New Fund Preserves Affordable Housing
A Southland nonprofit organization has raised a $15-million private-investment pool to purchase California rental housing at risk of being removed from federal subsidy programs.
National Housing Development Corp. officials said they believe their new fund is the first of its kind in the nation to draw on private dollars to preserve affordable housing that is increasingly “flipping” to market rates.
The fund promises investors an 8% annual average return. The group secured $13.5 million from nine financial institutions, which will receive federal Community Reinvestment Act credit for the three- to five-year investments, NHDC spokesman Bernard Sandalow said. The CRA requires banks to invest in the low-income communities they serve.
NHDC put in $1.5 million of its own money received from federal grants and has begun searching for multifamily properties to acquire.
Changes in federal law last year made it easier for landlords to leave the federal Section 8 program, which provides rent subsidies to low-income tenants. Other units are being lost as landlords decline to renew their Section 8 contracts in hopes of getting greater profit with market-rate rentals.
In addition, owners of multifamily affordable housing who financed their buildings with tax credits increasingly are prepaying their mortgages, according to low-income housing advocates, which removes their obligation to maintain affordable rents.
The result has been an exodus from affordable housing programs at a time when market rents are prohibitive for many low- and moderate-income families. The crisis is particularly acute in California, housing advocates say.
Based in Rancho Cucamonga, NHDC was formed three years ago with the goal of preserving the nation’s affordable housing. Many portfolios of multifamily affordable housing properties are large and costly to acquire, having been developed by private owners seeking economies of scale.
That places them out of reach for many small community-based nonprofits committed to affordable housing. Private-sector interests, including real estate investment trusts, also are eager to purchase blocks of properties and convert them to market rates as their subsidies expire.
NHDC was designed to compete with those private interests by financing the acquisition of rental homes and reselling them at cost to local organizations, the group says.
The housing investment fund is known as CalPool. NHDC is searching for properties to acquire, which it will renovate if needed and resell to buyers who pledge to maintain the properties’ affordability in perpetuity, NHDC spokesman Bernard Sandalow said.
Sandalow estimated the $15 million could purchase 500 to 1,000 units, although the cost of subsidized rental units varies across the state, depending on the condition and size of the buildings and property values in the area.
Nationwide, 800,000 to 1 million Section 8 units may lose their affordability due to expiring subsidies, and about 10% of those are in California, the largest concentration of at-risk units in any state, Sandalow said.
Low-income rental units built with federal tax credits also are at risk. More than 5,000 units in California that received federal housing tax credits from 1987 to 1989 may be at risk of converting to market rates beginning in early 2002, according to the San Francisco-based California Housing Partnership Corp.
“At a time when the affordable housing crisis is so severe and when it is increasingly difficult to build new projects, California cannot afford to lose existing affordable units,” the group said.
NHDC, which closed its investment pool several weeks ago, plans to launch similar pools in other states, said NHDC Executive Director Jeffrey S. Burum.
Financial institutions participating in the California pool are Washington Mutual Community Development Inc., IndyMac Bank, Downey Savings & Loan Assn., United Commercial Bank, PFF Bank & Trust, Business Bank of California, Northern Trust Co., General Bank and Bank of the Orient.
