Corporate Dollars, Government Grants : Innovative Fund Takes Aim at Homeless
Their goal is to generate 1,000 new low-income apartments in Los Angeles each year by marrying corporate dollars and government housing funds.
As part of a nationwide campaign to wed the two funding sources, directors of the Chicago-based National Equity Fund are taking aim at the Los Angeles housing market in the hopes that such a marriage of funds can be arranged here to generate more low-income housing.
At a time when a record number of homeless families are roaming city streets and federal housing dollars are dwindling, most housing experts are quick to agree on the tremendous need for affordable housing in Los Angeles. They are hopeful that the void can be filled partly through the efforts of this innovative real estate investment fund.
The fund is a spinoff of the nonprofit Local Initiative Support Corp., which has helped community groups throughout the country build thousands of units of low-income housing.
“They’re pioneers in this area and have gotten (their equity fund) off the ground very quickly. They bring to this whole endeavor a good track record,” said Barry Zigas, president of the National Low Income Housing Coalition in Washington.
In light of drastic federal housing cutbacks, he said, “one of the very few ways” to create new affordable housing is through vehicles like the National Equity Fund and several similar funds that have been started up elsewhere to take advantage of new tax breaks for corporations.
The fund’s objective is to provide the financial means to open the door for nonprofit corporations to become builders of low-income housing. In the past, many nonprofit groups--church groups, community-based organizations and social service providers--have been deterred from building because of the difficulty of raising private seed money necessary to obtain bank loans and government funds.
“The talent, the people, the motivation is all here,” said Anita Landecker, who is spearheading National Equity Fund activities in Los Angeles. “They have lacked only the means.”
During the last two months, the group has embarked on a fund-raising drive to raise a pool of capital from Southland corporations. So far, Landecker said, one Los Angeles corporation has promised $1 million and three more are considering making comparable investments in the fund. In return, the corporations are eligible for valuable tax credits, available under the 1986 federal tax law revision. The National Equity Fund will then leverage the corporate dollars by teaming up with nonprofit corporations to secure dwindling government funds and private loans to build low-income units.
There is a “desperate need” in Los Angeles for housing for “very low-income” families, said Howard Bricker, a division chief in the Department of Housing and Urban Development. He said a 1985 study of the Los Angeles housing market showed 168,471 families in need of very low-income housing, which is defined by HUD as a two bedroom apartment renting for less than $449 a month, for example.
Due to funding cutbacks, Bricker said, HUD is not funding the construction of any new units to house these families.
Landecker said the low-income housing crisis has been aggravated not only by the dearth of federal housing money but by failure of city and state officials to make low-income needs a high enough priority. She pointed out, for example, that the state of Massachusetts has budgeted at least 10 times more money for low-income housing than California.
At the city level, the two primary sources of funds for construction of new low-income housing are the Los Angeles Community Development Department and Community Redevelopment Agency.
But Landecker said that to make serious progress in addressing the low-income housing shortfall, “it has to be a mayoral and (City) Council priority. It can’t just be the housing departments.”
The Community Redevelopment Agency is required by law to spend 20% of its tax increment money on low- to moderate-income housing. But without seed money, nonprofit corporations cannot tap the Community Redevelopment Agency funds.
‘Assure Access’
The National Equity Fund “will assure access,” said Ann Sewill, head of the Los Angeles Community Design Center that provides architectural services to nonprofit builders.
The housing director of the Community Redevelopment Agency, Perla Eston, expects the National Equity Fund to provide “a major impetus” for nonprofit corporations.
She said the Community Redevelopment Agency provides about $70 million a year to subsidize construction or rehabilitation of very low- to moderate-income housing, resulting in the creation of about 2,400 new units. In the past, she said about 80% of the Community Redevelopment Agency housing funds have been tapped by private developers, who have seed money to start up projects. She added that the agency would welcome the participation of nonprofit builders, partly because they are better suited to build the kind of housing that the city needs most desperately--small complexes of very low-income housing for large families.
“This kind of housing is just absent,” Eston said. “There’s hardly any. . . . It is not the kind of thing that most private developers are interested in.”
From a profit-making standpoint, she said most private developers are interested in building larger projects with at least 75 units. Yet, she said, “housing a lot of (families with) children works out better in small doses.”
Peter Bell, executive director of the National Housing and Rehabilitation Assn., which represents predominantly private developers, said that nonprofit groups could play an important role in spurring the production of low-income housing. He said there are many “good, sophisticated nonprofits . . . with good professional management” that are capable of developing low-income housing.
Lack of Expertise Cited
However, he cautioned that some nonprofit groups lack the necessary expertise to become developers.
“They start out well-meaning,” Bell said, “but sometimes they lack the business experience or the financial durability to weather the storms. In seven or eight years, when the refrigerators give out and the heating units go bad, they don’t have the resources to maintain the project.”
Landecker said that she will screen nonprofit groups before deciding which ones to back. Of the various low-income housing projects proposed by nonprofit groups in Los Angeles, she has selected 14 with a total of 849 units that appear to be worthy of National Equity Fund funding.
Since 1980, Local Initiative Support Corp. has helped about 400 community-based development organizations in about 120 cities to build almost 10,000 new or rehabilitated housing units, plus 2.6 million square feet of commercial and industrial real estate in some of the most blighted neighborhoods in the country, according to Local Initiative Support Corp. President Paul Grogan.
