Montgomery County, Maryland, is a suburban jurisdiction immediately northwest of Washington, D.C. The county's Housing Opportunities Commission (HOC) functions as the local housing authority and also as an independent local housing finance agency. HOC has a close working relationship with the local Department of Housing and Community Affairs, which administers the county's HOME funding.

In 1998, after determining that some 2,000 affordable units were at risk from prepayment of federally subsidized mortgages or expiration of federal housing subsidies, HOC developed a strategic plan to preserve affordable housing. With nearly 5,000 households on its waiting list and a multifamily vacancy rate of 3.5 percent, HOC targeted for acquisition properties financed under the Section 236 program and those with Section 8 project-based subsidies.

The Willows

One such property is The Willows, a 195-unit complex completed in 1977. The owner had decided to terminate the Section 236 interest reduction and rental assistance payments and sell the property to a purchaser who planned to raise rents to market level. The rents were $532 for one-bedroom and $619 for two-bedroom units. HOC negotiated to purchase the property for about $35,000 per unit.

HOC estimated that nearly $7 million in interest reduction and rental assistance payments remained under the state-financed Section 236 mortgage. To retain these subsidies, HOC issued $7.2 million in tax exempt bonds. HOC also created a limited partnership in which it was the sole general partner and raised $1.9 million through the syndication of Low-Income Housing Tax Credits. These funds were combined with the $7.2 million in tax-exempt bond proceeds, a $600,000 HOME loan from Montgomery County, and a General Partner loan of about $300,000 from its development fee resulting in total funding of just over $10 million.

HOC's acquisition of The Willows prevented displacement of 195 low- and moderate-income households.

The development budget included about $1.3 million for rehabilitation, including replacing roofs, renovating the community center and laundry facilities, updating kitchens, and upgrading carpeting and lighting in the common areas. The rents were not increased, and the 156 moderate-income households and 39 low-income households living at The Willows were not displaced.

Shady Grove Apartments

Another example of affordable housing preservation is Shady Grove Apartments, a 144-unit garden-type complex that was completed in 1980 with a 20-year Section 8 commitment. The complex is in a growing area of the county, near a subway station. The rents, including utilities, were $724 for one-bedroom, $828 for two-bedroom and $885 for three-bedroom units.

In August 1998 HOC negotiated the purchase of the property for approximately $60,000 per unit. With a very short time until the expiration of the Section 8 subsidy contract, HOC conducted a series of market and economic analyses to ensure that the property could support operating costs and new debt service if the Section 8 funding was terminated. However, HOC now expects that the Section 8 contracts will be renewed annually.

To purchase the property, HOC created another limited partnership with itself as the sole general partner. Again, equity funds were raised and combined with the proceeds of tax-exempt bonds, HOME funds, and an HOC loan. The development budget provided about $1.4 million for renovations to Shady Grove, including upgrading kitchens and bathrooms; installing new furnaces, roofs and carpet; and improving the complex's streets and sidewalks.

Although the amount of HOME funds used in these two examples was relatively small, in both cases the HOME funds were key to HOC's ability to assemble the financing. As a result, 339 units of affordable housing have been preserved in a county that faces increasing difficulty in providing such resources.