In February, Congress handed public housing authorities $4 billion for capital needs as part of the stimulus package, and billions more may be allocated this year through the appropriations process. Public housing development work can be a rewarding pursuit, with developer fees for complex deals often at 9 percent or more, and with significant subsidies available for both construction and operations. What should developers know about getting into the public housing development field?
Public housing authorities (PHAs) sponsor many types of development, including rehabilitation of existing stock, acquisition of units or buildings, and complex new construction deals combining low-income housing tax credits, private bank loans, and multiple layers of federal, state, and local funding. The PHA usually provides low- or no-cost financing, operating subsidies, and sometimes land, and its projects often qualify for favorable property tax treatment. In return, some or all units must be operated as public housing and serve low-income tenants for 50 years.
Private developers are sometimes hired simply as contractors to the PHA. In other cases, the PHA needs a partner to package and manage the entire deal—that is, to obtain private and other public funding, and to manage the property throughout the tax credit compliance period. A PHA may also need something in between, such as a developer who puts the financing together and manages construction, then hands the project over to the PHA for long-term ownership and management.
“The quality of the partnership with the public housing authority is critical, and it's important to be clear about the roles and responsibilities of each party,” says Dara Kovel of the Jonathan Rose Cos., which emphasizes environmentally responsible development techniques and has served as program manager, financial and planning consultant, and development partner to PHAs since 2000.
Fortunately, PHAs are required to advertise for what type of partner they need, and all interested bidders have an equal opportunity to compete for the work through a request-for-proposal (RFP) process. Even experienced companies often need local partners, so teaming up is another way for newcomers to combine talents and get familiar with the industry.
In Georgia, for example, the Housing Authority of Savannah hired a team comprised of Melaver, Inc., a third-generation family business that specializes in sustainable development, in conjunction with two nonprofit housing developers and a minority-owned contracting and supply firm.
Some developers may be wary of the complex legal and program requirements associated with federal programs like public housing. For example, under federal rules, a developer needs a special waiver in order to work with an affiliated contractor. Accessibility rules, wage laws, and resident and minority hiring requirements can be confusing, and reconciling the different rules associated with multiple layers of financing may seem difficult.
The good news is that assembling the right team of consultants and lawyers can smooth the way. The public housing development industry is a relatively mature one and follows relatively well-established rules and procedures, even if many are unwritten. Experienced advisers can help to bridge the information gap for industry newcomers by explaining what common problems to avoid and how to navigate regulatory requirements. PHAs themselves can also be valuable partners, with their hands-on experience with the applicable rules.
Developers should, however, build in additional time for the regulatory process. Approval to transfer property can take months, as can the review of necessary documents by the federal regulator, the Department of Housing and Urban Development (HUD). Here again, experienced advisers can help manage the process, spotting and resolving issues before they bog down a deal. Furthermore, time spent on the front end often ultimately saves time on the back end, as parties who negotiate terms early on usually face fewer dramatic changes at the closing table.
Stimulus dollars start flowing to PHAs this month, so the time to start thinking strategically is now. Good candidates for stimulus funds include projects that are ready to go or already complete but that need some gap financing. The stimulus bill also prioritizes “green” housing, which is the focus of a new HUD/Department of Energy task force, and the sustainable project in Savannah has enjoyed especially strong support from both tax credit investors and regulators, according to Denis Blackburne of Melaver, Inc.
Newcomers may need to learn some new rules, but opportunities exist for developers who are willing to play by those rules. “Certainly, the regulations, timelines, and approval processes are complex,” says Kovel of the Jonathan Rose Cos. “But that's the business we're in ”¦ and this next era of public housing redevelopment presents a real opportunity to make a difference in the quality of the lives of residents.”
Jaime Lee is a partner at the law firm of Reno & Cavanaugh, PLLC, which represents government agencies, developers, lenders, and nonprofit organizations in matters of affordable housing and community development. She can be reached at [email protected].