The Community Builders, Inc. (TCB), is taking a unique approach to reviving neighborhoods hard hit by foreclosures.
When most organizations are naturally targeting their efforts on buying scores of troubled single-family homes and providing homebuyer assistance across the country, TCB is tackling the problem from a different front. “When prices decline and confidence leaves a neighborhood, the ability to begin to recreate a stronger environment often can best be spurred by multifamily housing,” says Pat Clancy, president and CEO of the longtime Boston-based nonprofit.
TCB is getting a huge opportunity to prove its case.
The group was recently awarded $78.6 million in Neighborhood Stabilization Program (NSP) funds by the Department of Housing and Urban Development (HUD). It is one of 56 organizations or communities picked to share in nearly $2 billion in funding aimed at spurring economic development in areas reeling from the foreclosure crisis. The competition was fierce with about 500 applicants.
“It's exciting that NSP can be used for not just single-family but also multifamily,” says HUD Secretary Shaun Donovan. “The program will have a significant impact not just in areas where foreclosure has become a problem in just the last few years but in places where there are longer-term problems of vacancy and abandonment.”
The competitive awards were made under the program's second phase, NSP2, a key component of the American Recovery and Reinvestment Act. In the first phase, nearly $4 billion was awarded to 309 state and local governments by formula.
“There's no doubt that NSP is a crucial resource,” adds Mark McDermott, vice president of the national foreclosure initiative at Enterprise Community Partners. “Community Development Block Grants, HOME funds, and low-income housing tax credits (LIHTCs) are all being used for good things, but they are stretched. Having this resource specifically targeted to abandoned and foreclosed properties is crucial.”
A new financing approach
TCB's innovative proposal plays to its strengths. The group knows how to build affordable housing as well as any organization in the country.
In its 45-year history, TCB has developed more than 23,000 units of housing and currently manages more than 8,750 units serving low-income families, seniors, and special-needs populations.
With its NSP2 award, Clancy and his team expect to create about 1,300 housing units through new construction as well as acquisition and rehab opportunities in multiple states.
Along the way, they could very well spark new ideas about how to finance affordable housing.
As TCB leaders looked at the challenges of building multifamily projects as part of the nation's recovery effort, they identified a perplexing conflict.
On one hand, the usual way of developing affordable apartments is to piece together a long list of funding sources, including LIHTCs, HOME funds, grants, and loans. It's an arduous process that can take several years.
On the flip side, using the stimulus money without that kind of leverage likely means that a deal will have far fewer units to show for the dollars.
“We spent a long time thinking about if there is a way in which we can innovate to get beyond that conflict,” says Clancy.
The result is its NSP2 proposal, which will utilize a financing approach dubbed “Quick Start.” TCB plans to identify multifamily developments in troubled neighborhoods, where it can start construction quickly, even before the point of closing on the ultimate sources of financing.
The Recovery Act dollars will help TCB get these projects under way, with the expectation of creating jobs and affordable housing on a much faster basis. During the course of construction, TCB officials will align all the other financing sources for the development. Once that's done, they will take out a significant part of the NSP2 dollars and roll them over to a second development and then a third.
The Quick Start approach strategically bridges the conventional interim and permanent financing that TCB must assemble for all its projects under the traditional system.
Clancy admits there is some risk. If the group is already spending NSP2 money on a project, housing finance agencies and other funders may want to direct their resources to support other developments.
With decades of developing affordable housing under its belt and experience in 15 states, TCB thinks it can effectively manage this process and be competitive in raising the financing.
If the NSP2 dollars have to stay in the initial round of housing, the group won't be able to develop as many units as it hoped.
Clancy stresses that TCB will work collaboratively with state and local officials to identify projects and to make sure that its work fits into a community's overall neighborhood renewal efforts.
Half of the units created will be for households with incomes no more than 50 percent of the area median income (AMI), and the remainder will be for those earning no more than 120 percent of the AMI.
For Clancy and his team, the NSP funds provide an opportunity to take TCB's large organizational capacity and wealth of experience into more neighborhoods. He also hopes the effort will lead to new ideas about the allocation of resources to affordable housing and ways to move the process more rapidly.
“If we can take that two- or three-year period of aggregating all the resources and make that process work more dynamically and where construction can happen more rapidly and resources can flow in a different sequence, it may be useful to the affordable housing industry more broadly,” he says.