units is affordable to low-income residents, according to the city. That includes 12,800 units made affordable via federally funded Section 8 housing choice vouchers that underwrite rents for private rentals. 

Some, like City Council Member Odette Ramos, are taking steps to try to solve the disparity between supply and demand. Ramos is in the process of finishing work on a bill replacing Baltimore's expired inclusionary housing law. 

If the council passes and Mayor Brandon Scott signs the bill as written, it would require developers receiving city subsidies to include affordable units in their projects.

Conversely, developers argue they require more financial assistance to include more affordable units in their projects due to the city’s property tax rate, which is the highest in the state. 

"This isn't voodoo ... I can show you the numbers," Chris Mfume, managing partner of Civic Group, said at a Bisnow event last month. "There needs to be an understanding. We all need to be on the same page from a policy perspective to understand that these tax credits are just getting us to zero. They're not getting us to the point where we can provide more inclusionary units, which we all would like to do." 

Developer incentives like PILOTs and tax increment financing have previously raised the ire of residents, activists and elected officials. 

The city’s use of TIF, which uses city debt to pay for infrastructure projects that are supposed to result in higher property taxes to pay off the debt, has drawn substantial outrage, primarily when the city used that development incentive to assist massive projects like Harbor Point and Port Covington. 

Granting PILOTs to nonprofits has similarly drawn criticism because a large number of nonprofits in the city, such as hospitals and colleges, made deals to pay fees substantially lower than their property tax liabilities.

A deal cut in 2016 between the city and major nonprofits — including Johns Hopkins Hospital, University of Maryland Medical Center and Loyola University of Maryland — allows those organizations to pay Baltimore $6M combined annually through 2026.