The entire process of developing affordable rental housing needs to be streamlined, according to panelists who addressed the drivers of development costs at the ULI Fall Meeting in Chicago.
Bending the cost curve is as complex as the financing packages often needed by developers to make their projects work, the panelists said. But they said there are ways to do so.
For example, BRIDGE Housing, a large, nonprofit West Coast developer, is part of a real estate investment trust (REIT) created by a dozen affordable housing developers to acquire properties.
The advantage is that “we can close quickly,” said BRIDGE President Cynthia Parker. “Once a sponsor finds a property, it is purchased by the REIT.”
So far, according to Parker, the REIT has acquired 40 properties. And it plans to raise some $500 million in 2014 to buy even more.
Then there is the charette-like gathering that the Cornerstone Group used earlier this year to find funding for one of its Minneapolis-area projects. “We brought together all the different funders at the same time,” said the firm’s development director, Beth Pfeifer.
Pfeifer said “getting everybody at the table . . . has been extremely effective” for her small, for-profit company. “If they can’t commit, we can’t commit,” she said.
Even government has an idea or two on how to grease the wheels for affordable housing. Pennsylvania, for example, is allocating additional low-income tax credits as an incentive for innovative design, according to Holly Glauser, director of development at the Pennsylvania Housing Finance Agency.
The panelists were playing off a new report on understanding the drivers of affordable rental housing development from the ULI Terwilliger Center for Housing and Enterprise Community Partners. The 12-page paper released at the Fall Meeting will be followed by a more comprehensive report in January.
The initial paper contains several broad recommendations. One is to promote cost-effectiveness through consolidation, simplification, and coordination, a method Glauser said her one-stop agency is advocating in Pennsylvania.
“We’re trying to be flexible in understanding the complexities of the various projects,” she said. “We need flexibility to make them work. But it’s a balancing act.”
More “like threading a needle,” agreed Pfeifer from the Cornerstone Group, who talked about one project in which there were 11 sources of funding.
According to Andrew Jakabovics, senior director of policy development and research at Enterprise, the “Bending the Cost Curve” report is based on roundtable discussions with more than 200 key stakeholders representing both weak and strong markets of various populations and geographies in a range of political and policy environments.
The research found that there are any number of “sticking points” that can raise costs, said Jakabovics, who advised developers to “find someone (in the process) who has the authority to give a little bit.”
“It’s really about the process,” he said. “There are lots of challenges, but the whole process needed to be streamlined.”
Parker of BRIDGE agreed: “Unless we try to simplify at all levels, we’re not going to get costs down.”
According to Jakabovics, three-quarters of the nation’s rental stock is in small, older projects of five to 49 units. Half is in projects of fewer than 20 units.
“The older, smaller nature of the market makes it difficult to maintain and manage affordable housing units,” he said. “They are scattered across a huge number of properties.”