THE BUZZ >>POP QUIZ

AFFORDABLE HOUSING FINANCE • MARCH 2008

BILL KELLY knows the importance of not just developing but also preserving affordable housing.

He’s president of Stewards of Affordable Housing for the Future (SAHF), a consortium of national nonprofits that acquire multifamily rental housing and preserve it for low-income residents.

SAHF was launched in 2003 around the idea that national nonprofit preservation entities have policy and transactional issues and opportunities that differ from other organizations.

Kelly, who was a partner of Latham & Watkins in Washington, D.C., for 25 years, tells us what’s happening on the preservation front.

For more about SAHF, visit www.sahfnet.org.

Q: How did you get started in the affordable housing business?

A: While on active duty in the Secretary of the Navy’s office in 1975, I arranged to work out a detail to Department of Housing and Urban Development (HUD) Secretary Carla Hills. Through sheer luck, the timing of my arrival at HUD was ideal. Secretary Hills was a dynamic leader, and a highly energized HUD was just beginning to convert the Sec. 8 and Community Development Block Grant authority conferred by the 1974 Act into functioning programs. I was in the room as President Ford personally grappled with budget disputes between HUD and the Office of Management and Budget. For a 29-year-old, this was heady stuff that made a real difference to poor people who needed decent housing.

Q: Who in the affordable housing industry has been your mentor or your biggest inspiration?

A: Like many of us in the field, I took my greatest inspiration from Cushing Dolbeare. At once fair, engaging, and driven, she was affordable housing’s great social entrepreneur, before the term was coined. I was honored to serve as treasurer when she chaired the National Low Income Housing Coalition and to work with her to preserve forever her family’s retreat on the Shenandoah River.

Q: What accomplishment are you most proud of?

A: Working with colleagues to launch and nurture SAHF and the National Affordable Housing Trust, both peer groups that empower sophisticated nonprofits to take on a larger role in affordable housing.

Q: Give us a statistic or fact about affordable housing to think about.

A: You’ve heard it before, but it bears repeating that, according to the National Low Income Housing Coalition in 2006, HUD’s budget was approximately $34 billion, while the projected homeowner subsidy through tax expenditures was more than $150 billion.

Q: What are SAHF’s plans for 2008?

A: On the legislative front, we will continue to push for an omnibus preservation bill. We will also seek support for energy conservation incentives, even as we develop a plan to finance energy conservation improvements in our properties. Working with the MacArthur Foundation and others, we will be spreading the word to mayors and state policy officials that whatever else we do, we need to preserve the project-based rental subsidies that enable us to serve the very poor. Because preservation is almost always easier, faster, cheaper, and greener than new construction, we should not kid ourselves that tomorrow we can replace what we lose today.

Q: How are preservation deals changing?

A: As [low-income housing] tax credit investor payments have dropped from the unsustainable levels of the last few years, the financing gap that must be filled by “soft second” loans has increased, challenging preservation buyers and the state and local governments that provide most of those loans.

Q: What are the biggest and most common obstacles in preservation deals? Are any new strategies emerging to help overcome these challenges?

A: For SAHF members, basic policy issues continue to dog the preservation effort. In other fields, both in the United States and globally, social enterprises are building capital and extending their impact. Witness the micro-finance movement, which is transforming people’s lives. Ironically, American housing nonprofits that have been pioneers in building social enterprises have been hobbled by archaic HUD and Rural Development policies that bar them from managing their cash flow and assets to serve their missions. In the absence of supportive policy, each preservation deal requires special approvals, at a great waste of human talent and financial capital. Preservation buyers that could be working at a scale that makes a difference are reduced to having limited impact. I see no effective alternative to modernizing policy.

Q: Do you think the overall affordable housing industry is better or worse off than it was a year ago? Why?

A: This has been a tough year. There has been no real progress, indeed some backsliding, on the policy issues that would enable preservation owners to do their work at scale. Budget games originating at OMB threaten to unravel the confidence of housing providers and their capital sources in the reliability of project-based section 8 appropriations, the most powerful financial engine in our field. Operating costs, especially utility costs and property taxes, have risen much faster than were projected in agency underwriting, leaving many tax credit projects in a precarious position. On a more positive note, state housing finance agencies are being very constructive as they review and respond to 20 years of experience under the tax credit program.

Q: What big industry issues will you be watching in 2008?

A: Early in 2008, we should begin to see whether the credit crunch will affect the appetite of the banks and the government-sponsored enterprises for tax credit investments. SAHF will also be monitoring the condominium market to see whether continued softening could make using tax credits to acquire and preserve affordable apartments more competitive in tight markets.

Q: If you unexpectedly had the day off work, where would we find you?

A: Riding the bike circuit, a hidden treasure, around the western part of Washington, DC and suburban Maryland or hiking on the White Oak Canyon trail in Shenandoah National Park.

Q: What’s something most people don’t know about you?

A: Shortly after I arrived at HUD in 1975, Sen. William Proxmire of Wisconsin, who was then chairman of the Senate Armed Services Committee, released a list of about 20 people whom he saw as Pentagon minions placed in policy positions in other agencies, an imagined military takeover of the civilian branches of government. My name was on the list. Within a few weeks, I became a civilian, doubled my salary, and was able to stay at HUD, having bypassed the White House personnel office.

Q: If you were hosting a dinner party and could invite anyone, who would be on the guest list?

A: I would invite Muhammad Yunus, Hernando de Soto, and my friend Bill Drayton, to learn from a discussion among the big thinkers of the global citizen sector. We have yet to incorporate enough of their thinking in our work.

Q: What’s next for Bill Kelly and SAHF?

A: SAHF is a strong peer group with a clear policy agenda and openness to new ideas. I look forward to working with our allies to continue to push for preservation-friendly policies, to achieve energy conservation in our properties, to explore with our members how we might bring more unconventional capital into affordable housing, and to see what we else we can do to make our housing a place that transforms the lives of our residents.