CHICAGO - The U.S. Department of Housing and Urban Development and the developer of a Chicago housing complex that defaulted on its federally backed mortgage have agreed on a tentative plan to avoid federal foreclosure, spokesmen for HUD and the complex's owner said yesterday.
The tentative agrrement followed Habitat's acceptance of a demand by HUD to allow low-income tenants in the Presidential Towers complex, an issue that a HUD spokesman said had been "a stumbling block" to the negotiations.
"That's definitely been removed," the spokesman said, adding that Arthur Hill, assistant secretary for housing, plans to proceed with the tentative plan in hopes of closing the deal within 60 days.
The tentative workout does not involve bond issuance. But bonds could play a part in the plan "at some time," said Douglas Woodworth, executive vice president of Habitat Co., the holding company for the real estate partnership that operates the Presidential Towers complex.
A HUD spokesman said details of the plan have not been made public.
While Woodworth also declined to talk about the plan's specifics or what role bonds may play in it, he said it was not the plan Habitat had proposed a year ago.
That plan called for the refunding of bonds redeemed by HUD in November 1990 and February 1991. The refunding would have been done through the Illinois Development Finance Authority.
Chicago sold $171 minion of bonds backed by HUD for the 2,346-unit complex, located just west of Chicago's downtown business district, in 1987 to refund construction loan notes issued in 1983. A 1990 default of the bonds forced HUD to pay out about $163.7 million to redeem the outstanding debt - making the default the largest in HUD's history.
Under Habitat's original refinancing plan, the authority would issue $70 million to $80 million of tax-exempt bonds, with the proceeds going to pay HUD back for some of the money it lost through the default. HUD would then take out a second mortgage note from the complex's owners for the rest of the money it paid out to bondholders. Debt service on the bonds would be secured with the complex's mortgage and paid with revenues from the complex.
In connection with the plan, lawyers for Presidential Towers last year requested a ruling from the Internal Revenue Service to allow the refunding. At that time HUD also sent a letter to the IRS saying that it would "cooperate fully" with the refunding if the ruling were granted. IRS officials have declined to comment on the status of the letter ruling.
But Woodworth said his firm withdrew the request before a ruling was given "because [the letter ruling] was not part of the current plan."
The attorney at Katten Muchin & Zavis. who requested the letter ruling on behalf of Habitat, could not be reached for comment.
Under an agreement between HUD and the Habitat Co., 5% of the rental units will be set aside for low-income tenants, according to the HUD spokesman. In a Dec. 24 letter to the head of a Chicago-based homeless advocacy group, Hill said that Habitat is preparing procedures to accommodate the set-aside for submission to the department.
The 1987 bonds had been exempted from the tax law's 20% low-and moderate-income set-aside requirement by a special transition rule that was inserted into a federal tax bill by House Ways and Means Chairman Dan Rostenkowski, D-Ill.
Woodworth said there was still some disagreement between Habitat and HUD on defining low-income tenants.
"We're hopeful we can work this all out and implement [the plan] soon," Woodworth said.
Bailout negotiations for the complex stalled earlier this year after a HUD audit of the apartment complex's financial operations in March found that $1.26 million in legal fees, rent concessions, and other expenses were improperly incurred or charged against the complex's operations and should be repaid. At that time, HUD officials said the audit findings would have to be resolved before any workout between the owners and HUD could be accomplished.
But after Habitat agreed to repay most of the money to HUD in October, those negotiations restarted.