A clarion call for change in asset management.
A year ago, we all believed that we knew what stable housing meant, what it required, and what asset management entailed.
We were wrong.
The pandemic has exposed major gaps in our practice concerning what people need, how people work, and how our real estate functions in communities. These gaps include the following:
- Security. This once meant tenure security, or security from crime. Now we know that food security also matters, as does health security. During the coronavirus pandemic, many of our residents were food or health insecure.
- Resident voices. Before COVID-19, we sought to hear resident voices through resident community meetings. Now we know that broadband—availability, accessibility, and affordability—is as essential a utility as electricity and phone service.
- Resident services. Our pre-COVID organizations knew only abstractly that resident services were important to successful tenancies. Now we know that such services are a critical dimension of providing property management in a crisis and even successful workouts.
- Social and racial justice. A year ago, we thought that doing our part to challenge injustice meant delivering high-quality affordable housing. The pandemic has shown that where you live strongly influences how healthy you can be, and that social or racial exclusion hurts a whole community’s health.
We, the owners and operators who work in affordable multifamily housing, need to rebuild our asset management protocols from the ground up.
Same Mission Viewed through New Eyes
For more than a year, we have coped with social distancing, hoping that things would go back to normal. But even as the vaccines take hold and the contagion risk recedes, we will never go back to our previous unawareness. From now on, when we speak of creating inclusive communities and staffs, we will look beyond our properties’ front doors to the neighborhoods, districts or wards, and towns and cities where we have existing properties and where we create new ones.
For a few decades, we have balanced a tension between two views of where we should place affordable housing:
- Add it to desirable neighborhoods, with schools, many amenities, and strong job bases, or
- Expand high-quality housing opportunity in places that lack municipal or social infrastructure, are minority or racially excluded, or have concentrated or structural poverty.
Today, that dichotomy seems both embarrassingly simple and unhealthily false. When a city is divided into neighborhoods of rich and poor, where people work together during the day but live apart at night, both neighborhoods suffer.
For every new affordable unit our industry creates, we maintain or operate another 19, and though we can choose where the new ones go, the old ones stay put.
If equitable new development and investment are the point of change’s arrow, equitable preservation and redevelopment of existing housing are its broad base. It is insufficient just to make new properties better than the old ones; we have to make existing properties better than they are today. We have to expand our old definition of equity, which focused on economic value, to include social and racial equity. As much effort as we put into measuring, valuing, and improving economic equity in our properties, we must now put equal effort into measuring, valuing, and improving social equity in our neighborhoods.
In the first months of the pandemic, the Consortium of Housing and Asset Management (CHAM®), led by Enterprise Community Partners, the Local Initiatives Support Corporation (LISC), the National Association of State and Local Equity Funds (NASLEF), and NeighborWorks America, used virtual conferences to explore how mission-oriented housing developers—especially nonprofit ones—are meeting this crisis. While CHAM focuses on mission-oriented housing, especially nonprofit owned, the pandemic and social justice forces should make all owners think more deeply about the impact on residents of being forced to chose among food, rent, health, and safety, as well as the financial health of the real estate development.
Stockton Williams, executive director of the National Council of State Housing Agencies and former executive director of the ULI Terwilliger Center for Housing, led three Centers for Disease Control and Prevention (CDC) directors in exploring the changing roles of asset management. Some fundamental shifts emerged:
Resident services have always been part of the double bottom line of mission housers, who serve not only poor and special-needs families, but also seniors and, often, workforce populations unable to afford market rents. The panel noted, however, that resident services had moved from a tangential role, often excluded from organizational strategic and operational meetings, to a central role including monthly and even weekly meetings to coordinate with property management and ownership.
Priya Jayachandran, CEO of the National Housing Trust, went further, suggesting that resident services needed to work alongside asset management as an equal. Josh Simon, executive director of the East Bay Asian Development Corp., agreed that resident services and asset management must work together as partners and need to be part of senior leadership teams.
The housing standard that we strive for has shifted. Greta Harris, CEO of the Better Housing Coalition in Richmond, Virginia, put it this way: “We need to provide grace, space, and a safe place.” That is a long way from our long tradition of “safe and sanitary housing.” It is more like what David Smith, the CEO of the Affordable Housing Institute, and Matt Hoffman, director of health-secure housing at the Affordable Housing Institute, are calling “health-secure housing.”
Resilience requires a far-reaching web of external partnerships to meet different kinds of crises. Dealing with problems in the supply network is just a subset of a deeper need for understanding what a property and its residents need to meet a crisis. Resilience requires much better communication, data sharing, and even cross-training internally.
Better data, ethical data. There is so much more that we should know about our residents than we do: how to best communicate; which residents have access to the internet; which residents have health challenges; and which residents have support networks. We also need to know which residents are excluded from systems and why.
The unifying theme of the conversation, underscored by a polling of the audience, is that the single most important lesson was to set an asset management goal to “adjust our understanding of disaster planning to apply a racial equity lens to policies and procedures.” Williams and the panelists called for courageous leadership to take calculated risks to achieve systemic change.
Underwriting for Resilience
The webinar panelists also delved into how investors and partners are responding to the challenge of underwriting for resilience.
James A. Fox, managing director, JPMorgan Chase, set the baseline for the underwriting discussion by demonstrating analytics that stress-tested 4,500 properties across the United States and concluded that at that point, early on, the risk to the lender was very manageable. Based on revenues, expenses, and reserves, the properties seemed solid from a lender perspective.
Cat Vielma, senior vice president, Red Stone Equity Partners, pointed out that risk “is the possibility of danger” rather than immediate danger, and resilience is the ability to rebound from risk. She cautioned against prematurely declaring the crisis over.
Taking this argument further, Chrystal Kornegay, executive director of MassHousing, said that “the resilience of the property does not matter if the residents cannot live there. We need to think about the whole ecosystem.”
As an example, she observed that while JPMorgan Chase could underwrite the property’s debt risk and Red Stone could underwrite its investment viability to deliver its low-income housing tax credits, a government agency such as MassHousing needs to underwrite the ecosystem as a whole and ask the ultimate policy question: Is this the optimal use of scarce public resources?
Smith of the Affordable Housing Institute took the understanding of resilience to a deeper level by introducing the “Health Security Index” that the Affordable Housing Institute is developing to measure how well our housing structures and systems can help us to manage the health of residents.
The panel developed the notion that each stakeholder underwrites differently, with each taking different slices of risk and mission. Panelists agreed that the pandemic was pushing each to extend their portions of risk and mission to new levels. While in the past, each tended to underwrite “their” piece of the risk, now each stakeholder tries to align its investment and risk with the big picture and owner perspective.
The Asset Management Team
The asset manager is the quarterback of crisis response whose job is to project revenues, allocate resources, and align the essential needs of both the residents and the properties. One of the first things that the Illinois Development Authority (IDA) did in response to the pandemic was to move staff from underwriting to asset management. While IDA had a risk management team to assist owners before COVID-19 hit, the pandemic required more staff to make that team an effective early-warning system.
Finally, the combined impact of the pandemic and the demand for social justice means rethinking how management relates to residents, improving the technology and techniques of communication, and building a more diverse staff at all levels. The cross-training of staff and the leveraging of existing talent make an organization resilient. Many organizations are investing in new technology to communicate with residents and staff. Multiple platforms—phone, email, and text messaging—are all needed.
We have long understood that affordable housing owners and their asset managers need to have a clearer and honest understanding of how residents view management ownership. What is the level of trust and confidence? How sensitive is staff to the needs of the residents? Does the staff understand and respond to the challenges facing residents?
Moving into Permanent Ecosystem Change
COVID-19 caught our industry by surprise. Many people, including headquarters staff, field staff, and residents, performed heroically, and we have largely come through it. But our lack of preparation for the pandemic was part of a larger deficit in planning for natural disasters such as California fires, eastern hurricanes, and floods, all exacerbated by climate change.
The pandemic struck systems and families at whole new levels and over more-protracted periods. We must recognize that failures of social justice undermine communication and effective management and make disaster management even more difficult.
Every affordable housing organization will have to find ways to mesh the perspectives of development and underwriting, asset management, property management, and resident services. We all must develop databases that allow these groups to share information and create common goals.
Investor/partner relations will need to provide for more flexibility. They will need to have deeper transparency at the organizational level. Investors will need to bring more expertise to the table along with demands of compliance. We have long understood that affordable housing depends on partnerships; now we know that crisis response throws out the organogram in favor of human-to-human, fast-evolving response based on shared interest and shared humanity.
Emerging from lockdowns, we know that there will be many practical changes:
- No-contact leasing and virtual marketing;
- Reduced contact in building entryways and elevators;
- Improved airflow and filtration;
- Greater internet availability;
- Regular stress-testing of finances for different eventualities;
- Integrated disaster planning;
- Protocols for emergency waivers or shifts in partnership requirements;
- Access to reserves; and
- Integrating development, asset management, property management, and services.
Will these operational changes also result in substantial changes in our business? We asked more than 400 conference participants if they had changed their operational practices. More than a third said that practices changed “significantly,” but only one quarter thought the changes would endure. Over half said that practices changed “moderately,” and two-thirds of those participants thought that the changes would last.
COVID-19 and the rise of the racial justice movement have dramatically changed many of the fundamentals of asset management. Our properties and their mission must survive in the face of drastic loss of revenue, increased needs for cleaning and maintenance, and new platforms for communication with staff and residents.
For-profit and not-for-profit owners alike have reexamined their premises in relation to family needs, food insecurity, the loss of transportation options, and the social processes we have built into property management. Building design and resident service programming must be developed around resident voices and must be trauma-informed.
Our goals are changing and so is our practice. Beyond social distancing, we must practice social cohesion.
HAROLD NASSAUM is president of CHAM®, the Consortium of Housing and Asset Management, and senior director of asset management programs for NeighborWorks America.