Owner of Paintbrush asks county for help with refinance

ICE and Iran could impact local affordable housing project

[  by Mark Reaman  ]

The owner of the 77-unit Paintbrush affordable housing project in Gunnison has made a request to the Gunnison County commissioners to change the structure of the deed restrictions in a way he says will tighten up the protections for the county while making refinancing easier for his company, Gatesco. County commissioners will likely see the request on their next regular agenda on May 19. 

In a May 4 email to the county commissioners and staff, Gary Gates explained the current loan is coming due and the company has a refinance commitment from a Commercial Mortgage-Backed Securities lender. But he said the group will not close while Gunnison County has a $750,000 deed of trust on the title. That $750,000 is ahead of any future lender and was originally meant as a backstop for the county to regain costs given up as part of the affordable housing deal. 

“The (Paintbrush) deed restriction was structured so that it could be eliminated if a senior lender ever foreclosed,” Gates explained in his email. “The $750,000 deed of trust, recorded ahead of any future lender, was the county’s backstop; if foreclosure ever wiped out the affordable housing, the county would be entitled to $750,000 in liquidated damages, which I recollect was an estimated value of the land plus all costs incurred by the county. Both prior bank lenders accepted that structure. The structure is no longer viable for future lenders. They will not close while the county’s $750,000 deed of trust is on title. They are, however, willing to take their loan subject to the affordable housing deed restriction itself, with the restriction surviving any foreclosure for a fixed 90-year term.”

In today’s affordable housing market, $750,000 would pay for less than two units.

Gates said he’s been working with county staff for the last month, but timing is becoming critical, in part due to federal ICE (U.S. Immigration and Customs Enforcement) activity in Houston, the location of the majority of his other apartment complexes in the Gatesco portfolio. While the Paintbrush part of his portfolio is full and thriving, his Houston properties are seeing a significant decline in occupancy.

“All of our properties are Class C apartments and 90% of our tenants are from the Latino community and are workforce tenants,” he wrote the commissioners. “We’ve had over 50 incidents in the last six months of ICE officials coming onto our properties with multiple vehicles and 10-15 masked individuals, detaining Latinos and asking for proof of citizenship. Tenants are breaking leases to get away from it. 90% of our 400 employees are also Latino, and we’ve lost 10% of our workforce in the last six months, as many are afraid to come to work or even drive on the roads… Houston now has the third highest foreclosure rate in the country, the war in Iran has added pressure and lenders are pulling back from apartment owners broadly.

“Our portfolio has gone from 96% occupancy last June to 86% today, losing 60-80 tenants a month,” Gates continued. “Even though Paintbrush itself performs very well, my difficulties in the other 98% of the portfolio could prevent me from qualifying for any loan, including this refinance. And if I lose a property in Houston, a creditor could take a default judgment and attach it to Paintbrush. That would put Paintbrush itself in default, eliminate any possibility of refinancing and could force a foreclosure. Under the current structure, that foreclosure would eliminate the deed restrictions and the affordability that was the goal all along: the county would receive $750,000 and the apartments would revert to market-rate housing.”

Gates and his team told the commissioners their proposal to place a firm 90-year deed restriction on the Paintbrush units is better not only for him, but for Gunnison County. “We’re proposing a structure that we believe leaves the county in a stronger position on affordable housing than it has today, while allowing Paintbrush to refinance before its current loan matures,” he concluded before asking the commissioners to engage with the idea.

County manager Matthew Birnie said attorneys from both the county and Gatesco are working on the issue. “Based on our previous experiences, all privately held, deed-restricted properties are at risk of this outcome,” he said. “ This is one of many, reasons we are now focusing on building housing that the county (Housing Authority) owns and control as it provides much better assurance that they will remain community housing in perpetuity.”

“Paintbrush remains full, every tenant is connected to the community and it’s been a success. We hope to keep it that way,” Gates  said.