ATLANTA BUSINESS CHRONICLE

April 30, 2005

Former housing secretary looking for Atlanta project
By Lisa R. Schoolcraft

The former secretary of the U.S. Department of Housing and Urban Development wants to bring more infill housing to metro-Atlanta.

Henry Cisneros, chairman of San Antonio, Texas-based CityView, was in Atlanta recently, meeting with area home builders and development looking for partners for his company, which builds homes in urban areas at median or below-median prices.  For Atlanta, that’s a home price of  $161,261 or less.

Cisneros is looking for projects, to include single-family and condominium homes, in metro Atlanta’s urban areas, but CityView will consider projects outside of the urban core.

CityView’s program includes financing through a $100 million revolving fund from the California Public Employees’ Retirement System, or CalPERS, the nation’s largest public pension system with assets of more than $196 billion.

The program got its start in California, Cisneros said.  “The model was working in California and we wanted to extend the model nationally.”

The agreement with CalPERS, has been changed to start focusing on key markets in Texas and the Midwest, including Chicago and Detroit, he said.

“The third area with potential is Atlanta, “ Cisneros said.  “We’ve been studying Atlanta for the past year and a half.  Although 60,000 homes are built annually here, they are mostly suburban.  We will focus on infill and urban areas we think may have been passed by.”

CityView has met with Integral Partners LLC and Sharon McSwain Homes Inc. about partnerships.

For Sharon McSwain, a partnership with CityView may be a great way to grow her midsized company.

McSwain has not closed a deal with CityView, but is in discussions, she said.

“The challenge for me is I’m a midsized privately held building company and I am competing with the nationals and simultaneously trying to grow my company,” McSwain said.  ‘What a program like CityView can do is give you the ability to grow your company with financial capacity that your current balance sheet would not support.”

Lenders may look at the debt on a balance sheet and limit the amount of financing they are willing to give to a building project, McSwain said.

“With  CityView, they basically put the debt on their balance sheet,” she said.  “They use me as an operator and executor (of the building project).  Although my balance sheet ratios may not work, my capacity to execute is still there.”

CityView creates a joint venture partnership with the builder and fills the role as construction lender and equity holder, said Fernando de Leon, CityView managing director.

“We create a partnership that takes ownership of the land and that partnership would incur the debt,” he said.

More and more competitors are coming in for secondary financing for residential projects, said Tuck Perkins, senior vice president and manager of construction lending of the builder finance group for Primary Capital.  But not many of them are pension funds, he said.

“The pension funds have always been active in office buildings and doing full debt,” Perkins said. This is a new trend of bigger groups looking to deploy large amounts of money into this aspect of residential lending.”

On residential developments, a traditional bank usually does the acquisition and development loan and then 20 percent to 25 percent equity comes from the developer, he said.  The developer often finances that equity with secondary financing to leverage a project, he said.

“If you have a pension fund, come in, they are looking to deploy their money at a higher rate of return than they would get elsewhere,” Perkins said.  “Commercial may be seen as higher risk now because of more (office) vacancies and people are getting into the residential market because it so hot.”

Residential projects with median and below-median home prices are considered low risk because there is tremendous demand for it, he said.

CityView also provides some fund for expenses, such as marketing and sales personnel, that usually fail to the developer, said McSwain, who expects to build 355 homes in metro Atlanta this year.

A disadvantage to the Cityview model is the builder/developer “is the last one on the totem pole to get the profits out of the deal,” she said.

She’s already talking about two projects with CityView, including one in Florida.

Integral Group is also in talks with CityView, said Valerie Edwards, executive vice president.

“A lot of lenders don’t understand the inner city and Mr. Cisneros, being former secretary of HUD, certainly does, “she said.  Edwards expects to find a project to do with CityView.

“We have a history of affordable housing in all of our projects,” she said.  Integral projects include Renaissance Walk at Sweet Auburn and Centennial Park North, both of which were market rate developments with 20 percent of the for-sale product being affordable units, Edwards said.

“CityView wants to get enough activity in Atlanta to open a regional office here, Cisneros said.  ‘Then we’ll decide if we can expand in the Southeast (from the Atlanta offices), he said.  Tampa, Fla.,: North-Carolina and Charleston, S.C, are other locations under consideration for the program.

“CityView appears to be aggressively approaching Atlanta,” McSwain said

Reach: Schoolcraft at lschoolcraft@bizjournals.com