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The future of affordable housing.

Lower housing prices and lower mortgage rates in the last year or two have made the transition from leasing to home ownership possible for more renters. Yet, with the median price of an existing home in February 1992 at $103,800, according to the National Association of Realtors[R], cost remains a deterrent for those seeking the American dream. Clearly, for many low- and middle-income individuals, the need for affordable rental housing remains strong.

To some extent, rental affordability has been helped in recent years by oversupply in the multifamily sector. However, that oversupply is gradually being absorbed, resulting in tighter housing markets.

Sumichrast Publications in Rockville, Maryland, publisher of Real Estate Perspectives, predicts that national vacancy rates for apartments will decline to 6.9 percent in 1992 and reach 6.3 percent by 1994. At the same time, Sumichrast anticipates that median asking rent win rise from $596 in 1991 to $614 in 1994. Tightening markets are positive for owners, but more and more residents may have difficulty meeting higher housing costs.

And for the poorest segments of the population, the pressures on housing costs are even more acute. A 1990 report by the Joint Center of Housing Studies at Harvard University found that even through multifamily rents have stabilized, 68.1 percent of poverty-level renters paid more than half their income for housing in 1987.

"If there is a crisis in multifamily housing affordability, it affects those people trying to get on the first rung of the housing ladder," says Eugene Burger, CPM[R], president of Eugene Burger and Associates, Greenbrae, California. Burger, who is 1992 vice chairman of NAR's Housing and Community Development Subcommittee, made his remarks before the Senate Subcommittee on Housing and Urban Development. As reported in Realtor[R] News, November 18, 1991, Burger went on to note that rents had already begun to rise in markets where demand for rental housing was exceeding supply.

The questions then remain, "Where will the affordable housing of the 1990s come from?" "How will it be financed?" and "How will the problems it faces be overcome?"

Sources of financing

Traditionally, the federal government through HUD, Fannie Mae, and Freddie Mac - has been the major source of funding for multifamily construction. By 1990, however, the federal government's share of multifamily debt had fallen to its lowest level since 1956, about 14 percent of the national total.

"That figure just isn't going to rise very much in the next couple of years," says Kevin Horton, president of HC Mortgage Company, an affiliate of Holladay Corporation in South Bend, Indiana. He adds, however, that by the late '90s, new Fannie Mae and Freddie Mac programs geared towards affordable housing may increase that total.

Jonathan Kempner, the attorney who serves as president of the National Multi-Housing Council, agrees. "There is a great deal of support for affordable housing in government circles," he says, and along with that support comes the realization that unreasonable regulator barriers - from tax measures to building codes - have to be eased."

But who, then, will take up the lending slack in the meantime? "The states, through their retirement funds and credit agencies, are becoming very signfficant," says Horton. States are attracted to housing both for its investment and social value. Other new sources of funds include private pension funds and public-private consortia.

"The funds are cautious investors, but we believe they're coming around," says Amy Anthony, an associate with Eastman, Aldrich, & Waltch, an investment consulting firm in Boston. "The funds' main purpose is to garner returns on their investments," notes Anthony, who served as the Massachusetts Secretary for Housing under Dukakis. "But they also feel they have a public purpose - to make at least some investments in the communities and states in which they operate."

By investing in multifamily housing, Anthony believes, the funds can fulfill both of these obligations. "Yields have really been quite good," she points out. "On average, multifamily mortgages are returning 200 basis points above comparable-term Treasury paper." Anthony reports that pension advisors are working to devise mortgage-backed securities to facilitate multifamily investment.

"Pensions also are showing interest in participating in consortia taking advantage of HUD's HOME program and similar efforts," says Anthony. She points out that several unions affiliated with the AFL-CIO have combined to form the AFL-CIO Housing Trust, an organization specifically designed to steer labor pension money into single-and multifamily instruments.

While Anthony concedes that private funds may be slower to consider multifamily investments, "we believe that most funds will move into the market within the next decade," she concludes.


Like pension funds, a growing number of private companies are deciding that multifamily is an attractive investment indeed.

The Low-Income Housing Tax Credit (LIHC), which was enacted in 1986 and has only recently expired, proved most enticing to corporate investors, says Paul C. Brophy, vice chair of the Enterprise Foundation, Columbia, Maryland. One of the foundation's affiliates, the Enterprise Social Investment Corporation (ESIC), has already raised more than $330 million from over 95 corporations to build about 13,000 multifamily units nationwide. The investments have ranged from $250,000 to $10 million.

"Companies can expect to receive after-tax returns of 18 to 22 percent," says Brophy. "And we stress that these are not high-risk investments if they are managed correctly."

Despite the fact that the low-income tax credit had been allowed to expire, Brophy believes that there is strong support in Washington to make the LIHC a permanent part of U.S. housing policy. "As soon as the credit becomes permanent, corporate participation will absolutely boom," he predicts.

Brophy also thinks that more and more private-sector companies will choose to join local affordable housing coalitions, working in conjunction with government units and nonprofit groups. He cites such efforts as the Chattanooga, Tenn., Neighborhood Enterprise, which develops both single-and multifamily properties, and the Columbus, Ohio, Neighborhood Partnership. "The Columbus coalition was initially formed through a pairing of church leaders and Realtors [R]," says Brophy, "and they have now announced plans to put up 1,000 multifamily units."

Brophy predicts that many major cities will launch similar public/private programs in the next few years. "And professional property managers should be a part of them," he says. "Id like to see many more managers joining the boards of citywide groups."

Corporations also are investing closer to home, funding housing assistance for their own employees. If company-supplied housing once recalled an image of run-down company towns and abject workers, no more. "Employees across the board are largely in favor of companies providing a diverse menu of housing benefits," says Daniel Hoffman, research director of the American Affordable Housing Institute, a nonprofit research institution based at Rutgers University, New Brunswick, N.J.

Much of the current company involvement centers on single-family housing, including such benefits as low-interest loans and assistance in closing costs. But AAHI surveys indicate that employees would be equally supportive of multifamily programs. A full 61 percent of respondents currently living in multifamily buildings expressed an interest in moving to employer-assisted buildings. Approximately 48 percent said they would consider relocating if they could save as little as $50 a month in rent.

Hoffman believes that employers, working with owners and managers, could devise various creative assistance plans to benefit all concerned. "A company might agree to market and facilitate the rental of a large block of apartments to its employees in return for rent concessions and the provision of certain amenities," he says.

Thus far, labor unions have been among the most active groups in promoting employer-assisted multifamily programs. The Hotel and Restaurant Workers Union, Local 26 in Boston negotiated a multi-employer contract which allocates 5 cents per hour per worker to a fund on which employees may draw to pay security deposits and moving expenses.

There have also been a handful of direct company programs. In Santa Barbara, California, 20 small, and midsized companies purchased a group of townhouse apartments, which they lease to employees at slightly below market rents. "Pioneer programs such as this may prove to be the tip of the iceberg," maintains Hoffman.

Innovation in official

and unofficial hands

State legislatures, concerned about the fall-off in federal programs and subsidies, are encouraging local agencies to look for innovative answers to the housing question. "We have a mandate from our legislature to become increasingly active in affordable housing programs," says Herb Angle, director of the Asset Management Division of the Colorado Housing and Finance Authority, in Denver.

The agency, considered one of the most innovative in the nation, recently began a Housing Opportunity Fund, supported by the cash flow from older tax-exempt bond issues, which is dedicated to providing loans at low interest to nonprofit groups for development or purchase of affordable housing.

Many of these projects are geared to populations with special needs," notes Joseph A. Margoshes, assistant director of the Asset Management Division of CHFA. "There are units set aside for teenage mothers, disabled adults, even the formerly homeless."

One of the authority's most interesting initiatives is its Rental Acquisition Program, or RAP. Through this program, distressed multifamily properties are purchased, rehabilitated, and sold to local housing authorities or consortia. Last year, for example, CHFA bought 416 units in 10 buildings in three different cities, receiving a bulk discount from the RTC.

CHFA has spun off these properties to a consortium of two local housing authorities and five nonprofit organizations. Some of the nonprofit groups have little experience in housing ownership, but "they're eager to learn," Margoshes asserts.

"We urge that the properties we buy and rehabilitate be professionally managed," says Angle. "Our own staffers attend IREM courses, and we strongly encourage local authorities and nonprofit to seek professional accreditation and education for their own managers."

"The involvement of the nonprofit section in multifamily housing management is increasing rapidly," says Muriel A. Lipit. "Nonprofits welcome the assistance and advice of experienced property managers. New alliances are being formed every day."

Lipit, who is based in New Rochelle, New York, is the project manager of nonprofit housing management with the Neighborhood Reinvestment Corporation, Washington, D.C. A nonprofit, congressionally chartered agency founded in 1978, Neighborhood Reinvestment's ongoing mission is to revitalize neighborhoods by creating and supporting local public/private partnerships, collectively known as the National NeighborWorks[R] network.

To date, 175 NeighborWorks members are actively involved in constructing and rehabilitating over 104,000 housing units in 147 cities. This achievement represents more than 30 percent of the affordable housing built by community-based groups, even though NeighborWorks' members constitute less than 9 percent of these organizations.

"We're not alone, of course," says Lipit. "But the scope of our achievement illustrates just how pervasive the nonprofit presence is becoming in multifamily housing."

And because many community groups are new to housing management, training is a vital component to ensure success.

"Managing neighborhood housing properties is often more difficult, not less, than other apartments," says George Knight, executive director of Neighborhood Reinvestment. "Not only must our staff deal with such issues as lease-up, rent collection, security, and bookkeeping, they also must be sensitive to integrating projects successfully into the neighborhood, fulfilling the organizations mission and goals, and helping residents taking advantage of support service programs for which they are eligible."

To address this need for training, Neighborhood Reinvestment has joined with the Enterprise Foundation and solicited the help of another expert: IREM. Curriculum developers headed by Henry Dyson, CPM[R], worked together to prepare a week-long course, "Housing Management for Nonprofits," which was first presented in 1991 to a positive response. The curriculum is now being expanded to more advanced courses specifically for nonprofit housing managers.

Such demands for specialized training geared to different kinds of "niche" housing are becoming more widespread, according to Michael B. Simmons, CPM[R], vice president-operations at Community Realty Management, Inc., AMO[R], in Pleasantville, N.J.

"Some professionals now proudly identify themselves not as residential managers but as manufactured housing managers, condominium managers, senior-housing managers, and government-assisted housing managers," says Simmons, who heads IREM's ARM[R] division. "They are anxious to attend classes with their peers and to obtain certification recognizing their special expertise."

Innovation in the trenches

One area in which many residential managers are finding a need for expertise is skill in addressing such realife tenant problems as drugs, illiteracy, and vandalism. Despite a decline in household violent crimes from a high of 15,965,650 in 1987 to 14,158,740 in 1990, according to the National Crime Victimization Survey conducted by the Bureau of Justice Statistics, crime and the fear of crime are still widespread.

"If you are handling a big residential portfolio, these types of problems unfortunately come with the territory", says Glenn L. French, CPM, director of training for MBG Management, Inc. in Raleigh, North Carolina. In addition to training management personnel to handle such problems, MBG has found that working through resident associations is a good way to combat social ills.

"It amazes me that some firms discourage tenant groups," says French. "We've found them to be extremely helpful in instilling resident pride and getting social initiatives off the ground."

Some fee managers go even further, hiring full-time social service/recreational coordinators to help tenants. One comprehensive effort is the one headed by Interstate Realty Management Company's Jacqueline Jones, ARM.

The company sponsors a wide range of programs at the approximately 100 properties that it manages-homework clubs, anti-drug workshops, sports teams, field trips to cultural activities, college scholarships for residents, job fairs, budgeting workshops, and a management and maintenance apprenticeship program that has garnered some excellent employees for Interstate.

A trained social worker and former site manager, Jones supervises a staff of 23 full-time, salaried social service coordinators. Although many are college graduates in human services, a few are Interstate residents whose excellent performance as volunteers has earned them professional positions. "We assist these residents in going back to school and earning their degrees," says Jones. "So not only are they helping fellow residents, they are improving their own situations."

Growing awareness of environmental concerns also shapes the management concerns of the future. At Community Realty Management, Michael Simmons now emphasizes preparedness for both man-made and natural disasters. "In general, garden-style apartments do not have the comprehensive emergency programs you find in the commercial sector," says Simmons, but they are rapidly recognizing the need.

"For example," he continues, "one of our multifamily sites comes within 50 feet of a freight rail line. If there were a spill of a hazardous substance, we might have to evacuate quickly."

The company has sent all of its rental property site manager to IREM's emergency procedures seminar and created and distributed an emergency manual to all site personnel. Tenants are kept ready with periodic safety drills.

A final thought

In many ways, the issues facing the developers, owners, and managers of affordable housing - lack of financing for construction, violence in the community, and environmental safety - are not very different from those confronting the multifamily industry as a whole. Yet, because the residents that most need affordable units are usually those with the fewest housing options, the future of affordable housing is a matter of national concern.

It remains to be seen whether the new public/private initiatives of the 1990s will provide the solutions that have thus far eluded us.
COPYRIGHT 1992 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Brandt, Ellen
Publication:Journal of Property Management
Article Type:Cover Story
Date:Jul 1, 1992
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