4:08pm

Tue February 11, 2014
U.S.

Nonprofits Pull In Investors To Tackle Housing Affordability

Originally published on Thu February 27, 2014 11:56 am

One of the biggest problems facing low-income families in the U.S. today is a lack of affordable housing.

According to a recent report by the Joint Center for Housing Studies at Harvard, more than 7 million low-income households now spend more than half of their income for rent, which leaves little money for anything else. And the situation is expected to get worse.

Now, a coalition of nonprofit groups is trying to turn things around with a new, more business-like approach to buying real estate. They hope to preserve housing units that low- and moderate-income families can afford.

Christopher LoPiano is senior vice president for real estate at Community Preservation and Development Corp., a nonprofit that develops, owns and operates affordable housing in the Washington, D.C., area and Virginia.

LoPiano says it was frustrating when his group made offers to buy eight properties in Virginia over the past few years and got the same answer every time.

" 'No, thank you.' That's what kept happening to us," he says. " 'No thank you.' "

It wasn't the price. LoPiano says his group was competitive with other buyers when it came to price.

"What we're not competitive on is closing quickly," he says, "because we're dependent upon public financing, and public financing just takes longer."

LoPiano says such real estate deals often involve government bond issues and housing tax breaks, which can take months, even a year, to be approved.

"And sellers in today's market are not willing to wait that," he says.

So LoPiano's group and a coalition of other housing nonprofits, called the Housing Partnership Network, decided it was time to get creative — to do what private investors have done for decades. They became the first nonprofits to form what's called a real estate investment trust, or REIT. It allows investors to pool their funds to buy property and collect dividends — and involves no public financing.

The nonprofit groups figured they could offer potential investors a modest return on their money — about 5 to 7 percent. It's less than what they'd get from a private-sector REIT, but the groups also appealed to investors' desire to preserve affordable housing. And they got several big ones — Prudential, Morgan Stanley, Citibank and the Ford and MacArthur foundations — to chip in an initial $100 million.

LoPiano says the nonprofits' new REIT has been a "game changer."

Late last year, the Housing Partnership Equity Trust successfully closed on a 300-unit garden apartment complex in Norfolk, Va., called Woodmere Trace. It's tucked away in a wooded area, not far from the Norfolk airport and two military bases, and is one of the more affordable places in the working-class neighborhood.

Right now, the new owners are busy fixing things up. Property manager Georgia Pitrone says things were in pretty bad shape when they took over the 40-year-old apartments.

"We found when we took everything out, that there was a lot of dry-rotted wood. And a lot of issues from poor repairs. So we're addressing all of that before they put anything back," she says, as she shows off one unit where the old kitchen has been replaced with new appliances, cabinets, counters and floors.

Most of the units will also get new bathrooms and decks, she says.

And that's what the housing partnership hopes to do here and elsewhere — fix up moderately priced apartments that might otherwise fall into disrepair or be purchased by developers who jack up the rents, forcing existing tenants to move.

Drew Ades, who runs the Housing Partnership Equity Trust, says his group is here for the long haul, unlike some other investors whose primary goal is making a big profit.

"What we're trying to do is keep rents affordable, but also really invest in the property, really invest in the community and really invest in the residents," he says.

Ades notes that most are low-income working families or retirees. Many have jobs at the nearby military bases or retail stores, and make as little as $30,000 a year. He says they're just the kind of people being squeezed out of today's rental market, and who might be forced to leave their community or even become homeless.

Frank Spicer is one of those residents who's glad that he can stay at Woodmere Trace. The 80-year-old retiree moved there two years ago after selling his house in nearby Newport News. He says he looked at other apartments in the area — where he's lived and worked most of his life — but other places were too expensive.

"Everything was $1,000 or $1,200 if I wanted to move in. I just couldn't really afford to do that," he says. Now, he pays about $800 a month for a one-bedroom apartment.

Spicer says if this apartment wasn't available, he'd probably have to go to live with his daughter, but that he wants to live on his own.

So far, the Housing Partnership trust has purchased three properties like this — in Virginia, Illinois and California. Ades says the trust is looking at other apartments and making plans to raise an additional $250 million.

Keven Lindemann is director of real estate at SNL Financial, a company that analyzes the market for investors. He thinks the new housing REIT shows promise, but says the challenge for the nonprofits will be to attract new investors.

"I would guess that their ability to do that on an ongoing basis will be determined by how successful they are with this first $100 million," Lindemann says.

By "successful" he means balancing competing demands — keeping rents low and the property in good shape, while also satisfying investors who could be making more money elsewhere. Lindeman thinks the housing groups might have to rely on investors' desire to do something with their money that has a positive social impact.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

This year is the 50th anniversary of Lyndon Johnson's war on poverty. And we're using the occasion to explore some challenges facing today's poor. One is a lack of affordable housing. Today, millions of poor families spend more than half of their income on rent, leaving little money for anything else. NPR's Pam Fessler reports some nonprofit groups are trying to change that with a new business-like approach to real estate.

PAM FESSLER, BYLINE: Christopher LoPiano's job is to buy and operate housing for low- and moderate-income families. So it was frustrating when he made offers on eight properties in Virginia and got the same answer every time.

CHRISTOPHER LOPIANO: No, thank you. That's what kept happening to us. No, thank you.

FESSLER: It wasn't the price. LoPiano's group, a nonprofit called Community Preservation and Development Corporation, was competitive on price.

LOPIANO: What we're not competitive on is closing quickly because we're dependent upon public financing, and public financing just takes longer.

FESSLER: He's talking about getting approval for government bonds and tax credits often used in these deals. It can take months, even a year.

LOPIANO: And sellers in today's market are not willing to wait that.

FESSLER: So, LoPiano's group and something called the Housing Partnership Network decided it was time to get creative, to do what private investors have done for decades. They formed what's called a real estate investment trust, or REIT. It allows investors to pool their funds to buy property and collect dividends. The nonprofits figured they could offer a modest return, 5 to 7 percent. And they got several big investors, like Prudential and Morgan Stanley, to chip in $100 million. LoPiano says it's made all the difference.

Late last year, the Housing Partnership Equity Trust successfully closed on a 300-unit garden apartment in Norfolk, Virginia. It's called Woodmere Trace, where workers now are busy fixing things up.

GEORGIA PITRONE: This is the renovated kitchen.

FESSLER: Georgia Pitrone is the property manager. She shows me one unit where the 40-year-old kitchen has been updated with sleek, new appliances, cabinets, and floors. The bathrooms and decks are also being redone.

PITRONE: We found when we took everything out that there was a lot of dry-rotted wood and a lot of issues at poor repairs. So we're addressing all of that before they put anything back.

FESSLER: And that's what the housing partnership hopes to achieve, fixing up moderately priced apartments that might otherwise fall into disrepair or be purchased by developers who jack up the rents, forcing existing tenants to move. Drew Ades runs the housing trust. He says they're here for the long haul.

DREW ADES: What we're trying to do is, you know, keep rents affordable, but also really invest in the property, really invest in the community and really invest in the residents.

FESSLER: Who, for the most part, are low-income working families or retirees. Many have jobs at nearby military bases or retail stores and make as little as $30,000 a year, just the kind of people being squeezed out of today's rental market, sometimes into homelessness - people like 80-year-old Frank Spicer.

FRANK SPICER: Please come in.

FESSLER: Spicer moved to Woodmere Trace two years ago after he sold his house nearby. He says other apartments in the area were too expensive.

SPICER: Everything was 1,000 or $1,200 if I wanted to move in. I just couldn't really afford to that.

FESSLER: Here, he pays about $800 a month for a one-bedroom.

Did you know what you would do if you couldn't find an affordable apartment right here?

SPICER: I would go live with my daughter, I think.

FESSLER: But he says, to be honest, he'd rather live on his own. So far, the Housing Partnership has purchased three properties like this around the country. CEO Drew Ades says they're hoping to raise an additional $250 million. Keven Lindemann, who analyzes the real estate market at the firm of SNL Financial, thinks the nonprofit's plan has promise. He says the challenge will be attracting new investors.

KEVEN LINDEMANN: I would guess that their ability to do that on an ongoing basis will be determined by how successful they are with this first $100 million.

FESSLER: And by successful, he means balancing competing demands - keeping rents low and the property in good shape, while also satisfying investors who could be making more money elsewhere. Lindeman thinks the housing groups will have to appeal to investors' desire to do something good for society. Pam Fessler, NPR News. Transcript provided by NPR, Copyright NPR.