Making affordable housing projects work in New York City has never been more urgent or more challenging. And building that housing is a balancing act between developers, organizations and government.
More than 40% of New York households are rent-burdened, and the level of homelessness in the city’s public schools is at an all-time high, with more than 100,000 students living in temporary housing last year. Land, construction and labor costs are all soaring, and developers say joint ventures and strategic partnerships are the only answer to getting affordable housing off the ground.
“Bidding on open market sites has proved to be an exercise in futility,” said Gotham Executive Vice President Bryan Kelly, who spoke at Bisnow’s New York City Affordable Housing and Community Development event Tuesday.
Last year, the city selected his firm and RiseBoro Community Partnership to build a $500M affordable housing project in Hunter’s Point South.
“[Our approach now is] to leverage our history, track record and ability to work with partners, whether that be city, state government, not-for-profit organizations … or with owners who have substantial assets who don’t have the expertise to run the design/build process [and] the track record to obtain construction financing for larger-scale deals.”
Tahl Propp Equities President Joseph Tahl said two decades ago, the firm was able to find land and buildings in Harlem at prices that worked. Now, he agreed that going it alone on the open market is simply too challenging.
“It requires you to take risks that [as] established developers with good portfolios of income-producing buildings and other projects that are viable, you really ask yourself, ‘Why am I taking this risk if we have to pay this much money?’” he said.
He pointed to his firm’s 400-unit affordable housing project at 1465 Park Ave. in Harlem, which it is building with L+M Development Partners. Tahl Propp provided two-thirds of the land at a “very low” basis, he said, while the city provided the remaining third.
“That project is viable because L+M is good at working with the city and structuring and layering their various types of subsidies and financing structures,” he said.
Last year, the project reportedly received a $126.5M Wells Fargo loan, which included $57.8M in tax-exempt bonds from the New York City Housing Development Corp.
“Those kind of projects are working,” he said.
With both costs and demand on the rise, the financing of the affordable housing market is changing significantly. In the past, the capital stack for Section 8 properties would mainly feature bond financing, tax credit, equity and deferred developer fees. Now, as high net worth investors, insurance and life companies are increasingly drawn to the stability and reliability of affordable housing, the deals are being backed by traditional financing and real equity.
Panelists said investors are now particularly interested in the federal government’s new Opportunity Zones program, which gives investors a tax break in exchange for investments in underserved communities.
BRP Cos. Director Andy Cohen said investors are “hot and heavy on opportunity zones,” with particular interest coming from the institutional and family office side. That interest could make affordable housing sites even more expensive.
“On new construction, it will drive up pricing,” Cohen said. “It will be interesting to see how these sites trades.”
Ariel Property Advisors Executive Vice President Victor Sozio agreed. He is working on a number of ground-up development sites in the South Bronx that are within designated opportunity zones, and he says pricing has increased in the past six months despite the rules for the program having not been finalized.
“People are all trying to underwrite the type of premium that is warranted by virtue of these sites being located in an opportunity zone,” he said.
Deputy Commissioner for Development at New York City Department of Housing Preservation and Development Molly Park said affordable housing in the city depends on “coalition building.”
“The history of affordable housing development in New York City has been defined by partnership across sectors and across disciples,” she said.
The city says it is on track to meet its goal of producing 300,000 affordable units by 2026. Park told the audience that the city has financed new construction on city-owned sites, and has worked with private and nonprofit developers, faith-based groups and organizations to create the supply. For the city’s Mandatory Inclusionary Housing policy, which Park said is the most aggressive of its type in the country, 51 projects have been approved that will result in 4,900 MIH units.
“This may seem like an alphabet soup of different programs and acronyms … but it’s necessary,” she said. “We are a very diverse city [and] our building stock is incredibly diverse. There can be no one size fits all.”
L+M Development Partners Development Director Spencer Orkus said even in the midst of the challenges of rising land and construction costs, affordable housing developers need to think beyond simply providing cheaper places to live.
“We’ve been trying to look at housing a little more broadly. In addition to a housing crisis, we have a healthcare crisis going on in this country,” he said, adding the firm is now partnering with healthcare providers, working to address the health and housing needs together.
In the Bronx, L+M is partnering with St. Barnabas Hospital to build a 318-unit project, with 95 of those homes set aside for the formerly homeless. The building has been designed, he said, to include address various healthcare issues, namely air-filtration because of the Bronx’s high rate of asthma. Orkus said the firm is using tax credits to help build a gym, a teaching kitchen and a rooftop garden for the hospital.
“Those are some of the things that we are starting to look at … you have different agencies actually talking to each other, and trying to find more holistic approaches to the issues at a city and state level,” he said.
Capalino+Co. Executive Vice President Claire Haaga Altman said developers need to think about what kind of communities they want to help create.
“Unfortunately, against the backdrop … [of] an incredible amount of resources in affordable housing we have a spike in homeless, opioid addictions, maternal mortality, crime rates …. We’ve got to be looking at not just putting a roof over people’s head, but a floor under their feet,” she said. “If we build a lot of affordable housing but the healthcare costs, the crime costs and addiction costs outstrip city, state and federal budgets, we are going to be in a hole again.”
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