New York–Everyone in the multifamily industry has heard the buzz about the economy turning around. In general, businesses are doing better, or at the very least, have their heads above water. The affordable housing sector, for which there is more pent up demand than market-rate multifamily housing, things are finally getting better.
“Yes, things are now starting to look up,” says AMCAL CEO Percy Vaz. “There’s no gold rush or anything but there’s talk of investors coming back into the market. So this is definitely an improvement. There’s no slide in tax credit prices but they are marginally increasing as investors come in. There is also talk of construction loans being made. These are the early signs of a turnaround.”
AMCAL currently has eight projects under construction and they have several in the pipeline for next year. Vaz says that while the market for affordable housing product is improving, in the rural areas it is still quite weak. “We are treating those projects like market-rate housing in terms of the marketing we need to do for them. We are a lot more proactive and do a lot of outreach in those communities. In the good old days, people would just come and line up out of nowhere, and it’s not like that anymore,” says Vaz.
Cynthia A. Parker, president and CEO of Bridge Housing agrees with Vaz, “Things appear to be better but I also think we are going to be at the bottom for a long time. In terms of development of properties, particularly tax credit properties, we have a strong stock—800 units under construction right now.” Bridge Housing expects next year to be similar. With the California subsidy market at a real problematic level, the company is spending a lot of time looking at alternative means of financing without state subsidies. “We are putting in a significant amount of effort into using high-net worth individuals to invest in our product and are also looking at doing gap financing,” says Parker.
For next year, Bridge Housing is going slower but still has 30 projects in the pipeline.
While no one is denying that they’re happy about the impending turnaround, Jim Silverwood, president of Affirmed Housing Group, isn’t one to have been waiting around for that to happen. “We have used the last two years as an opportunity to create more affordable housing. The downturn has provided two areas in which there has been an advantage: the land prices have come down and the terms on which you purchase the land have become more lenient, which is advantageous for the buyer. There has also been a reduction in construction costs in the last two years and in addition, the quality of construction has gone up in the last two to three years because the tradesmen are paying more attention to detail.”
Silverwood agrees that the failure on Wall Street had a very negative impact on the tax credit industry but he now sees some light. “There are some positive developments on that front. It appears from conversations with many different investors that new investors are coming into the market and propelling the market. I would say we reached the bottom in August-September 2009 and things are now looking better,” explains Siverwood.
Affirmed Housing Group completed two projects last year and had three others under development. This year too, the company has five developments under construction.
For Sale Affordable Housing Still a Challenge
Despite a shortage of affordable housing in the country and a growing need for it, it hasn’t been an easy ride for affordable housing managers to fill up their units. Not to mention the for-sale product, which has taken a bigger hit.
“We have some for-sale affordable product in San Francisco and although we are moving it, it’s not like the days when we used to have a lottery for people to be the in the first batch of qualified buyers,” says Parker. “We are now doing a lot of marketing for what is a very good deal for low-income families. The credit market is such that qualified buyers are worried about losing their jobs or don’t have a job, and are worried about the restrictions on buying. Our rental projects on the other hand, have a waiting list.”
AMCAL is so vary of the for-sale product these days that it isn’t even building any. The last for-sale product AMCAL built was sold in 2008. “We won’t be looking at it at least till the end of 2011. Buyers and investors are both nervous about the it,” explains Vaz.
While it’s definitely harder for the for-sale product to move off the market, rental communities are facing their own set of issues. Silverwood says, “We have seen a slight uptick in our vacancies and some bad debt. This is due to more people wanting to double up. We don’t allow that because we have a regulatory agreement as to how many residents can stay in a unit. We restrict the number of tenants in an apartment, but a market-rate unit has relaxed rules, so they may allow six people to live in a unit, and this has had a negative affect on us.” Affirmed Housing Group’s vacancy rate across its portfolio used to be less than one percent, but in the past two years, it has climbed to three-four percent.
Like conventional multifamily, affordable housing developments have now moved toward green and sustainable building practices. Developers have started providing social services such as childcare and senior citizens services, English as a second language in immigrant communities, medical advice etc.
Many affordable housing developers, like Affirmed Housing Group have moved to social media networking in the last few years. Silverwood says, “Our management company has informed us that Craigslist is the number one media source for us to attract new renters, so that’s been a significant shift in the last two-three years. We also have Twitter and Facebook and active electronic newsletters.”
The company has one person whose job is pretty much dedicated to maintaining those accounts and making sure the company is promoted through electronic media.