Financing Affordable Housing Shows Dollarʼs Flexibility: Melding options creates new opportunities
Clients were forced to the black market with no renter’s protections for rooms within their price ranges. Other options included crowding apartments with a bunch of roommates or paying more than half of income on housing. Shelter stays began increasing from nine months to 12 months and first-year recidivism increased from about 5 percent to 20 percent. The system was bottlenecking and the city was opening more shelters in response.
“It’s not about building more shelters,” Rosenblatt said. “There are shelters in New York. It’s about creating the subsidy for low-income housing, which there isn’t enough of.”
Rosenblatt deduced that about one-quarter of what BRC and, through reimbursements the city, pay in shelter rent is profit for the landlord. He sought to put that money toward the organization’s mission. BRC leadership approached the city with the idea of building its own shelter and the city supported the idea under the caveat that BRC would be reimbursed less than a for-profit landlord.
After some back-and-forth, BRC secured the full reimbursement amount provided it be used for programming. The 233 Landing Road project was born by deciding to use the rental reimbursement to subsidize an affordable housing development.
“That’s the a-ha moment,” Rosenblatt said. “In some way, [the city] gets the credit because they were so push about it.”
The housing project, located in the University Heights section of the Bronx, will feature 200 shelter beds and 135 affordable rental units. Of those units, 111 will be studios rented at $455 per month and 24 will be a mix of one- and two-bedroom units for low-income members of the community to rent for between $800 and $1,100 per month. The development is on pace to open at year’s end with a final price tag of $62.8 million.
Low-income tax credits cannot be used to support shelters, so the shelter and the units are separate, but co-existing in a condominium model. The shelter is being financed via an $18 million loan from Bank of America using organizational equity. The housing is financed with a combination of $5.7 million in low-income tax credits provided by the New York City Department of Housing Preservation and Development, $22.3 million in tax-exempt bonds and $16.3 million in corporate reserves toward construction financing from New York City Housing Development Corporation. Rosenblatt expects the housing to operate at a $400,000 annual loss which will be subsidized by the $400,000 the organization expects from shelter reimbursement payments.
In addition to a backand- forth with the city that stretched over two mayoral administrations, financing, location and board buy-in were also important, Rosenblatt said. Proximity to public transit and groceries are necessary for a suitable site. Finding a site with existing necessary zoning is essential, because while it is possible to seek zoning adjustments, that invites a public process that could lead to opposition against a shelter.
Rosenblatt also took a risk by putting down a $400,000 deposit on the land before receiving affirmation from the city. About $215,000 of that sum was raised during the organization’s gala with the other half coming from the board. At that point, Rosenblatt had one year to receive approval, line all his ducks in a row, and close the deal to prevent losing the deposit.
“Concrete is concrete and carpenters are carpenters and they’re not going to say ‘We’re charging you less because you’re building for poorer people,’” Rosenblatt said. “We have to compete against the entire real estate community…We are fools if we think that the old ways of doing business will remain unchanged going into the future. We have to adapt. We have to prepare.”
The rental-subsidy model is replicable, he added, noting that there are 60,000 shelter beds operated in New York City. If one-third of them were converted to BRC’s model, with the roughly two shelter beds per one rental unit estimate, 10,000 affordable units could be constructed. That’s enough to open up the bottleneck currently afflicting the city’s shelter system.
It’s not about building more shelters. It’s about creating the subsidy for low-income housing, which there isn’t enough of. — Lawrence “Muzzy” Rosenblatt
New York City might be unique in that there is an obligation to open shelters to support need, but there is nothing preventing a nonprofit in another city from using the same model to develop a property, rent a portion to a business such as a grocer, and use the surplus income to subsidize affordable units.
The hope is also that, by creating homes to be occupied both by former clients and other low-income members of communities, that a sense of community is built. It might combat some of the “not in my backyard” public opposition some projects might face. Improving the way shelters and affordable housing interact with communities establishes a greater sense of permanency, Rosenblatt said. The goal for the organization is to replicate the model by building a perpetual pipeline of projects and having other organizations riff off of the same idea.
“We definitely want to do more,” Rosenblatt said. “My hope is to inspire others with this attention. Let people steal our idea. It’s available for free. It’s open source. It’s come and get it. We’d be happy to see others go and run with it as we plan to do ourselves.”
On the other side of the country, the National Health Foundation (NHF) has taken a reimbursement model to help homeless individuals transition out of hospital care. The idea dates back about a decade, explained Kelly Bruno, president and CEO. Leaders at private hospitals were having trouble finding appropriate places to discharge homeless patients and sought hospital associations. The issue came to the attention of NHF leadership.
A committee was created in 2008 and piloted the concept of providing beds at a lower rate than hospitals would otherwise pay. NHF research showed that homeless individuals were staying an average four days longer than necessary due to a lack of appropriate places to discharge them. The cost was averaging area hospitals between $2,000 and $3,000 per night. And, the city has been cracking down on inappropriate discharges, sometimes to the tune of hundreds of thousands of dollars — placing hospital administrators on firm notice.
NHF is able to fund its 40-bed service with hospitals paying $250 a night for stays that average 10 days. Hospitals are still footing the bill, Bruno explained, but at about one-quarter of the cost they’d otherwise pay. “The threat is real,” Bruno said. “NHF believes that this is not a hospital issue. This is a homelessness issue. We provide a solution.”
Funding and assistance streams have materialized in the years since the initial launch. One such funder is CalOptima, a health agency in Orange County that reimburses the first 10 days of recuperative care. Los Angeles County has also provided 400 additional beds through its own program, an acknowledgment of the need and an effort to address it. Bruno believes that Medicaid should cover recuperative care, but there is no licensure for recuperative care and thus no reimbursement. NHF has taken to advocating for changing this policy.
NHF is opening new sites. A 62-bed facility is expected to open in March 2018. NHF opened a 12-bed facility in Ventura County under a different funding model this past July. NHF collaborates with 60 area hospitals to fill its main, 40-bed location and engages in marketing activities to keep the facility front-of-mind. Ventura County has just four private hospitals and a county hospital. Instead of charging per night, NHF surveyed services provided to homeless individuals at all five hospitals over a 90-days span, drafted percentages, and charged the hospitals prepaid fees to make up the facility’s $700,000 annual cost. The model provides sustainability for NHF while giving the hospitals the security of having waiting beds, Bruno explained.
During this decade-long maturation, the Affordable Care Act was enacted and emphasized outcomes and avoidance of repeat visits. NHF leaders adjusted the organization’s mission to reflect an emphasis on improving the lives of under-resourced individuals. Unless NHF was helping individuals find more permanent housing, according to Bruno, it could not fulfill its mission.
The waiting list for permanent, supportive housing in the Los Angeles area is six months, so NHF has taken to setting aside a portion of its beds — 10 in the founding location and 20 in the upcoming 62-bed facility — for bridge housing, offering clients eligible for supportive housing a place to stay in the interim. Los Angeles Homeless Services Authority reimburses just $40 per bed per night for bridge housing, but NHF is able to use its $250 fee to hospitals to offset the cost.
After years of operating the 40-bed facility, NHF has been able to nearly triple its number of beds due both to the rising number of homeless individuals in Los Angeles County, currently standing at 58,000, and increased knowledge of NHF’s services. Other providers have stepped up with similar services. The biggest issue is securing locations, Bruno said. The 62-bed facility is being finalized in a third location after the first two fell through. If existing zoning doesn’t permit such facilities, public opposition looms. “This is not them versus us, this is we,” she said.
NHF believes that this is not a hospital issue. This is a homelessness issue. We provide a solution. — Kelly Bruno, National Health Foundation
Up I-5 in the Bay Area, Habitat for Humanity Greater San Francisco launched a campaign to promote neighborhood inclusiveness, tapping the business community, particularly the tech sector.
The “I Stand With My Neighbor” campaign came about during an organizational retreat as staff at the Habitat affiliate sought ways to remain relevant in the country’s intensifying political climate, according to Kristine Leja, chief development officer.
It was rolled out in May during what was originally supposed to be a regional giving day. The giving day was canceled, but Habitat had already budgeted for it. Staff rolled out the campaign along with a seven-part email series asking recipients to join the pledge and take seven actionable items such as introducing themselves to a neighbor they did not know. The campaign raised $23,000 in 24 hours.
The corporate side of the campaign came by way of the 5,000-square-foot lot the organization purchased in downtown Redwood City, about 30 miles south of San Francisco, where Habitat leadership plans to construct 20 condo units. The site is a desirable one as the city’s downtown is booming and the site is near public transportation options. The project is also significant as it will be the only 100 percent affordable option in downtown. It’s the affiliate’s first mid-density project, and, at six stories, the tallest Habitat project conducted on the west coast, Leja said.
Land and development for the project will run $12.8 million. About 70 percent of that sum will come from a variety of sources including the city, Community Development Block Grant dollars, and mortgage payments being paid back from previous Habitat projects. The other 30 percent needs to be raised through philanthropic dollars, of which $2 million has already been raised. Habitat is seeking corporate sponsorship to both make up the difference and fund a cause-marketing campaign. That cost is still being tabulated.
The model tiers sponsorships from $10,000 up to $250,000, according to Leja, and features associated access points such as a fire-side chat with the organization’s CEO, social mixers, and T-shirts. Cause-marketing promotions are planned for billboards, bus shelters, and the like with the intention of galvanizing local support around “I Stand With My Neighbor.” As the tech industry is often blamed for the housing crunch in the Bay Area, tech companies such as Redwood City-based Box first sought banks and then other business to follow.
A second reason why “I Stand With My Neighbor” has been launched in Redwood City is that the project has been the subject of a lawsuit seeking to halt it. The project is compliant with local code and no exemptions are being sought, Leja said, but opponents of Redwood City’s growth have filed an environmental action.
“It’s an opportunity to say that affordable housing does belong and that banks, businesses are supportive of this,” Leja said. “Our intention would be to highlight this development as opposed to the organization as a whole and these new families and the tech companies being front and center and saying they support it.” Habitat leadership hopes to break ground on the project early next year if there are no snags in the process.
Leja added that she believes that the “I Stand With My Neighbor” sponsorship model is scalable and adaptable for other locales. The affiliate has already begun considering replicating the process depending on the success of the Redwood City project.
“The whole idea of ‘I Stand With My Neighbor’ is this Redwood City site is a test site for the model,” Leja explained. “We have another location in San Francisco that we are working on. We might want to replicate this at that site if this works.”