Tikkun Olam One Apartment at a Time: A New Funding Model for Affordable Housing
Public-private partnerships that mix impact investing and grants offer a new model for creating “naturally occurring affordable housing.” A philanthropist and impact real-estate investor explains how.
By Eddie Lorin
I have been in the “workforce/affordable” housing business for many years by taking blight and making light. Having lost my father at 10 months old and my mother at 17 years of age, I struggled to make ends meet and have never forgotten the humiliation and fear that being poor grates on your psyche. For my entire real estate career, I have remained committed to the right of each of our fellow citizens to a clean, safe and affordable place to live, to treat all who dwell under our roofs with respect and dignity so they can stay, pay and refer their friends. This is the ultimate impact investment above all others in my opinion. It’s hard to educate a child when they are sleeping on the streets, hard to support solar when these folks are only exposed to the sun, hard to worry about clean water or low flush toilets when a family has neither a toilet nor water. Out of the Great Recession I have seen how rents have dramatically risen and the result on hard working folks finding it next to impossible to afford the basics. We need to keep units affordable before they become out of reach as we have seen in major cities across the country like San Francisco and New York.
According to the National Coalition for Affordable Housing there is a 7.2 million unit shortage of affordable housing in the United States and growing as we only build about 50,000 units per year and lose to attrition over 150,000 units per year as affordability covenants expire.
Traditional methods using housing credits, rent controls and other government sector solutions are great but not enough by themselves. The issue is definitely a basic supply and demand issue where we need to build as many units as we can but also at the same time we need to stabilize the existing affordable units before they get gentrified and rents rise there as well. I believe that we, as Jewish foundation stakeholders, can join forces together to use program-related investments (PRIs), grants and mission-related investments (MRIs) in public-private partnerships to make a difference with a great new solution.
How can we do it?
Our HAPI foundation, in conjunction with another Jewish funder, the KBVF Foundation of Malibu, CA, just purchased the first pilot program with the City of Los Angeles to provide supportive housing to affordable residents. This Koreatown 1920’s building is 50 units comprised of studio and one-bedrooms and what we call NOAH (Naturally Occurring Affordable Housing), which, simply put, is taking older, neglected apartment buildings and deeming them affordable for 55 years. This makes a lot of sense for two reasons: 1) it is a purchase at 40% of replacement cost; and 2) it avoids the issues of “NIMBY” (Not In My Backyard) because the building already exists and neighbors can’t stop us from doing it. This approach may seem obvious, but of course some of the best solutions are common sense rather than something sexy, shiny and new.
How did this public-private partnership come together? Our two foundations provided a 2% interest Program Related Investment in the amount of $3.2 million to a bridge loan of $7.2 mm in order to purchase the asset. Our $3.2 mm of PRI loans will be refinanced out down to as little as $500K with new financing from the state of California and “soft money” loans from the State of California and the City of Los Angeles. As a “quid pro quo” for providing all the units as affordable at various levels of Area Median Income, we expect a property tax abatement from the County Assessor to help offset this reduction in market rents.
In addition, the current affordable rents are in most instances not quite high enough to make these older rehab deals work. An additional solution we have come up with is a “supplemental voucher” program which would be in the form of a grant (as opposed to a PRI). As little as $150 per month in rent per affordable unit can often be what is needed to bridge the gap to break even and after 3 or 4 years the affordable rents will catch up to the rents needed on such NOAH investments.
This is a prime example of how collaboration is the only way to solve these challenges, and we at the HAPI Foundation are doing our part by proving a model for others to follow.
Please join and collaborate with us and we can help repair the world (Tikkun Olam) one apartment at a time. We have taken the hardest step in proving the model – now it is time for everyone else to jump in too! I am looking to form the first “PRI Affordable Housing Fund” and invite you to email me to join us as we make history at firstname.lastname@example.org.
Eddie Lorin is a 30 year veteran in real estate covering over $3 billion in apartment transactions. He is Founder of Strategic Realty Holdings, a Novagradac and EIG Coalition Opportunity Zone member and a member of Jewish Funders Network, Jewish Federation’s construction division and AIPAC.