In the late 1990s, Steve (of Model) identified the Low Income Housing Tax Credit (LIHTC) program as a potential approach to leverage private equity to reinvigorate the affordable housing properties that Model owned and managed. That year, Steve submitted a competitive proposal for tax credits in an urban Cincinnati development to the Ohio Housing Finance Agency. This proposal did not receive an allocation of tax credits, but an improved proposal was submitted, and funded in the following year.
This next project represents an important turning point for the company because Art and Steve decided that even though the project was affordable housing, they had an opportunity to redevelop the physical assets to such a level of quality that the properties would be indistinguishable from any market rate housing in the community. Instead of a moderate rehab, Art and Steve raised private equity and publicly financed loans to perform a complete gut rehab.
They replaced 100% of all mechanical systems (electric, plumbing, HVAC) and roofs; increased energy efficiency of lighting and appliances to lower operating costs; used the best insulation and windows; installed high quality hardwood and ceramic tile flooring, and top quality cabinets and trim packages. In short, they built a high quality market rate development that happened to house residents with incomes below the area median income level. In addition, the assets were better positioned for long-term operational success.
State finance agencies and national equity fund investors from over 30 states repeatedly visited the project on bus tours, where Steve and Art discussed the method and logic of the high quality materials and methods utilized. As a result, Steve and Art quickly realized that redeveloping affordable housing in a way that was indistinguishable from market rate housing had several positive effects:
The project created an economic stimulus greater than the project itself: outside investors and businesses began investing along with adjacent property owners.
The company developed and sold market rate homes, something that had not occurred in that neighborhood for over a decade.
The waiting list for the apartments grew to a period of over two years and the selection criteria for affordable housing residency evolved to become very strict.
At this time, Model’s firm philosophy was established, namely, that -- affordable housing must be developed and constructed in a way that is indistinguishable from market rate housing -- was cemented, in order to help revitalize communities.