Bradley Studios may be the last affordable housing development built in Santa Barbara, Calif., with the help of the local redevelopment agency (RDA).
After years of planning, officials held a groundbreaking ceremony for the 54-unit development in January. However, the celebration couldn't help but be
bittersweet as California was days away from eliminating approximately 400 RDAs in an effort to reduce the state's budget deficit.
The $13.8 million Bradley Studios, which will serve some of the city's neediest residents, including people who are disabled and those who have been homeless, received $8.4 million in loans from the city's RDA.
Without those funds, the project would not be happening, says Rob Pearson, executive director and CEO of the Housing Authority of the City of Santa Barbara. The local commitment was also critical in helping the development receive an allocation of low-income housing tax credits (LIHTCs), which are providing another $5 million in funds through Red Stone Equity Partners.
Bradley Studios is one of the lucky ones. Other affordable housing projects up and down the state will need to be restructured with new financing sources. A number of them will likely not be able to make up for the lost funds and will die.
The elimination of the RDAs is devastating because these agencies played an enormous role. They were required to set aside at least 20 percent of their revenues to create, rehabilitate, and preserve affordable housing. This generated about $1 billion each year, the largest pool of non-federal money available for affordable homes in the state.
“I think it's going to affect all affordable housing developers,” says Arjun Nagarkatti, president of AMCAL Multi-Housing, Inc., one of the state's most active builders.
As the elimination of RDAs was unfolding last year, AMCAL took a hard look at its pipeline of projects expecting to use redevelopment funds. Like other developers, it pushed to finalize commitments from RDAs on five deals before a cut-off date. “We also started relooking at all of the projects to turn them around to use HOME and other funds from local housing departments,” says Nagarkatti.
The problem won't be seen on the ground this year because projects starting construction in 2012 likely secured their financing prior to the turmoil. However, the pipeline in 2013 and beyond gets shaky.
Unless an effort to protect the remaining RDA fund balances for affordable housing is successful, there could be a drop in closings in 2013 and then a drop in actual production the following year, says Laura Archuleta, president of Jamboree Housing.
“There is this uncertainty,” Archuleta says. “As developers, the longer we go without knowing, it makes us uneasy.”
There's no doubt that production could fall significantly in the years ahead. Consider this: Eighty projects in the pipelines of just 13 developers face shortfalls of about $230 million. Those are just the developers, albeit some of the most active, polled by Affordable Housing Finance in late February.
In addition to AMCAL and Jamboree, Abode Communities, Affordable Housing Associates, Chelsea Investment Corp., Community HousingWorks, Eden Housing, Mercy Housing California, National Community Renaissance (National CORE), The Pacific Cos., Resources for Community Development (RCD), St. Anton Partners, and USA Properties Fund, Inc., were polled.
These developers have no expectations that the RDAs will be restored this year. Instead, their hopes are turning to new legislation, S.B. 1220, that would establish the Housing Opportunity and Market Stabilization Trust Fund, a permanent funding source for affordable housing that developers and advocates in the state have long desired.
The proposed Trust Fund, which would be funded by a $75 recording fee on each real estate document, could average about $700 million per year.
Until a new funding source emerges, the situation appears disastrous for a state that has just 21 affordable and available units for every 100 extremely low-income renters, according to a new study by the National Low Income Housing Coalition.
National CORE, a large nonprofit developer headquartered in Rancho Cucamonga, Calif., has 10 projects, about one-third of its pipeline, affected by the elimination of RDAs, says Steve PonTell, interim CEO.
That's about $50 million in RDA funding that could be lost. And, if these projects get back on track, they could face delays from six to 18 months.
“The loss of RDA funding cannot be made up with any one source of funding, so we are looking at several options, which in combination can fill the financing gap,” says PonTell, who is confident that his deals can eventually be restructured. “We are looking primarily to alternative housing financing sources, including potentially increased tax credit equity contributions, private foundation grants, and non-RDA public agency soft debt.”
As a fully integrated development, construction, property management, and social services organization, National CORE also offers some development and operating efficiencies that may partially offset the loss, he says.
Mercy Housing California has 15 affected projects, representing 1,100 homes serving families, seniors, and special-needs populations, according to President Doug Shoemaker.
“These range from projects that require agency funds to close in the next three months and have experienced delays and complications related to dissolution to projects two or three years in the future that will need to find an alternate source of funding and/or will experience further delay in order to be completed,” he says.
The Pacific Cos. has about 10 projects with LIHTCs that are affected, including one that will likely be killed permanently. For those without tax credits, another 12 projects may be affected.
The firm will work hard to make these deals happen by making up for the lost RDA funds through deferring more developer fees, reducing project costs, cutting project sizes, and accessing other local, state, and federal funds. “But the reality is many of the projects can't obtain enough alternative funding to be financially feasible,” says President and CEO Caleb Roope.
“The best hope for California is that recently introduced legislation will pass that creates a permanent source for funding affordable housing, although that alone will not make up for the loss of RDA funding,” he says. “Another possibility to save the many stalled projects rests with the passage of other legislative efforts to preserve the existing affordable housing fund balances that RDAs currently have on hand.”
Eden Housing, a nonprofit developer based in Northern California, has seven deals that are affected. “Historically, 75 percent of our pipeline has used redevelopment funding,” says Executive Director Linda Mandolini. “It will be very difficult to carry out new production work in the San Francisco Bay Area without a source of gap financing.”
Like other developers, Eden Housing is restructuring deals, including an 800-unit mixed-income transit-oriented development. The demise of RDAs resulted in the loss of about $12 million in funding for the infrastructure support for the market-rate project. The project has been downsized to a 350-unit development that's half affordable and half market-rate.
In Southern California, Community HousingWorks has also had to creatively restructure a 36-unit community that includes eight units for disabled, homeless veterans after $1.2 million became at risk. The developer worked with the city to identify new funding sources, worked with its architect and general contractor to identify value-engineering cuts, and deferred some developer fees. If certain RDA funds are preserved or new state funding comes through, Community HousingWorks hopes to put back the value-engineered items in the project, which was expected to start construction in March, says Anne Wilson, senior vice president of housing and real estate development.
It's hard to find a silver lining amid the turmoil. However, two developers said the one good that may come out of the situation is that it is forcing firms to take a deeper look at their projects. In the end, some cost efficiencies may result.
Beyond the housing
At the same time, developers say the impact goes well beyond the housing units they hope to provide. Their developments are often keys to revitalizing an entire neighborhood.
In the San Francisco Bay Area, RCD held a groundbreaking ceremony earlier this year for its Alameda Islander development, a project that will transform a blighted hotel into 62 units of affordable housing. The event happened to take place Jan. 31, the last day for RDAs.
Financing for the $17 million project includes $8.6 million in redevelopment funds from Alameda, a city of roughly 75,000 people.
The renovation of the long-troubled building is important to the community for several reasons. First, it rids the neighborhood of the motel, which kept police and code-enforcement officers busy for years, and revitalizes the city's downtown. Second, the new project will provide permanent affordable housing for workers earning 20 percent to 50 percent of the area median income.
“The local commitment is almost always the first commitment,” says Dan Sawislak, RCD executive director “It's where we start, and we build on the financing from there. That is what's important about this.”
For most cities, the RDA was the source.