Affordable Housing Deals Are Getting More Plentiful, But More Complex
No two affordable housing projects are the same, and no project can get done with just one or two partners and/or revenue streams. As we learned last week at Bisnow’s Affordable Housing Forum, creating and improving communities takes a community all its own.
Each member of the community development panel told the story of a memorable project, with some counting more than eight or nine different funding sources needed to make the financials work, everything from the Low Income Housing Tax Credit to money from the DC Housing Protection Trust Fund to Section 8 vouchers.
The panel featured moderator Jeff Lesk of Nixon Peabody, Dantes Partners managing principal Buwa Binite, Neighborhood Development Co CEO Adrian Washington, Enteprise Community Partners VP David Bowers, Jubilee Housing president Jim Knight and Jair Lynch Development Partners investment manager Phuc Tran.
Buwa—whose firm, Dantes Partners, won the right to redevelop Capitol Vista near NoMa and Mt. Vernon Triangle on Friday—didn’t mind all the numbers talk. At 9th Street NW and Rhode Island Ave in Shaw, Dantes redeveloped the Phyllis Whitley YWCA into 84 units of permanent supportive housing. It took two years to put the financing together, including loan forgiveness and restructuring by the DC Department of Housing Community Development.
“I’m a geek,” he told the crowd of nearly 300. “I just love financing.”
Phuc talked about the tax abatement Jair Lynch’s Paul Laurence Dunbar apartments at 15th and U Street received. Jim discussed a mixed-use project in Adams Morgan with a childhood development center, family resource center and teen after-school program. Adrian discussed his Residences on Georgia Avenue, originally a four-parcel assemblage, including an alley that NDC closed.
“It takes a lot of creativity, a lot of brain damage, a lot of pushing, and, in the two weeks before closing, a lot of praying,” Adrian said.
While much of the attention surrounding affordable housing goes to new development, it’s preservation that will be a huge part of the formula to making sure DC improves as a city that can house all of its residents. Because, as City First Bank of DC CEO Brian Argrett said, “it’s very difficult to create affordable housing because the land prices are so high.”
That's Brian on the right next to National Trust Community Investment Corp project manager Christina Smith and Nixon Peabody's David Schon, who discussed offsetting those prices through new market and historic preservation tax credits, sometimes at the same time.
“Production is not going to be our panacea,” DHCD director Polly Donaldson said. That's CohnReznick's Winell Belfonte on Polly's left and JPMorgan Chase community banking executive director Brett MacLeod and former HUD general counsel, current Nixon Peabody partner Monica Sussman.
“It’s not the only way," Polly continued. "It’s looking at preservation as a strategy. We don’t have a strategy in the District. That’s why the Housing Strategy Strike Force is presenting a proposal to the mayor.”
And while preservation is seen as the strategy of choice among advocates and the government, Brett said the investment side knows how risky it can be. LIHTC deals are known to be incredibly low-risk investments—with a 0.3% default rate, he said—with one exception.
“The cost overruns on preservation deals are much more likely,” he said. “In the portfolio of affordable deals, it’s been the light rehab deals that have had issues."
There are no surprises with ground-up development, or replacing a building. But making estimates on which to base investment deals is a tricky game.
“It’s a different beast,” Brett said. “Go in with your eyes wide open on what you’re getting into. Until you get behind the walls, you don’t know what you’re dealing with.”
Despite the inherent challenges—land prices, a high level of ongoing expenses, multi-layered financing deals—there is a lot of momentum for affordable housing. Mayor Bowser again included $100M in the FY 2017 budget for the HPTF, and on March 31 DHCD will release a new slate of RFPs for that funding, which is leveraged with federal funds to get even more projects going.
“It’s a great time to be in affordable housing,” Brett told the crowd at the stunning Atlas Performing Arts Center on H Street. “Rates are at historic lows. The debt and equity pricing are at historic highs. A lot of deals that normally would not pencil out do right now.”
No one should be patting themselves on the back and relaxing, however. One of the region’s thought leaders and most prominent funding partners, Enterprise’s David Bowers, said “confusing progress for mission accomplished is incredibly small thinking.”
“I get sick and tired of the small thinking that we in this industry have,” David, getting animated, said. “The folks driven by only profit, they don’t ask, they demand.”
“$100M is bold,” he continued. “Applaud that, it is huge, huge, huge progress. But we’ve got a long way to go.”