Friday, May 24, 2024

Pinnacle Financial attack High Point housing shortage, one lot at a time

Rick Callicutt and Kim Graham

Looking around her neat-and-trim home in a modest east High Point neighborhood, Deborah McBee beams with pride and shakes her head in disbelief.

 “It’s just hard to believe that it’s me, here, in a house of my very own,” she says.

McBee, 60, fought her way out of decades of drug addiction and poverty to start a new life that included work as a home health provider and first-time home owner at age 57. Perseverance, a strong faith, and a good husband helped make her dreams come true, she says.

As for homeownership, she credits a housing revitalization program operated by Pinnacle Financial Partners for making a big difference. 

For almost a decade, Pinnacle and its precursor institution, Bank of North Carolina, have been building starter homes on lots in inner-city High Point. The bank then sells the lots and houses to eager buyers at cost, or close to it.

Homeowners like McBee get a nice place to live and a chance to build personal wealth through home equity.

Thanks to the strong Triad housing market, some participants in the program have seen their equity stakes double in a few years. The program’s initial home sold for $97,500 in 2018. It was recently appraised at $176,900.

Down payment assistance comes from various state and federal programs, and the bank itself, which allows for as much as $7,500 for qualified homeowners. Some participants have qualified for as much as $60,000 in overall assistance.

That is typically structured as a second note that doesn’t require payments until the primary loan is paid  off. In some cases, the assistance payments are forgiven if the homeowner retains ownership for a stipulated period.

Three years ago, McBee purchased her 1,200-square-foot home for $103,000. Thanks to more than $25,000 in assistance, she already has substantial equity. The scarcity of quality homes in that price range means it should get a premium if sold, but McBee is staying put.

“I never thought I’d be in this situation, but now that I’m here I’m never leaving,” she says. “Thank goodness for the people of Pinnacle. This is such a good deal.”

Helping homeowners build equity is the plan’s purpose, not fast money, says Rick Callicutt, the former CEO of BNC and Pinnacle’s chair for North Carolina and Virginia. In
2017, Nashville, Tennessee-based Pinnacle paid $1.9 billion for BNC, which has 45 offices in the state. Since then, Pinnacle has more than doubled in size to $48 billion in assets.

 “The only way most people ever really get ahead, put some money away, is through the equity in their home,” he says. “If we can put some people in homes that they own, where they can get ahead, then they’re better, the neighborhood is stronger and the whole city stronger. That’s our goal in all this.”

Callicutt launched the program shortly after BNC purchased High Point Bank and Trust for about $141 million in 2015. The High Point native recalls discussing how to improve inner-city neighborhoods with BNC’s community development officer, Kim Graham.

“We need to figure out how to stabilize some of these neighborhoods, not with tenants but with owners,” he told Graham, also a local native who now works for Pinnacle. “I grew up in High Point, went to High Point Central (high school) and High Point University,” Callicutt says. Some of these neighborhoods were places I used to go when I was young. They’d fallen off.”

Pinnacle CEO Terry Turner also saw the program’s value. The company supports affordable and attainable housing projects across its footprint in the Carolinas, Georgia, Tennessee and Virginia, although no other program operates like High Point’s. 

The bank says that it has $1.7 billion committed to investments, lending and grants for low- to moderate-income housing. It spent $920 million on community development investments in 2022.

So far, Pinnacle has built and sold 43 homes in High Point. Another 10 lots were recently purchased, with several more in process. Pinnacle seeks to add 10 or more new homes a year.

“I wish they’d build 100. I could sell every one of them next week,” says Carolyn McKinley, a broker with Triad Lifestyle Realty, the selling agent for most of the Pinnacle properties.

Pinnacle has invested more than $6 million in the High Point program, although it operates as a revolving fund.

Pinnacle buys lots an
d pays contractors to build houses. When the house is sold, it recoups the direct outlay. Pinnacle provides mortgage funding, including some down payment assistance lending, for about half the houses in the program. Buyers aren’t required to finance their home through Pinnacle.

“There’s no contingency, no requirement,” says Callicutt. “It’s not about us making money. It’s about investing in this community. These houses are needed and this is a good idea. The critical part, though, is that there needs to be somebody out there who can stroke a check and build six, seven, 10 houses at a time that won’t be sold for a profit. Really, not many people are in position to do that.”

Key program managers are consultants and contractors, led by Mark Walsh, an active local real estate executive who has been on the city’s planning and zoning board for more than two decades.

The program starts with Pinnacle purchasing lots from the city through a bidding program that is open to all comers. The bank’s ability to buy an entire block often gives it a leg up.

      The city wins because it doesn’t have to hold real estate and through enhanced property taxes. Pinnacle’s new homes always increase the tax value of the formerly delinquent properties, many of which were unimproved or occupied by uninhabitable structures. A lot purchased last year on Salem Street, near High Point University, was turned into two building lots. The city’s tax levy increased from $409 per year, which it wasn’t collecting, to more than $1,800.

By clustering houses on the same street, in the same neighborhood, property values increase because neighbors are incentivized to improve what they have. New residents, with a real stake in the future, keep an eye out for bad actors and other neighborhood problems.

 “We’re starting to see an impact across the city,” says Callicutt. “We have clustered the properties we buy, so it can really be transformative.”

Improved performance by the city’s code and inspection operation, and more diligent policing, is also helping, Callicutt says. Spiraling construction costs pressure the program, a familiar problem for all home builders. Pinnacle uses materials conducive to maintenance by a population that might not have lots of cash on hand. For instance, says Walsh, they typically use vinyl siding instead of Hardie board because the latter requires re-painting.

 “With vinyl siding, you can update it by spraying it with a hose,” says Walsh.

Pinnacle’s Graham fields calls all the time from other cities looking to replicate the High Point program. So far, there are no copycats.

 “This is unique with High Point where the city makes it so easy to get the end result, which is an affordable house,” says Graham. “I don’t know how we get there unless (other cities) act like the city of High Point. With other larger municipalities, you get into programs where federal dollars are involved. When you do that, it can get really complicated in a hurry.”

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