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Housing the new elderly.

Geneva House is an eight-story, high-rise apartment building designed specifically for people over age 65. Sponsored by Presbyterian Homes, it is located in downtown Scranton, Pennsylvania.

When the building was designed in the late 1960s, the world was a different place. Gasoline was 39 cents per gallon, and older people were perceived as a passive group who needed assistance to live out their few remaining years in a reserved, quiet, and simple manner. The fact that Geneva House had 76 efficiency apartments and only 24 one-bedrooms reflected that attitude.

It was assumed that people over age 65 had, at best, 8 or 10 years of active life remaining. During those declining years, they would require only the bare essentials to live. Apartments were designed as small, efficient units to keep cleaning and furnishings to a minimum. Efficiencies had just 360 square feet: one big room with a bath and galley kitchen. "You can sell or give away all that furniture you've collected during your lifetime," was the stock response to comments about the limited space in the efficiency apartments.

Despite their size, the apartments were in great demand. The waiting list from 1972 to 1976 averaged 100 people and was still long well into the early 1980s.

But by the mid-1980s, attitudes had changed. Our competition offered a newer, more modern product, and they had lower rents as a result of Section-8 rent subsidies.

Leasing of the efficiency units became more difficult. Frequently, the building was passed over because of restrictions on leasing one-bedroom units to a single person. Prospects did not want to forego the lifestyle to which they were accustomed.

The vacancy problem finally came to a head when our waiting list disappeared. At first we rationalized the cause as the new high-rise building going up in our neighborhood. "When it is filled," we said, "things will return to normal." They never did.

Fortunately Geneva House has an ideal location, in the center of town on a flat, spacious site that is close to everything, well-designed, and well-constructed. Location sustained us for some time, but as problems persisted, we concluded that we needed more than just a new leasing slogan. We were out of step with the market. We did not have the product that the public wanted. Vacancies continued to mount until they reached 15 percent in 1986.

What needed changing?

We knew we had to change if we were going to survive. We performed a market study that confirmed the three problems we suspected. First, we had too many efficiency apartments. Our study showed that all high-rise buildings designed for the elderly in Scranton had trouble renting efficiencies.

Our second problem was affordability. We needed a full Section-8 subsidy for each apartment.

Finally, we needed to modernize the appearance of our building, including the lobby, the public corridors, and the apartments. We also planned to update our marketing brochure to reflect the new image.

Based on this, we prepared a far-reaching plan for revitalization of the building, which we presented to the board in the summer of 1986.

To deal with our first and biggest problem, we took 68 adjacent efficiency apartments and combined them to form 34 large one-bedroom units. (Figures 1 and 2.) The total number of units in the building would be reduced from 100 to 66.

Obviously, to maintain cash flow with fewer units we would need to increase our per-unit rents. To determine the overall impact of the proposed changes on our income and expense statement, we constructed the a budget comparison of actual 1986 to the first year after conversion. For sake of comparison, Figure 3 also includes projected figures for 1990, the first full year of operation following the conversion.

Obviously, some of our assumptions were incorrect. Maintenance did not decrease as we projected. However, the general quality of maintenance in the building has increased, in part to compensate for deferred maintenance during previously lean years. Also, the county assessor's office did not agree that our real estate taxes should be decreased. Electricity and elevator maintenance did decline as projected.

The primary gain in income, however, has come from increased rentability of the units. Occupancy was over 93 percent soon after conversion.

Help from HUD

A key to the success of our plan was the cooperation of the Department of Housing and Urban Development. They had to give permission for the conversion process and agree to provide 40 additional Section-8 subsidies.

When we first presented our plan to HUD, they suggested that we reduce the rental rate of the efficiencies in order to attract more tenants. They also counseled vigorous promotion such as offering a rent incentive of 13-month leases at the price of 12. We rejected this idea because our study had shown that the public wanted one-bedrooms even when subsidized efficiencies were available.

We carefully re-documented the decline in occupancy, our market study, and our plan to save the building. HUD gave permission for conversions in August 1986.

We also needed additional Section-8 subsidies to ensure that each apartment would be fully subsidized. If each were subsidized, we could increase the market rent to a level which would be sufficient to operate the building with the reduced number of units and still not price the units beyond the reach of our target market. HUD granted the additional 40 units in December 1987.

A plan in action

At the same time we were talking with the board and HUD, we were seeking construction funds. We submitted our renovation plan to the local bank with whom we had done business with for 16 years. They felt the project was too risky and turned it down.

Fortunately for us, another local bank was just undertaking an outreach program for non-profit projects in the community. We got a second mortgage of $60,000 in December 1987.

Before hiring new staff, we did two units as a test. We hired some hourly personnel and acted as our own general contractor. After doing two conversions, we had confidence in our plan.

We had obtained estimates from a reliable local contractor of $1,900 per unit to do the conversions. This price did not include carpet or painting. After some discussion in our office, we decided that if we could find the right man for the building superintendent's job, we could perform most of the renovations with in-house personnel.

We advertised for a building superintendent and got lucky. Work began in june 1988. We determined that ff we did an average of three conversions per month for a 12-month period we would have the job completed. The actual plan took 14 months.

We had intended to complete the job without displacing any building residents, but even at 85 percent occupancy, we had more tenants than we could eventually house. However, we were lucky again; normal moveouts allowed us to do our work without having to dislocate anyone against their wishes.

In many cases we were able to just add the room on to an existing occupied unit. And with the additional subsidies, we usually were able to offer a bigger, newly carpeted, freshly painted apartment for less rent than before.

Interestingly, some residents were reluctant to take the larger units due to the cost of additional draperies and furniture. We suggested that they use only their original room and leave the additional space unoccupied. However, as we hoped, once residents saw the handsome finished product, they used the entire space.

The residents were wonderful. They cooperated with us fully and made our task easier. As you can imagine, it was a messy job, particularly where we were working in an occupied apartment. To minimize disruption we did all the construction work in the new half of the unit before we broke through to the existing half. In this way, we were more than 50 percent completed with each unit before the tenant was involved.

The last conversion was completed in September 1989. In 1987 we redecorated the lobby for the first time since 1972. In 1988 we began a program of updating the upper-story public corridors. New landscaping was begun in 1990.

Promoting a now look

In order to better market our new apartments, a brochure was prepared around the theme of "Ideals-an ideal location and an ideal design." The ideal design obviously is our new one bedroom. The results have been very gratifying. The new applicants are of a higher caliber, and vacancies are now quickly refilled.

In hindsight, we are thankful that the board of directors of Geneva House and the Department of Housing and Urban Development had sufficient confidence in our plan to permit us to undertake this massive project with very limited funds. We were fortunate that all parties concerned were willing to take a creative approach to solving these problems.

Despite higher debt service as a result of the second mortgage, net cash flow has increased significantly since the conversion (Figure 4).

We are naturally proud of what we have accomplished at Geneva House. In addition to the stable financial position we have achieved, the property has remained true to its original mission. At a time when many government-subsidized elderly projects have been sold for other purposes, Geneva House continues to serve the low-to-middle-income elderly of northeastern Pennsylvania.

However, the real change cannot be measured in dollars. It is the change in attitude of the staff, the current residents, and the prospective residents. When we first undertook the conversion, I am not sure that the staff really believed we could do it, nor were they sure that we would be successful in attracting new residents. That has all changed now.

And the work of improvement is not over. This spring we had all the trees on the site trimmed. We mulched all the grounds, reseeded the lawns, mulched the shrub beds, and fertilized everything. In what I think is the ultimate act of recycling, we kept shredded tree branches and used it for mulch in the beds.

The greatest change, however, has been in the attitude of current and prospective building residents. It is now a building going somewhere. We have hired a new resident manager, and she is giving the building back its heart. New artwork is appearing in the hallways. There are flowers in the office.

The residents' association is growing and has become very active with parties, trips, speakers, and dinners. The building's board of directors is talking about expanding the community room to accommodate the increased activities. This month we received a "superior rating" from our Fannie Mae inspector, for the first time in many years.

Leasing is also much easier. As a result of our improved financial situation, we can afford to upgrade the apartments as they turn over. This includes replacing any 1972-vintage carpet still left after the conversion. Also, we replace the black rubber baseboard with tan and the orange kitchen counter tops with almond. Finally, the dark brown receptacles and switches are replaced with ivory. The upgrades allow us to show apartments without having to make any excuses.

In April 1992 we reached 100-percent occupancy for the first time since the early |80s. It was a great feeling.

Louis A. Danzico, CPM, [R] is president of Management Enterprises, a full-service real estate firm located in Scranton, Pennsylvania. The firm specializes in the operation of multi-unit properties. Mr Danzico oversees the operations of the company and is active in the preparation of feasibility studies for new buildings.

Mr. Danzico has written grant applications to the Pennsylvania Housing and Finance Administration for Single Room Occupancy Housing and Housing for the Homeless. He also has assisted in the preparation of loan applications to HUD for Section 202/Section 8 elderly housing. He has taught real estate management at the Dunmore campus of the Pennsylvania State University.
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Title Annotation:renovating Geneva house, an apartment building for the aged
Author:Danzico, Louis A.
Publication:Journal of Property Management
Date:Jul 1, 1992
Previous Article:Apartment living 2000.
Next Article:How many is too many? the need for occupancy guidelines.

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