Candlebrook Properties Enters The Affordable Housing Market
Affordable housing comes in many forms, and there is no consensus on which is preferable. But a new company to the market wants to develop it in ways that remove the stigma of affordability from residents.
New York-based Candlebrook Properties started its new affordable housing arm, named CB3, in January as a “return to roots” for President Neil Rubler and Managing Director Josh Levy. Both came from backgrounds in the affordable market before starting Candlebrook as a market-rate, and eventually student housing, developer, and Levy decided it was time to “do something impactful.”
Levy’s father worked for a nonprofit, and his mother was a social worker, so while Levy is in the firmly capitalist field of real estate, the idea of performing public service was never far from his mind.
“We were interested in not only the public-private partnership, but the idea of a social impact investment in a community,” Levy said. “So when we were talking about what was next for our company, it seemed like the right step to take.”
Rubler’s family history is more directly related; his parents were affordable housing developers in New York.
“[Neil] also had a passion for this asset class, and we viewed it as a return to what we’d started out hoping to accomplish,” Levy said. “What better way to make an impact on the tenants we serve than with [affordable housing]?”
Affordable housing is so difficult to finance that ground-up construction with rent restrictions is a nonstarter in many markets. Since Candlebrook already focused on rehabbing historical or undercapitalized properties, CB3 brought the right kind of experience to the table. But whereas a market-rate renovation such as 251 Dekalb in King of Prussia can be a complete overhaul to create an ideal living environment, the choices for affordable building are much more difficult.
Making affordable feel like home
“When you think about how to be successful in affordable housing, it’s about hard decisions in where to put the money,” Levy said. “We spent an enormous amount of time considering where we really wanted to put money. Not from looking at the return on our investment, but to try to figure out where the money would be impactful.”
CB3’s first project, Berkeley Terrace in Irvington, New Jersey, was the test case. The firm closed on the 150-unit property in July and began the renovation process in September, with the goal of completing it in July 2018.
“Our residents continue to be in place, and we’ll provide temporary relocation during the rehab of their units,” Levy said.
Improvements to appliances and the exterior are always a priority, but Levy found that adding new windows had a massive impact on the look and feel of the buildings from conversations with tenants, in addition to improving energy efficiency.
Affordable housing prioritizes families, and families require community, safety and fun. In adding a playground and a security station, CB3 attempted to re-create a “gated community feel,” according to Levy.
Picking the right spots to invest is only becoming a harder choice, as the new presidential administration promises “draconian cuts to the housing budget,” according to Enterprise Community Partners Vice President and Mid-Atlantic Market Leader David Bowers.
“It’s been a mix. At the end of last year, there was a lot of uncertainty and we saw a lot of capital players making adjustments that would make it harder to fund affordable housing,” Bowers said, noting that many came back to the fold in the middle of this year. “It’s a tougher environment [than before the election], but not as bad as it was at the end of last year.”
Congress is less set on scaling back funding for affordable housing, and Bowers credits Capitol Hill dealmaking with preventing the hammer from falling. But the Department of Housing and Urban Development, led by Ben Carson, has experienced serious staffing gaps and policy changes.
“People that we work with at HUD are at a more local level, so while clearly there have been changes in prioritization and funding, the commitment from people on the ground has always been fantastic,” Levy said. “What changes is the availability of funding.”
The combination of increased interest rates and a 20% decrease in tax credits has added even more strain to the affordable housing market, causing a chilling effect on deals. With the level of demand for affordable housing, fewer things could be worse.
“The economics of it are kind of simple: less capital means fewer units,” Freddie Mac Vice President of Targeted Affordable Sales & Investments David Leopold said. “What we need to work to do is find new sources of capital, and make sure we’re leveraging what we have as aggressively as possible.”
Funding challenges only serve to heighten the need for developers like Levy and CB3 to find low-cost ways to preserve affordable units for the future. And in neighborhoods increasing in property value, affordable housing is both more impactful and more necessary.
“Not all affordable housing is created equal, and it has less to do with whether or not a unit has granite countertops and more to do with it being safe, decent housing in a safe neighborhood with access to services and opportunity,” Leopold said.