Developers tackle red tape for affordable housing as economy tightens

Affordable housing developers in DC have access to an unprecedented $500 million housing production fund from the district government over the next fiscal year, but in a tight economic environment, they say it’s time to phase out regulatory hurdles to make the affordable housing business simpler.

Rising interest rates and construction costs have made it harder to secure affordable housing deals, and developers say DC regulations that extend the time before groundbreaking are exacerbating uncertainty and putting projects at risk.


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WinnCos.’ Aimee McHale, Donald Kann of Michael Graves Architecture & Design and Matt Robinson of MRP Realty speak during a panel at the Bisnow Affordable Housing Summit in Washington DC on July 28, 2022.

Each new hurdle adds “time, and therefore risk” to a multi-family deal today, MRP Realty Director Matthew Robinson said Thursday at Bisnow’s Washington DC Affordable Housing Summit, located at the Marriott Courtyard Convention Center.

“Let’s just say you were going through the TOPA process now and interest rates just skyrocketed, well, you might just have lost your deal,” Robinson said. “It may have collapsed and you didn’t even know it yet because you’re going through the TOPA process.”

The Tenant Purchasing Opportunity Act, or TOPA, gives tenants of a multi-family building listed for sale the opportunity to organize and secure financing to purchase their building or sell their TOPA rights to another service provider. homes to preserve them.

The 40-year-old law has long been criticized by developers who say it can slow down the negotiation process for multi-family properties, given the months-long period that tenants are legally allowed to hold.

But as some economists warn of a recession and supply chain shortages continue to affect projects of all kinds, it has become one of many policies in the crosshairs of developers who say they will need all the help they can get to deal with a simultaneous shortage of affordable housing. .

“I urge everyone … to keep thinking about other solutions,” said Brett Meringoff, Fairstead’s managing partner of development. “I think the challenges are things we haven’t faced in a long time, probably since 2008.”

Escalating construction costs have worsened, Meringoff said, and uncertainty surrounding inflation has made estimating project costs more difficult.

“It continues to be a very volatile time which means it’s harder to lock in prices or get price commitments from contractors, they can’t hold it for that long,” did he declare. “We’ve had issues with the subs, especially mid-work, either failing or having major challenges on their end.”


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Julia Gordon, Assistant Secretary for Housing and Federal Housing at the US Department of Housing and Urban Development, delivers a keynote address at the Bisnow Affordable Housing Summit in Washington DC on July 28, 2022.

The credit environment has also become tougher as rising interest rates have made deals harder to strike, United Bank chief executive Joseph LeMense said.

“The interest clock is ticking,” LeMense said. “You get to a point where you’re 70% through a project and you’re out of money.”

This difficult environment continues to be made worse by TOPA, according to researchers familiar with the market. During the second quarter of this year, Northern Virginia accounted for an outsized share — more than 50% — of multifamily investment sales in the DC area, in part because TOPA and right of first refusal programs in Maryland suburbs have investors worried, according to Newmark’s most recent multifamily market report.

“While membership in TOPA is no longer an issue for investors, policies that cause uncertainty in closing times, such as TOPA and ROFR, are a challenge for investors given the unclear direction of the future. increase in interest rates,” the report said.

TOPA has emerged as a high-profile target of anger during the pandemic, when the district moved to effectively freeze the process in light of tenants’ organizing difficulties amid a public health crisis.

This has frustrated market-rate developers, but non-profit housing providers have increasingly argued that the law may also slow or even thwart their ability to acquire properties that will be put up for sale, even when they intend to preserve affordability.

Kimberly Driggins, executive director of the Washington Housing Conservancy, said she’s skeptical that TOPA is actually preserving housing affordability. She says the sales process is structured in a way that too often gives residents a one-time lump sum when transferring ownership of their building without preserving long-term housing affordability.


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Winell Belfonte of CohnReznick, Jim Knight of Jubilee Housing, Kimberly Driggins of Washington Housing Conservancy, AJ Jackson of JBG Smith, Lawrence “Murphy” Antoine of Torti Gallas + Partners, and Drew Hubbard of DHCD.

Additionally, the extended lead time residents can take to organize and find a buyer is treacherous for nonprofit housing providers, which often operate on tight margins, Driggins said.

“I don’t see that overall it actually creates housing affordability,” Driggins said. “The problem for TOPA is time and cost, and it is time and cost that kills business. Often, nonprofits operate with very limited funding and can’t wait.”

Housing affordability has captured national attention just as the economic environment is making it more difficult to produce these units. Speaking at the event, Julia Gordon, Assistant Secretary for Housing and Federal Housing Commissioner at the U.S. Department of Housing and Urban Development, echoed previous statements by President Joe Biden urging local governments to strengthen inclusive zoning. and remove barriers to affordability.

“Across the administration, we are looking for ways to incentivize communities to continue to facilitate the development of affordable housing,” Gordon said. “I wish I had a silver bullet for this here at HUD.”

Recommendations include finding ways to change local land use and zoning laws to allow for more development and partnering more with the private sector to get housing built.

But since releasing Biden’s housing action plan in May, the Federal Reserve Bank has raised interest rates by three-quarters of a point twice. After the latest hike on July 27, developers said the economic environment was forcing deals for multi-family projects across the country to be reassessed.

In DC, TOPA isn’t the only issue process developers are complaining about. A tax break currently provided in DC for nonprofit developers building homes that benefit from a low-income housing tax credit could – and should – be extended to for-profit developers building the same type of housing, said Aimee McHale, Vice President of WinnCos.

McHale said such a break would reduce pressure on operating budgets, reduce First Trust debt and make it easier for WinnCos. to compete for resources.


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Matt Greeson of Reno & Cavanaugh, Joe Lemense of Carmen Romero United Bank of Arlington Partnership for Affordable Housing, Brett Meringoff of Fairstead, Ben Apfelbaum of Davis Construction, Aimee McHale of WinnCompanies, Donald Kann of Michael Graves Architecture & Design and Matt Robinson of MRP Realty speak during a panel at Bisnow’s Affordable Housing Summit in Washington DC on July 28, 2022.

“We’re all trying to create or preserve affordable housing,” McHale said. “I think it’s something that there needs to be some momentum on.”

Some not-for-profit affordable housing organizations view the issue differently. Carmen Romero, CEO of the Arlington Partnership for Affordable Housing, said the majority of her staff are not engaged in the real estate industry, but instead focus on providing tenant services, which most developers at profit do not.

“There’s a difference between some of the nonprofits, where we spend our time,” Romero said. “I think a real estate discount for everyone building would be nice, but we need tools that help us do the other jobs as well.”

Jim Knight, president and CEO of Jubilee Housing, praised the district’s consolidated request for proposals process, introduced in 2021, which focuses on net new affordable housing for households with median incomes of the region is less than 30%.

But he said DC needs to focus more on holistic services for low-income tenants to make sure they get the support they need to not just stay up to date on rent, but to achieve stability. and financial independence in their own lives.

“For the first few decades, we celebrated renters who made the steady transition from affordable housing to homeownership,” Knight said. “It slowed down to a trickle. Jubilee has changed nothing, the market has changed.

The task ahead of us for affordable housing is enormous. DC Mayor Muriel Bowser, who is almost certain to begin a third term as mayor next year, aims to build 12,000 affordable homes between 2019 and 2025, but has so far achieved about a third of that. objective. Meanwhile, the Metropolitan Washington Council of Governments has called for 75,000 more homes beyond what was planned for 2019 to address a shortage in the area, and it said 75% must be affordable in order to meet the needs. long term needs.

“Housing appears to be the mayor’s No. 1 priority,” said AJ Jackson, executive vice president of social impact investing at JBG Smith. “If that’s the case, we need to make sure all the political oars are rowing in the same direction.”

For Driggins, the issue of affordable housing is central to the district’s overall competitiveness. She said that without focusing on housing across all income brackets, the region could lose workers to other localities, which would hurt businesses and the economic health of the region.

“When I look at San Francisco, and I love that city, but it’s such a bifurcated city in terms of uber-rich and very low to no income,” Driggins said. “We are heading in this direction. I think we are at an inflection point and we have an opportunity at this point to ensure that the region and the city remain economically diverse. [and] racially”.

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