Local officials across the country are devising ways to stem the loss of affordable housing units, particularly aging properties subsidized by the Department of Housing and Urban Development (HUD). In some cases, such as in Chicago and New York City, cities are buying or considering buying distressed properties in bulk from HUD and selling them to preservation-minded nonprofits. In other places, such as San Francisco and Maryland’s Montgomery County, they are addressing the temptation to opt out of subsidy programs by reducing what one preservation expert called “the hassle factor of dealing with HUD.”
Preservation professionals are hoping to replicate these successful efforts in other cities. The current situation of experimentation by local government “is not unlike what the states were doing a few years ago – turning their attention to preservation,” said Michael Bodaken, president of the National Housing Trust (NHT). That’s not to say that states are slacking off on their preservation efforts. In fact, NHT reports that in their 2006 qualified allocation plans, Arizona and Tennessee created preservation set-asides; Delaware, Indiana, and Wisconsin increased their set-asides; and five states (Alaska, Hawaii, Nebraska, Oklahoma and Wyoming) added points for rehabilitation and/or preservation.
But preservation-minded affordable housing developers may find that their two biggest allies these days are local communities and tenants organizations. Programs aimed at preserving subsidized housing are being created by cities and counties and are being implemented often with the assistance or even the required buy-in of the tenants.
New future for Chicago’s Lawndale
Chicago’s largest subsidized housing complex, in the North Lawndale neighborhood, was broken up and preserved as affordable housing earlier this year after the city took the unusual step of acquiring and then transferring it to new owners. The limited partnership that had owned the property had racked up 1,800 code violations from city inspectors and defaulted on its HUD-insured mortgages, leaving $51 million in outstanding debt.
The 1,048-unit Lawndale Restoration, along with the smaller 57-unit Douglas Lawndale site, was taken from the owners by HUD and was on the verge of being sold to the highest bidder, which would have left the city without leverage to preserve the units as affordable housing.
To prevent that, the city bought the two sites in January from HUD for $10 apiece. The city then gave the 104 buildings on the two sites to 23 pre-approved nonprofit developers. The nonprofit developers – including many small, faith-based organizations – needed to prove to the city that they had the ability to carry out the rehab and operate the properties, according to Molly Sullivan, spokesperson for the Chicago Department of Housing. Local experience counted for a lot. For example, Herron Development Corp. had a long track record in and knowledge of the city’s West Side, where the three buildings it acquired are located.
Lawndale’s new owners will continue to receive project-based Sec. 8 payments, and HUD will be providing an estimated $35 million in grants to help with the renovations, which are expected to cost about $40,000 per unit.
Though city officials caution that this was a unique situation and they weren’t planning to repeat it, they emphasized the high priority preservation plays in the city’s housing efforts. “Our strategy will lead to the turnaround of [the Lawndale] buildings and ensure that they remain in the hands of responsible and capable managers,” said John G. Markowski, Chicago’s housing commissioner.
Experiments on the coasts
“Lawndale is definitely a victory, but we’ve had 14 ‘Lawndales’ in New York,” said Dina Levy, director of organizing at the Urban Homesteading Assistance Board (UHAB). She was referring to 1,700 units in 14 different buildings in New York that were saved from foreclosure in the past couple of years.
One such success story was the Gates-Patchen project in Brooklyn. UHAB helped the tenants of this 104-unit building purchase the property for $10.5 million. New York’s Department of Housing Preservation and Development (HPD) provided a $3 million grant, HUD provided a grant of about $4 million, and the Community Preservation Corp. (CPC) loaned the remaining $3.5 million, according to Neill Coleman, an HPD spokesperson.
Gates-Patchen’s solution was not very different from Chicago’s Lawndale. In both cases, an owner was facing foreclosure. HUD took the deed and transferred it to the city, which in turn transferred it to one or more nonprofits.
Levy said it’s difficult to gather data on the number of HUD properties still in danger of foreclosure. (A HUD official in New York told Affordable Housing Finance that it currently only has three multifamily properties actually in foreclosure in the city.)
Coleman said New York City preserved 865 units last year, mostly by working with tenant associations and nonprofits that will take over management of the properties. CPC, Enterprise, and the Local Initiatives Support Corp. have all helped with funding. He added that New York City’s preservation efforts are focusing on HUD-assisted properties because the city has used up its large bank of abandoned buildings that dominated its efforts in the 1970s and 1980s.
Montgomery County, Maryland, has also helped save some affordable units by financing acquisition efforts by nonprofits. But another noteworthy initiative there is a $60,000 annual fund that is used to help property owners deal with some of the headaches created by HUD bureaucracy. The money is used to pay owners the amount they are supposed to receive in Sec. 8 funding if that funding is late; when HUD finally makes the payments, the owner then reimburses the fund. The money also helps out with market studies required by HUD and with some unit repair costs. San Francisco guarantees the difference between Sec. 8 rents and tax-credit rents, which in some cases are lower than the Sec. 8 rents. “That makes it a lot easier for the refinancing or purchase of these projects by a preservation-oriented organization,” said Bodaken.