In September 2017, McCormack Baron Salazar (MBS) was getting ready to celebrate a ribbon cutting.
After years of work, the St. Louis-based affordable housing developer had almost finished its redevelopment of two crumbling public housing projects in San Juan, Puerto Rico, into new neighborhoods with hundreds of apartments affordable to residents earning a mix of incomes.
“We were months away from getting units occupied,” says Vince Bennett, president of MBS.
Then Hurricane Maria struck Sept. 20, destroying tens of thousands of homes and cutting electrical power for months—eventually causing almost 3,000 deaths.
Since then, affordable housing developers have been focused on rebuilding. MBS and its partner, the Puerto Rico Department of Housing (DOH) repaired the two damaged communities, welcomed residents, and started construction on a third public housing redevelopment on the island. Other developers like Michaels Development Co., based in Camden, N.J., and Volunteers of America (VOA), based in Alexandria, Va., are each planning to buy hundreds of older affordable apartments in Puerto Rico and renovate them to become even more resilient against the next storm.
“We feel committed to being there,” says Patrick Sheridan, VOA executive vice president of housing, adding that the nonprofit is planning to purchase enough affordable housing properties to justify a regional presence in Puerto Rico. “We are working on two transactions now involving multiple projects.”
Double Strike on Puerto Rico
On Sept. 6, 2017, Hurricane Irma passed just 60 miles north of the island. As a Category 5 storm, it did not need to strike Puerto Rico directly to cause $3 billion in damage and several deaths. Just few weeks later Hurricane Maria made landfall as a Category 4 storm.
The hurricanes destroyed tens of thousands of wood-frame, single-family homes across the island. However, Puerto Rico’s affordable housing properties were more resilient. “None of us had serious damage,” says VOA’s Sheridan. “The buildings themselves were solid … all concrete block … The federal building codes are pretty effective.”
Hurricane Maria caused more damage at the two public housing sites being redeveloped by MBS and DOH, even though the buildings had been designed to withstand the direct impact of a Category 4 storm. Several had not been completed, and roaring winds pushed water around unsealed windows to soak walls and cabinets. “Because of rain penetration, we had to go through mold and environmental remediation,” says MBS’ Bennett. “The buildings that were complete were dry and performed well.”
Affordable housing developers had more than rain to worry about as they repaired storm damage. After the storms, 95% of the island was without power. Three months after the hurricane, 45% of Puerto Ricans still had no electricity, according to news coverage at the time. Many of the deaths on islands would be caused by the seemingly endless blackouts, as seniors and others were unable to get vital medication.
Labor has also proved to be a challenge, even more so than in the mainland U.S. “You have labor shortages—the contractors are pulled into other necessary repairs,” says Bennett.
Unfortunately, labor is likely to continue to be a problem. “I think it’s going to be very difficult to get workforce down there,” says Milton Pratt, senior vice president co-lead for Michaels Development Affordable. “It’s not like New Orleans, where people could drive in.”
The money to rebuild also has been slow to arrive. Federal Community Development Block Grant Disaster Recovery funds have been delayed. Flood insurance companies also have taken longer than expected to pay claims. “The money that the territory expected to be released has not gotten out there as quickly as they'd like, but they continue to make excellent strides in managing such a large influx of funding,” says Pratt. “It takes a long time. With Hurricane Katrina in New Orleans, six or seven years after the storm we were still building replacement housing.”
Despite the challenges, in July , Michaels opened a new regional office in Puerto Rico that will eventually focus on new affordable and mixed-income development opportunities on the island, although its first priority will be the redevelopment of four of its affordable properties in the nearby U.S. Virgin Islands that were also damaged by the 2017 hurricanes.
At MBS’ two public housing redevelopments, federal officials provided an extension of the deadline to place the apartments in service under the low-income housing tax credit (LIHTC) program. However, MBS had also made commitments it had to honor to its LIHTC investor, Hunt Capital. “We were writing checks to meet completion obligations and lease-up obligations,” says Bennett.
MBS has added extra generators and refrigerators in the common areas as well as arrays of solar panels on the new construction. “We want to make sure the residents have a place to put medication … to make sure we can support families and seniors if we have another extended power outage,” adds Bennett.
In February, MBS and DOH opened 140 apartment homes at Renaissance Square, a new mixed-income apartment community located in the Hato Rey Barrio, near the old San Juan Historic District. The $35.5 million community replaced the old public housing site of Las Gladiolas in San Juan.
A few months later, MBS and DOH opened another 174 new apartments at Bayshore Villas, which replaces Puerta de Tierra, which had been the first public housing project in Puerto Rico, built in the 1930s. . At both properties, most of the apartments are reserved for low-income households alongside some apartments renting at higher, unrestricted rents.
In January, MBS and DOH also broke ground on their third redevelopment of public housing in Puerto Rico in the Barrio Turabo in the town of Caguas.
“The demand for these apartments has been tremendous,” says Bennett. Several thousand people signed up on waiting lists to move in, and demand was especially strong for the apartments without restrictions on their rents. “There are not a lot of unrestricted rental communities that are all rental apartments … We could not find any comps [comparable properties] for our lenders.”
Demand also is high for affordable housing in Puerto Rico, even though the number of people living on the island has been shrinking for years. Even more people left after the hurricanes—the population of Puerto Rico was just 3.2 million in 2018, down 3.2% from the year before, according to Pew Research Center. However, the shortage of undamaged housing is still intense on the island.
That’s especially true for elderly Puerto Ricans whose homes were damaged in the hurricanes. Many have also lost support because younger relatives have left the island. “Now they are faced with not having family there to take care of them,” says Sheridan. “Seniors housing is what is needed.”