Transcript This is the Title

“Affordable and Sustainable Housing: oxy-morons in today’s
environment? Using market forces to drive sustainability”
NIFA 2005 Affordable Housing Conference
January 25, 2005
Shekar Narasimhan
Managing Partner
Beekman Advisors
1
BEEKMAN ADVISORS
Overview of Affordable Multifamily Housing
What’s Multifamily Housing?
What’s the stock?
Regulators & Providers of Allocations/Subsidies
Issues to Consider
Perhaps easier said than done: Sustainability
What does this mean to Housing Policy in 2005?
2
BEEKMAN ADVISORS
Housing Stock: Multifamily vs. Total U.S.
Multifamily Rental
Housing Stock
Total Housing Stock
17%
22%
16%
67%
Single Family Rental
Multifamily Rental
Owner Occupied
Multifamily
Rental
63%
15%
5-19 units
20-49 units
50+ units
Sources: Ann Schnare, Kent Colton et al. – adapted from the 1999 American Housing Survey
3
BEEKMAN ADVISORS
Who lives in Multifamily Housing?
There are some surprises:
3.5 mm renters earn 150% of area median income
15% of renters remain 4+ years in same apartment
16% of renters are >65 years of age
The fastest growing segment makes >$50k per year
Average apartment size in square feet grew in the ‘90s by 8%
Households pay 13-15% of their income on transportation
However, those making minimum wage pay 36%
4
BEEKMAN ADVISORS
What’s the Stock?
Average Age (Yrs)
Age of Multifamily
Rental Housing Stock
50
40
30
46
years
28
years
20
10
0
5-20 units
>50 units
Source: Ann Schnare and 1996 Property Owners & Managers Survey
5
BEEKMAN ADVISORS
What’s the Stock?
Now let’s talk rural
Approximately 5.5 mm renter households: 24% of non-metro stock
Median household income for nonmetro renters is $20,500 (versus $36,800 for
nonmetro owners)
We recently studied is the USDA Section 515 portfolio which encompassed
15,899 properties with 434,296 units (As of Nov. 1, 2003)

Existing tenant base is 58% Elderly or Disabled

Average property age is 23 years; 27 units per property

Average annual tenant income is $9,075
74% of the units have either RA or §8 assistance
92% of the properties require additional capital improvements funding
6
BEEKMAN ADVISORS
What’s the Stock?
Tax Credit Driven Units
Over the last 7 years, on average, we have been building 300,000 units of 5+
housing per year, however real new additions amount to 100,000 units per year.
Total Units Built
Less: Condos for Sale
300,000
50,000
Luxury Apartment Units
150,000
Tax Credit Driven
100,000
Less: Demolitions and Conversions
Real New Rental Additions
150,000
100,000
7
BEEKMAN ADVISORS
What’s the Stock?
Construction Cost per Unit
Cost of Construction varies a great deal: range is $65,000 to $300,000 per unit. The
average is close to $100,000 per unit, approximately the same as tax credit deals .
per unit average
Deal Range
$65k
$100k
$300k
Tax credit per unit average
(000’s)
$0
100
200
300
400
In some markets (LA, SF, DC, NY) it can take up to four years and $1.5 mm to get from
the date of land option to the date you can start leasing the property.
8
BEEKMAN ADVISORS
Regulators and Providers/Allocators of Subsidies
Rife with Conflict?
Regulators and Providers/Allocators of Subsidies include: HUD,
USDA, GNMA, FHA, GSEs, FHLBB, State HFAs, and PHAs.
Typical support: Grants, tax-credit equity, tax-exempt bonds,
insurance on debt, tenant or project-based income subsidies
Other forms of support: tax abatements, density bonuses etc
Is the result confusion and duplication?
Is there a built-in bias to spread the resources unrelated to
need?
9
BEEKMAN ADVISORS
Regulators and Providers/Allocators of Subsidies
HUD
GSEs
FHFB
PHAs
OFHEO
Partnership
Programs
FHLBBs
Private
Mortgagees
FHA
FANNIE &
FREDDIE
Bond Issuer &
Debt Provider
IRS
HFAs
GNMA
CDBG
HOME
Sec 8
LIHTC
Other
Units
Administrator
Sec 42
LIHTC
Competitor
Regulator
10
BEEKMAN ADVISORS
Regulators and Providers/Allocators of Subsidies
Is this system inefficient and confusing? YES
What does it cost? A LOT
Could it be more rational? PROBABLY NOT
Does it lead to resource allocations unrelated to need?
YES
While certain high-growth markets have gone begging,
others are getting over-built
11
BEEKMAN ADVISORS
Issues to consider in Affordable Housing
Sec
42 LIHTC, the only real affordable rental housing
production program of the last 17 years is working but is
it serving all the need? Can it distort smaller markets?
Prices
for Sec 42 credits have gone up as capital has
entered the market but there is still a lack of buyers for
small and rural projects: can consortia work?
What
really happens in year 15 (2002 onwards) and
what is the long-term impact of 30-40 year affordability
restrictions and 100% targeted projects?
From
prior experience we know you cannot adequately
reserve for year 10/15/20 capital improvements from
project cash flow.
12
BEEKMAN ADVISORS
Issues to consider in Affordable Housing (continued)
Should
every subsidy production program have an
automatic extension or expect new subsidies for
replenishment?
What
are viable exit or recapitalization strategies that can
be built in up-front?
Is
there a built in non-profit bias and is that good?
Subsidy/unit:
Comparing single family and multifamily. Do
we lose the consensus at $150k/unit?
Goal is Sustainability: Affordable in perpetuity
13
Perhaps easier said than done: SUSTAINABILITY
Let’s try all the usual answers out
Mixed-income
Mixed-use
Resident Ownership
There are real 'discipline' advantages to a mixed-income
deal (the market or close-to-market units have to be
competitive and stay competitive), but it's also easy to
delude yourself about feasibility. Everyone gets excited
about how much better their deal will make the existing
marginal neighborhood, and thus convinces themselves
that unlikely good things will occur because of it. On
balance, introducing mixed-income does not dramatically
improves the odds that the deal will be sustainable but it is
one way to approach the problem.
14
Perhaps easier said than done: SUSTAINABILITY
Let’s try all the usual answers out
Mixed-income
Mixed-use
Resident Ownership
A mixed-use deal is higher risk in the first place, if only
because two market judgments have to be right, instead of
just one. Moreover, the residential component usually
needs to be in place before the retail or office component
becomes viable. So it's not typical that you can do both
residential and commercial at the same time and have it
succeed. Mixed-use is not a panacea for sustainability.
15
Perhaps easier said than done: SUSTAINABILITY
Let’s try all the usual answers out
Mixed-income
Mixed-use
Resident Ownership
Resident ownership, if you look at the history of converting
rental to ownership, is possibly one of the worst possible
ideas. If you want to do affordable ownership, do it from
the get-go, with an appropriate physical product (detached,
duplex, townhouse) and with a community land trust (or
equivalent).
"The American Dream is not a limited-equity co-op."
16
BEEKMAN ADVISORS
What does this mean to Housing Policy in 2005 and beyond?
We
need more supply, particularly for those in the middle
(60-120% of median income): working families with
modest incomes.
This
supply cannot be built without some subsidy
because of cost.
In
urban markets, we should focus on in-fill locations to
lower transportation costs.
We
MUST focus on rehabilitation and revitalization
because of the aging of the current stock.
17
BEEKMAN ADVISORS
Short & Long-term Ideas on Affordability & Sustainability
Create
a liquid market for the ownership and
management of small projects
Allow
for a broader band of tax credit allocations per
project from 4-13%
Provide
set-asides for rural and for preservation
Increase
usage of FHA 221(d)4 and RHS 538 by
financial institutions
More
local/State control but less built-in conflict
More
discipline overall.
USE MARKET FORCES
18
BEEKMAN ADVISORS
Sources

Joint Center for Housing Studies at Harvard University

National Multi Housing Council

Kent Colton, Kate Mulligan, Ann Schnare, Denise
DiPasquale, Larry Dale

Freddie Mac

Federal Reserve Board

American Housing Survey 1999 and 2001 data

2000 Census of Population and Housing
19
BEEKMAN ADVISORS
Conclusion
“Fundamental things apply as time
goes by.”
-pianist in the
film “Casablanca”
20
“Affordable and Sustainable Housing: oxy-morons in today’s
environment? Using market forces to drive sustainability”
NIFA 2005 Affordable Housing Conference
Shekar Narasimhan,
Managing Partner
Beekman Advisors
January 25, 2005
21