Bethany Manor: Keyport senior affordable housing new owner could double some rents

KEYPORT - Diane Andrews has been living in Bethany Manor, an age-restricted affordable housing complex, for eight years in an apartment building that comes with security guards and a weekly croquet game with her fellow tenants.

But she and other residents were in for a surprise last spring when Capital Realty announced it had bought the 50-year-old property. The private-equity company was getting ready to adjust their rent. And it needed their income statements.

"I think it was about two weeks, and we had to get everything together," said Andrews, 75.

Now, some of the Bethany Manor residents are facing huge rent hikes, potentially more than doubling what they must pay now, leaving elected officials and advocates to untangle a complicated real estate deal that has left seniors in a lurch.

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For now, officials say Capital Realty has agreed to hold off on rent increases until next year. But it still is asking the town to extend a tax break that the previous owner, a nonprofit, used to operate the complex.

Observers aren't surprised by the dust-up. Private-equity companies have increasingly been snapping up affordable housing units, they say, finding a steady stream of revenue and the potential for profit.

"Regardless of what happens with the economy, people are still going to need a place to live and continue to pay rent," said Jordan Ash, research director for the Private Equity Stakeholder Project, a consumer advocacy group.

Here is a closer look at the issue:

What is Bethany Manor?

Bethany Manor is one of the tallest structures at the Bayshore. It's made up of two towers. The larger, at 11 stories, has 231 units. The annex has 100 units. They are open to people at 62 and older. And residents paid $440 a month for an efficiency and $528 a month for a one-bedroom, Keyport Council President Kathleen McNamara said.

Its history dates to the late 1960s, when St. John's United Methodist Church in Hazlet surveyed its members and found a need for affordable housing.

Members of the church, including its pastor, Rev. Norman R. Riley, formed a nonprofit corporation and received a low-interest $2.7 million loan from the U.S. Department of Housing and Urban Development, repaid over 50 years, to build Bethany Manor on property in Keyport that was adjacent to the church.

The company reached a deal with Keyport to pay the borough 15% of its net income from rentals in lieu of property taxes, known as a PILOT.

Capital Realty bought the complex in March for $24 million, according to property records.

It isn't clear why the previous owners decided to sell, or even who they are. Property records show the company had a mailing address in a Matawan shopping center, and it listed James Unterberger as Bethany Manor's executive director. He couldn't be reached for comment.

St. John's apparently didn't reap the windfall. "St. John's United Methodist Church has no affiliation with Bethany Manor," church officials said in a statement.

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How did it get so convoluted?

Residents living in Bethany Manor were part of an affordable housing program in which they paid no more than 30% of their adjusted gross income on rent, with HUD making up the difference.

Bethany Manor's previous owner, however, hadn't raised rent for several years. It gave residents breathing room. And it gave Capital Realty a chance to reset rent for residents who were paying less than 30% of their income.

This summer, Keyport's council was asked to vote on an ordinance that would have extended a PILOT agreement for Capital Realty by seven years. The agreement, approved in 2015, was set to expire in 2050. It calls for the borough to receive 10.5% of rent in lieu of taxes.

Meanwhile, elected officials started hearing complaints from residents that their rent was about to skyrocket to market rate — $1,201 for an efficiency and $1,353 for a one-bedroom.

Not all residents were in the same boat. Out of 331 units, 146 qualified for a HUD program that left their rent unchanged. But 185 were at risk of seeing rent hikes, officials said.

McNamara said tenants were paying artificially low rent, but they are now being penalized for something that wasn't their fault. Some, for example, used their extra money to buy cars and have auto loans to contend with. And they were having trouble getting answers.

"They've left people in a precarious situation," she said.

The council has postponed its vote on the PILOT extension.

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Who is Capital Realty?

Capital Realty owns and operates close to 17,666 affordable housing units in 27 states. Among them are at least 10 complexes in New Jersey, including the Eleanor Levovitz Senior Apartments in Lakewood.

The company came under fire in Chicago and Washington, D.C., last year after tenants complained about substandard living conditions. But Keyport and housing officials say the company likely has deeper pockets than the previous owners and could bring much-needed capital improvements to Bethany Manor.

One reason Capital Realty is asking Keyport to extend its PILOT agreement: The company is in line to receive a $34.8 million HUD loan from Gershman Investment Corp., which is designed to facilitate new construction or substantial rehabilitation of a multifamily building, according to property records. But HUD requires a tax exemption as a condition of the loan.

Capital Realty officials didn't respond to calls and emails seeking comment.

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Where does that leave residents?

Keyport doesn't have an affordable housing agency of its own. So HUD signed off on arrangement to have the Perth Amboy Housing Authority administer the program.

Kristi Duffy, director of staff operations for the housing authority, said that after buying the property, Capital Realty needed to assess which tenants remained eligible for subsidies. But it wasn't an easy task; the original HUD loan was paid off in July 2020, so residents who moved in after that didn't necessarily qualify for affordable housing.

When all is said and done, 31 tenants are left without affordable housing vouchers, Duffy said, which puts them at risk of seeing rents climb to market rate.

"So conceivably, this is why people are so upset. Their rent could be going from $440 to $1,201 (for an efficiency), or $528 to $1,353 (for a one-bedroom)," Duffy said.

Yet even that isn't clear. McNamara said the current PILOT agreement might require all units to be affordable.

Bethany Manor residents say they remain confused. Several attended the council meeting Tuesday night, where they were told Capital Realty agreed to postpone the rent increases for the remainder of the year and officials from the Perth Amboy Housing Authority would meet with them later this month.

Not all of the tenants are getting a bad deal. Capital Realty's assessment worked out for Andrews.

"I made less at my job than I made last year, so (my rent) went down," Andrews said. "I was one of the fortunate ones, I really was."

Michael L. Diamond is a business reporter who has been writing about the New Jersey economy and health care industry for more than 20 years. He can be reached at mdiamond@gannettnj.com.

This article originally appeared on Asbury Park Press: NJ affordable housing: Bethany Manor may double some rents