Magazine article Real Estate Issues

Affordable Housing through Non-Profit/private-Public Partnerships

Magazine article Real Estate Issues

Affordable Housing through Non-Profit/private-Public Partnerships

Article excerpt

In less than five years, the Southern California Housing Development Corporation (SCHDC) of Rancho Cucamonga, California, has accomplished something extraordinary. Without the benefit of initial seed capital and structured as a private non-profit 501C(3) corporation, SCHDC has acquired and rehabilitated close to 2,500 rental housing units with a current approximate market value of over $100 million and approximately $40 million in equity. What makes this accomplishment even more remarkable is that 60 percent of the units qualify as low to moderate income affordable housing and all were acquired through a series of public/private partnerships. Since this kind of success breeds success, SCHDC expects to replicate their success throughout the nation by acquiring and rehabilitating 750-1,000 additional units per year into the foreseeable future.

THE GROWING NEED FOR COUNSELING

Public agencies frequently engage the services of real estate counselors to assess affordable housing needs, evaluate housing market conditions, analyze joint-venture proposals and financial projections, or make a variety of other recommendations regarding the potential success of the public/private venture. Prior project failures have caused understandable skepticism, as many have become gang controlled, drug infested slums. Few have truly flourished and succeeded. Hence, limited public funds must be invested wisely as demand for affordable housing swells. Current estimates peg the nation's supply of affordable housing units at 9.4 million, down from 10.3 million in the last decade, according to the U.S. Housing & Urban Development Department (HUD). Yet as early as 1990, HUD estimated that 12.5 million renter households were in need of affordable rentals, 5.4 million of these paying 50 percent or more of their annual income for rent. The subsidized Section 8 Federal program has provided a mere 1.25 million units, 840,000 of which are under Housing Assistance Programs all scheduled to expire by the year 2003. The estimated cost to renew these subsidies is $16 billion, while the total current budget for all HUD programs is $24.2 billion. By rough approximation, at least two-to-three million affordable housing units are currently needed in addition to those already available. The recent success of SCHDC strongly suggests that real estate counselors can greatly assist their housing agency clients by seeking out viable non-profits and applying many of the same principles systematically employed by SCHDC.

NON-PROFITS AND LOCAL GOVERNMENTS ARE NATURAL PARTNERS

For-profit real estate developers and investors are understandably motivated by the profit incentive. They tend to favor new construction over riskier rehabilitation projects and market rate rental housing versus low to moderate income rentals. Unfortunately, this frequently results in a misalignment of objectives with local governments. Local governments' primary incentives are preservation of existing housing stock and neighborhood revitalization, resulting in reduced costs for required public services (fire, police, etc.), and increased housing opportunities in the low to moderate income range.

Through non-profit/local government partnerships, local governments contribute debt or equity capital and the non-profit contributes management expertise and operating experience in the acquisition and development of affordable housing along with significant neighborhood revitalization benefits. The advantage of these revitalization projects are that they tend to be politically viable, avoid local resident resistance, maintain the existing housing stock, and accomplish these objectives at substantially lower costs. For example, a typical new construction affordable housing project in Southern California may cost $110,000 to $150,000 per unit while the typical revitalization project should fall in the $50,000-$75,000 per unit range. The typical partnership also provides for operating profits to be reinvested in the project rather than paid out as investment returns as in a typical for-profit project. …

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