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Foreclosure stalks ailing Fireweed Place

Posted: Sunday, May 26, 2002

An emergency appropriation from the Alaska Legislature has given Juneau's Fireweed Place some financial breathing room, but the six-figure fix is temporary and doesn't guarantee the downtown housing project's solvency.

When the project "designed by seniors for seniors" received $137,000 in emergency funds last weekend, it was weeks away from foreclosure, according to its board of directors.

"We certainly were pleased to get the money," board chairman Thomas Dahl said. "It keeps us alive for six months."

Dahl said Fireweed Place's board will continue to seek a $100,000 city grant and will meet in the next few weeks to continue work on a long-term financing strategy.

Patrons of Fireweed Place have been trying to identify a successful, long-term strategy since before the 67-unit apartment building opened in 1995. Warnings about the financial feasibility of the project were voiced before ground was broken on construction.

Supporters responded by adjusting rents, fighting for tax and utility breaks and by trying to operate at the lowest possible overhead. Financial problems persist, however, and have been exacerbated by changes in Juneau's housing market.

If Fireweed Place was conceived amid optimism and through political will in the early 1990s, it stands today as an example of shifting economic and political realities.

"It was a new venture and everyone was willing to give it a chance, but there were concerns, deep concerns," said Rosalee Walker, who was on the Juneau Assembly in the early 1990s. "We were still willing to give it a try, but we just were too optimistic, I guess. We felt we could work it out as we went along, not realizing the housing situation in Juneau would change so drastically, so quickly."

Community roots

The idea of Fireweed Place emerged from the Juneau Commission on Aging's Golden Resource Survey in 1989, when affordable housing in Juneau was difficult, if not impossible, to find. Survey results highlighted a need for middle-income senior housing downtown, according to longtime board member and resident Marie Darlin.

The survey covered 71 issues affecting local seniors, was mailed to 1,130 people over age 65 and had a 76 percent response rate. The results showed more than 100 people were interested in changing their living situation, according to a 1993 Alaska Housing Finance Corp. staff report on the Fireweed Place loan proposal.

After city officials "indicated they weren't interested in getting involved in housing," a nonprofit group called Senior Citizen Support Services formed in 1991 to pursue the Fireweed Place project, Darlin said. The group owns and operates the building today under the direction of a nine-person board of directors.

The original board included the engineer and senior advocate Joe Alter, Darlin, attorney James Fisher, retired state fiscal officer Vona Hall, University of Alaska Southeast faculty member Vicky Borrego, construction engineer Gerald Miller, physician Dr. Clayton Polley, Tlingit scholar Dr. Walter Soboloff and bank executive Craig Dahl.

When the original loan for Fireweed Place went before AHFC, a professional consultant hired by Fireweed Place and an appraiser retained by the state agency said the project wasn't feasible, according to a 1993 AHFC report. The proposed rental rates, the inability of income to pay off the debt and the high project cost were among the concerns cited by Fireweed Place's consultant, NBA Venture Company.

With that news, AHFC staff members traveled to Juneau to meet with the SCSSI board.

"SCSSI was informed that the possible financing package was highly unusual and is not consistent with either private sector commercial finance, nor with AHFC's more flexible underwriting criteria," the 1993 report said.

After the meeting, SCSSI asked for a financing package that took AHFC's staff recommendations into account. Construction cost estimates were revised downward and the project's reserve account was increased.

Political forces

Despite financial concerns, demand for the project in Juneau and political pressure helped drive the housing project forward. One of the political goals of the project was "slum clearance," board president Dahl told the Assembly last month. The nearby Knight Apartments were rundown and signs on a prominent window called for the impeachment of then-Gov. Walter Hickel, he said.

The Knight and Russell property wasn't needed to build Fireweed Place, but it was in everyone's interest to remove the buildings, Dahl said.

"It is doubtful that the CBJ would have participated in the financing of the project had the capital move not been an issue and its own interests not been involved," he said.

The city reimbursed Senior Citizen Support Services $620,000 for the Knight Apartments and Russell property in 1992 and provided another $65,783 in 1993 for unanticipated asbestos removal and demolition of the apartments.

"The city gave us money to buy the property and tear down those buildings. They needed them gone to improve Calhoun," said Hall, one of the original board members. "Governor and Mrs. Hickel were very eager to see the project go forward and I think that's where the political pressure came from."

In a 1992 memo, then-Mayor Jamie Parsons urged the Assembly's Lands Committee to support the $620,000 grant for the senior housing complex. His memo noted a "critical" need for housing, a desire to improve the Calhoun Avenue area for pedestrians and concerns about the "dilapidated" Knight Apartments.

"The density provisions of the CBJ's land use code require SCSS Inc. to purchase the Knight and Russell properties for the project," he said. "It is no secret my desire to dress up the Calhoun Avenue area from the Governor's Mansion to the State Office Building. After all, the Governor's Mansion is a significant focal point within the city and for the State of Alaska."

Total cost: $9 million

AHFC staff did not make a recommendation to the corporation's board in regard to Fireweed Place's original loan request. Steve Ashman, the former administrator of AHFC's housing office, wrote the report.

"The corporation certainly indicated they were supportive of senior housing in approving it," he said. "The other motivator was the contribution by state and local government."

The Willoughby Avenue apartment building was built by McGraw Construction for $6.7 million and opened in 1995.

Senior Citizen Support Services has a $4.2 million, 30-year loan at 6.75 percent interest with AHFC, which also holds a $2.8 million second mortgage at 1.5 percent interest that Fireweed Place doesn't need to pay until it is profitable, according to Fireweed manager Lorilyn Swanson. The project also received $1.8 million in state support and more than $685,000 in grants from the city. The total project cost was more than $9 million, including land, site development and financing.

Fireweed Place based its occupancy and rent projections on the consultant's findings, the AHFC appraisal and public meetings with Juneau seniors about interest in the complex. AHFC also looked at occupancy projections and rents at a recently completed senior housing facility in Kenai, according to the 1993 report.

Changing rental market

Board members say the biggest financial challenge facing Fireweed Place has been Juneau's changing rental market. Rents have decreased since 1995 and the market isn't as tight as it used to be. While the loan was based on rents of between $800 for a studio apartment and $1,250 for a two-bedroom apartment, rents today at Fireweed Place range from $585 to $1,000, according to the board.

Rent includes water, sewer, garbage and snow removal, but not electricity. The average cost of a studio apartment last year in Juneau was $582, excluding utilities, according to the 2001 Rental Market Survey prepared by the state. The average price of a two-bedroom apartment was $870, excluding utilities, according to the survey.

The financial plan for Fireweed Place was based on a projected occupancy of 95 percent, as determined by consultants before the building went up, Dahl said.

"We never reached 95 percent," Dahl said. "It was really incorrect information. The initial response of the board was to raise the rents to increase revenue. That reduced occupancy. ... Now we're right at market and the result is we're not taking in enough revenue to meet expenses."

About 30 percent of Fireweed Place's apartment's are set aside as low-income units and the building sees 40 percent turnover each year as people become ill or move on to other senior housing, said Swanson, the building manager. While all of the building's 26 one-bedroom apartments were rented out earlier this month, Fireweed Place has had trouble filling its smaller studio apartments, which haven't been as popular with seniors, she said.

Fireweed Place's monthly expenses exceed income by about $26,000, according to the board. The latest figures show occupancy at 88 percent with 74 percent average occupancy. The building's age requirement has dropped from 65 to 55.

Hall said the board of directors didn't foresee today's situation.

"We weren't aware the loan was so great that we wouldn't meet it. We have 67 units and more than 100 people signed slips stating they'd be interested," she said. "I think we were overly optimistic, but genuinely so, as to what we perceived was the need and the interest."

Sioux Plummer, vice president of the SCSSI board, said Fireweed Place has been well managed and operates on a "bare bones" budget.

But, "the loan payments are too big for what the facility can support," she said. "From the get-go it was never right. The market declined more and made it even less possible."

Looking to the future

Learning from the experience in Juneau, Ashman, the former AHFC administrator, said the agency required future senior housing projects to account for property taxes or get a letter from the local government promising an exemption.

In addition, AHFC set up a grant program after Fireweed Place's loan was approved to assist with senior citizen housing projects.

AHFC officials have said they will continue to work with Fireweed Place on financing options. But if the state takes over management of Fireweed Place, the city will lose any opportunity to collect property tax and the complex may open to people under age 55, Hall said.

"We've been trying for well over a year to get the loan negotiated in a way that we can keep operating," she said. "We've been on the edge for so long."

The number of people age 65 and older in Juneau was about 1,870 in 2000, according to the U.S. Census Bureau, and is expected to grow to 3,300 in 20 years. As the number of senior citizens increases, Plummer said Fireweed Place will be more important.

"It's not just a matter of saving the place for a few people, it's for future families," she said. "There will always be a need for that place. Just because it's not 100 percent occupied now isn't an indication of future need."

Joanna Markell can be reached at joannam@juneauempire.com.



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