The Minneapolis-St. Paul area is taking a stand to stem the loss of affordable housing.
In an initiative that’s the first of its kind in the region, officials have launched a fund that seeks to preserve 2,000 unsubsidized affordable rental homes in the Twin Cities.
The Naturally Occurring Affordable Housing (NOAH) Impact Fund hopes to begin acquiring properties by the end of the year. It recently took a big step forward when Hennepin County agreed to invest $3 million in the fund, which seeks to raise $50 million in two phases.
“It’s cheaper to preserve affordable housing than it is to create it,” says county Commissioner Jan Callison. “For our clients who are using county services, housing is fundamental. Unless they have stable housing, it’s very hard to work on some of the other issues they may bring whether that’s chemical dependency or unemployment or a need for other services. We know that we need to have our people stably housed if they’re going to improve the conditions of their lives. It just makes more sense to preserve the housing that’s already in existence.”
Like many other communities, Hennepin County is seeing its affordable housing stock disappear as buildings are converted to market-rate housing. Officials estimate that the county has lost at least 1,300 affordable units so far this year.
Overall, the county has approximately 82,000 units of unsubsidized multifamily rental housing, with rents affordable to households with incomes at or below 60% of the area median income, which is $51,480 for a family of four. Rents in these naturally occurring affordable housing units average between $550 and $1,200 per month.
Created by the Greater Minnesota Housing Fund (GMHF), The NOAH Impact Fund will target at-risk naturally occurring affordable housing comprised of Class B and C rental apartments typically built between the 1950s and 1980s.
“The goal will be to keep the properties affordable for 15 to 20 years in order to preserve the affordability and avoid the displacement of tenants in a hot market,” says Warren Hanson, GMHF president and CEO.
The first phase of the program seeks to preserve 1,000 units with $25 million from the fund. If that is successful, officials would do a similar second phase.
The county’s funds join $1 million from the McKnight Foundation and $2.25 million from the Greater Minnesota Housing Fund. Overall, officials have “active interest” for all $25 million needed for the first phase, according to Hanson, noting that the remaining investors include other government agencies, foundations, and financial institutions. Cinnaire is serving as the asset manager.
The fund will work with high-performing, nonprofit affordable housing developers and socially motivated, for-profit owner-operators. These organizations will be required to put up 10% of the equity, and the fund will put up 90% of the equity. That will make up roughly 30% of the overall financing needed for the properties, according to Hanson. The other 70% will then come from conventional lenders.
The fund will operate in a seven-county area of the Twin Cities. “We’re trying to have a regional impact,” Hanson says.
He hopes the fund will begin making investments in the next five or six months. However, under a pilot, it acquired a 72-unit property in New Brighton last year. Renters at Fountain Terrace were facing rent increases of more than $200 a month until the fund in partnership with Real Estate Equities, a for-profit owner, acquired the property for $6.8 million.