Facing the Affordable Housing Challenge

By Jeffrey Steele, Contributing EditorFinancing and developing affordable housing is never an easy task. And in today’s economic environment—one many observers are calling the worst in seven decades—affordable housing development is more challenging than ever.But obstacles often bring out the best in the industry’s leaders, among them BRIDGE Housing’s Carol Galante, Carlisle Development’s Matthew Greer, Enterprise Homes’ Chickie Grayson and MacFarlane Costa Housing Partners’ Michael Costa.According to Grayson, affordable housing is generally defined as housing for those earning 60 percent or less of the area median income.Workforce housing, she says, has a much broader definition, and is often thought of as housing affordable to those earning more than 60 percent but less than 120 percent to 150 percent of the median. “There are no programs at the federal level to create affordable housing for those with incomes of above 60 percent of median,” she adds.A number of demographic and societal trends are driving the need for affordable housing, according to Greer. One such development is increasing urbanization, which means there’s more competition for housing opportunities in high-growth job markets, he points out.In addition, income disparity between the highest- and lowest-earning deciles of the country continues to grow. “And you have a continuing pressure on wages from immigration and off-shoring of minimum- and lower-wage jobs,” Greer says. For her part, Grayson believes housing price hikes render housing unaffordable for an ever-larger segment of the population, who find they have to pay a greater percentage of their income for housing. “The need is great, and it’s always there,” she remarks. “It seems the one area where we haven’t paid a lot of attention yet is the segment of the senior population at 60 to 80 percent of median.”Multi-Housing News takes a close look at four of the nation’s leading participants in affordable housing, exploring their views on the challenges and opportunities today’s market environment presents.BRIDGE Housing Corp., San FranciscoNumber of units developed: More than 13,000 homes since 1983Regions: CaliforniaDollars in development: $1.8 billion in construction and/or in approvalsCarol Galante, president and chief executive officer. At press time, Galante was recently appointed by President Barack Obama as deputy secretary for Multifamily Housing Programs at the U.S. Department of Housing and Urban Development (HUD), where she will be responsible for HUD’s financing support for the development and preservation of privately owned rental housing.BRIDGE Housing is a non-profit, entrepreneurial developer, owner and manager of affordable and mixed-income housing, according to Galante. The company’s emphasis is on community revitalization and transit-oriented development.One of its most recent projects was North Beach Place, which involved a teardown of an early-1950s public housing development in San Francisco. All 229 public housing units were replaced, and another 112 units were added.”Traditionally, when it comes to tearing down old public housing, people try to lower density, but we added density in a totally redesigned way,” Galante says. “And we didn’t just add density, but we provided a feeling of ownership to the individual residents, while adding community services like Trader Joe’s, Starbucks, and a local ballet school on the ground floor. No one would know it’s affordable housing, because of the quality of the architecture and the quality of the management.” She calls “the meltdown of the financial sector” the top obstacle to affordable housing development today. It has challenged all leading participants in affordable housing, because the financial institutions were the primary purchasers of low-income tax credits, which provided substantial amounts of equity to create new affordable housing. “We are working to find a new class of tax credit investors,” Galante says.BRIDGE Housing is parlaying its relationships with major regional employers, from Google to Chevron, to gauge their interest in affordable housing development.Some of these same companies were active tax credit investors in the early years of the program—in the late 1980s—but affordable housing developers began to rely more on financial institutions in the 1990s. “They became the entire industry,” Galante says. “We really need to get back to where we were in the late-1980s and involve a wider range of participants in the process.”Carlisle Development Group, MiamiNumber of units developed: 7,485Regions: FloridaDollars in development: More than $1.2 billionMatthew Greer, executive officerCarlisle Development Group is a 12-year-old company whose mission is to combine the best of the for-profit and non-profit worlds to create affordable housing solutions, Greer says. “We pride ourselves on working with a lot of partners to help them achieve their vision of affordable housing in their communities.”Typical of Carlisle’s best work is Brownsville Transit Village, a transit-oriented development that uses land formerly owned by the county transit authority in Miami, which is expected to be complete in mid-2010, and the recently completed Royalton Hotel, the renovation of a 90-year-old historic hotel in the heart of downtown Miami into a facility providing housing and supportive services for formerly homeless downtown Miamians.A big challenge to developing affordable housing today is that gap financing is disappearing, Greer adds. Gap financing—the funds making up the difference between what you have and what you need, and which is most necessary in poorer urban infill areas—is falling victim to the tremendous budgetary pressures confronting local governments.The answer, Greer says, is “to be very creative in your financing, and to look more widely for partners who have a mission-oriented desire to create affordable housing and can bring some additional resources to the table. Cash is always king, but many times it’s not cash; it’s real estate tax abatements, free land and impact fee deferrals.”Greer feels many communities are missing out by not funding affordable housing now, at a time of low construction and land costs. They could put some of their unemployed workforce back to work, fund affordable housing at a more attractive price than they could earlier, and see that housing pay dividends for years to come.Enterprise Homes, Columbia, Md.Number of units developed: More than 4,300 Regions: Mid-AtlanticDollars in development: Approximately $480 millionChickie Grayson, presidentFounded in 1985, Enterprise Homes creates opportunities for affordable housing in home ownership and rental housing. Enterprise Homes develops models for financing affordable housing, Grayson says. “That’s important, because it’s financing that can make it affordable for residents.”Emblematic of its work is Heritage Crossing in Baltimore, a townhouse and two-story apartment community boasting traditional neighborhood design. Heritage Crossing was designed to push the envelope in creating significant for-sale and rental housing for people from all walks of life. She calls the current main challenge to affordable housing “financing, financing, financing” and recommends accessing financing as much as possible through the American Recovery and Reinvestment Act. “Land is very reasonable right now,” she says.”I’m actually very optimistic. I think pricing is coming down, and opportunities are much more available to us than they were three years ago.”In the current abysmal economic environment, relationships with banks and other institutions are among the most important attributes for anyone attempting to finance affordable housing development, she adds. That’s because many banks and other lenders are only lending to those with whom they have current or prior relationships.”You can partner with somebody who has those relationships,” Grayson says. “It’s important to be strategic about how you try to gain your financing.”Number of units developed: More than 14,000 as primary developer over 15 years, with another 14,000 developed working with thir
d-party developersMacFarlane Costa Housing Partners, Gardena, Calif.Regions: 33 states and Puerto RicoDollars in development: $40 to $50 million currently under constructionMichael A. Costa, president MacFarlane Costa Housing Partners is a developer, builder, financier, owner and operator of affordable housing. Asked to identify his favorite among his company’s affordable housing ventures, Costa replies that he’d be hard pressed to name just one.”Our philosophy as an affordable housing developer is to develop housing that doesn’t look like affordable housing. If you drive by, you would never be able to tag that as affordable housing. We enter contests like the National Association of Home Builders’ Pillars of the Industry Awards, and have been fortunate to have been named a finalist six or seven times—and to have won three times.”He adds, “And we were the first affordable housing developer to win NAHB’s Pillars of the Industry’s Builder of the Year Award.” Obtaining financing is “without question” the top challenge to affordable housing development in today’s economic environment, Costa says. And that challenge is not simply seen within the traditional context of obtaining financing from a bank, but also in landing all the funding sources that are needed to cover the costs of a project. “Often, we will have as many as four or five layers of financing,” he says. But Costa believes that during any downturn there are opportunities for those who are good at what they do. One of the things Housing Partners is particularly adept at is maintaining very close relationships with state and local municipalities. It does so because those governmental entities often have the financing sources needed.”Cities have funds, states have funds, counties have funds,” Costa says, adding that a company like his must work closely with all of the localities to stay up-to-date on changing programs that assist in development of affordable housing.He adds, “We are meeting with several cities and the state of California to help design the most efficient use of those funds.”