Financing Affordable Rental Housing: Defining Success Five Case Studies

Home , Larry Silverstein, One Riverside Park, Silver Towers

Bessy M. Kong and Derek Hsiang Financing Affordable Rental Housing: Defining Success Five Case Studies

Bessy: Defining M. Kong and Derek Hsiang Success Five Case Studies ACKNOWLEDGEMENTS

This report was produced with the support and collaboration of the Korea Housing and Urban Guarantee Corporation (HUG) as a part of a joint research initiative with the Urban Sustainability Lab- oratory of the Wilson Center to examine public finance programs to increase the supply of affordable rental housing in the United States and Korea.

The authors would like to thank HUG leadership and research partners, including Sung Woo Kim, author of the Korean report, and Dongsik Cho, for his support of the HUG-Wilson Center partnership. We would also like to thank Michael Liu, Director of the Miami-Dade County Department of Public Housing and Commu- nity Development, for sharing his knowledge and expertise to in- form this research and for presenting the work in a research seminar and exchange in Seoul in November 2016. We are grateful to Alven Lam, Director of International Markets, Office of Capital Market at GinnieMae, for providing critical guidance for this joint research initiative and for his contribution to the Seoul seminar.

Thanks to those who provided information for the case studies: Jorge Cibran and José A. Rodriguez (Collins Park); Andrew Gross and Michael Miller (Skyline Village); and, Robert Bernardin and Marianne McDermott (Pond View Village). A special acknowl- edgement to Allison Garland who read all the drafts; to Marina Kurokawa who helped with the initial research; and to Wallah Elshekh and Carly Giddings who assisted in proof reading and the formatting of the bibliography, footnotes and appendices. Table of Contents

I. Introduction…………………………..….....…………...... ……...... ….1

II. Public Housing Authorities……...... ….5

Alexandria Redevelopment and Housing Authority Chatham Square and the Use of HOPE VI / 5

Miami-Dade Public Housing and Community Development and the Related Urban Development Group Collins Park: Private-Public Cooperation / 25

III. Non-Profit Housing Developers……...... ………....…...... ……...... ……….43

Los Angeles, Thomas Safran and Associates / 43 Skyline Village: Using Low Income Housing Tax Credits and Tax Exempt Bonds

Gloucester, Massachusetts / 61 Pond View Village: Mixed-Income Development on an Historic Site Failure and Success in the Same Project

IV. Private For-Profit Developers………...... ……...... ……...... ……79

New York City: The Effectiveness of 421-a in Midtown West, Manhattan / 79

Introduction Financing Affordable Rental Housing in the United States: Defining Success Five Case Studies

he challenges facing the of housing providers: public hous- Tdevelopment of affordable ing authorities, non-profit housing housing across the United States developers, and private for-profit are growing as rent burdens in- developers. For each case we an- crease, as existing affordable alyze the circumstances that led housing ages and is in need of to the development of the partic- repair, and as neighborhoods ular project and the financial pic- gentrify and citizens compete for ture that made the project work. prime real estate. The five case Details of the projects vary great- studies that follow examine a ly, whether it is a project for the particular aspect of the develop- elderly in Los Angeles, California ment process and showcase the or a mixed income development different ways affordable housing in Alexandria, Virginia. Howev- eventually gets built. In particular, we will take a look at the financial er, though the reasons for the incentives used and how differ- development differ, the actual financing structure for construc- ent players are positioned to take tion and completion of the proj- advantage of the tools that are ect is limited to a narrow range available. of financial options. Therefore, The following case studies exam- we see the federal low income ine affordable rental housing proj- housing tax credit being used ects used by three different types time and again in projects across

1 the United States, as detailed in the loans from the city and coun- the cases studies from Califor- ty. Similarly, Chatham Square in nia, Massachusetts, Florida, and Alexandria, Virginia relied on the Virginia that are presented in this mutually beneficial arrangement report. When local governments between a private developer and get involved in building afford- the city that held title to the prop- able housing, they can also use erty being developed. the power of the local tax code to In all our case studies, we see incentivize the development that that the success of the project is most suited to their communi- depends on the developer being ties. Therefore, in New York, a tax able to piece together various abatement program spurs target- parts of the financial arrange- ed affordable housing development. This involves using the ment in communities in need of ubiquitous low income housing investment. tax credits for affordable housing, In addition, the primary actors in but it also involves using federal affordable housing--government and local grants, loans from mul- agencies, non-profit housing or- tiple sources, bond financing and ganizations and private develop- deferred fees. The exact com- ers--often work closely together bination will depend on funding on a single project. In fact, with- that is available locally as well as out a certain amount of public/pri- at the federal level but it is almost vate cooperation, many projects always true that not just one would be infeasible. There can source will provide all the funding be overt partnerships to develop necessary. a project such as the one at Col- Finally, the case studies have cer- lins Park in Miami-Dade, Florida. tain “soft” qualities in common. More often than not, however, These are not generally evident partnerships provide the neces- when a project is first being de- sary financial contribution at a veloped and financed but it be- crucial time in the life of a proj- comes more apparent as the ect. Thomas Safran would prob- project proceeds and begins to ably not have developed Skyline take shape. These commonalities Village in Los Angeles without

2 include the importance of design tory of successful housing devel- in any project. Each of the de- opment. When private, for-profit velopers highlighted in the case developers are enticed to enter studies emphasizes the impor- the affordable housing realm, it is tance of good design to enhance usually to ensure that the more the lives of their tenants wheth- profitable market rate apartments er it is the addition of thoughtful are built. Sometimes we see un- open space or the inclusion of intended consequences such as common amenities. Good design the use of a “poor door” (Navar- helps generate interest in the ro 2014) which separates afford- project and ensures tenant inter- able tenants from market-rate est in living in and caring for the tenants, and the use of early tax property. abatements for market rate housing, illustrated in this report by Given the intersection of pub- the New York City cases. lic and private interest, it is also important that the developers of The case studies that follow are affordable housing are trusted not intended to provide a defin- partners in the process. Usual- itive answer to the question of ly the developers are known to how we can foster the produc- the city or county in which they tion of more affordable housing. work and often they have a track Instead, they can only show how record of similar housing proj- some projects succeeded and ects in the area. While there are what was important in making large for-profit firms that have af- that success possible. If they of- fordable housing divisions, such fer an overarching argument, it is as Related Urban Development this: 1) there must be a firm com- Group in Florida, many players mitment to creating affordable in this arena are non-profits or housing that benefits low-income were first established as faith- households by the government; based organizations such as Ca- and, 2) government cannot do it leb Foundation in Massachusetts. alone and needs the assistance In either case, effective devel- of players in the private and opers tend to have a good local non-profit sectors in order to suc- knowledge base and a solid his- ceed.

Alexandria Redevelopment and Housing Authority Chatham Square and the Use of HOPE VI

INTRODUCTION THE COMMUNITY

In this case study, we examine The City of Alexandria lies within the use of a federal grant pro- sight of the U.S. Capitol Building gram and how it can be used in in downtown Washington. Its conjunction with other financing proximity to the larger city has al- to redevelop and construct both ways made it attractive for people affordable and market rate hous- who work in Washington and its ing. Here the Public Housing history as a bedroom community Authority (PHA) and developer dates to the advent of commuter unite to create both affordable rail lines in the region. However, and market rate housing to real- the historical roots of Alexandria ize profit for the developer and to predate those of Washington, provide revenue for the housing having been established in 1749 authority. The Chatham Square as a “tobacco trading post and case study also shows us how site of the largest slave-trading affordable housing can be built firm in the country” (City of Al- when market conditions are ex- exandria 2016). But it was also actly right and the location of the home to a large free African public housing asset is desirable. American population who continued to settle in the city after the Civil War. From its beginnings as a thriving town of about 2,700 peo-

5 ple in the 18th century, it is today, tered throughout the city. While after two annexations, a city of some tracts exhibit generally about 150,000. About 22% of the lower incomes, it is also true that population is black/African Amer- high income neighborhoods may ican, 16% Hispanic, and 53% have older housing that is home white. These percentages have to low- and very low-income fam- remained stable for much of the ilies. This was certainly true of last decade. the Berg, which became the site of Chatham Square Apartments, Economically, the median in- the subject of this case study. come of residents in Alexandria was about $89,134 in 2015, much higher than the national median THE PROJECT: AN income, yet slightly lower than EXCELLENT LOCATION the regional median (City of Al- FOR CHATHAM SQUARE exandria 2015). Income is derived primarily from administrative, Chatham Square is located with- managerial, or scientific fields in the historic area of Alexandria with a concentration in govern- known as Old Town. The Berg is ment services. About 10.7% a neighborhood that lies within of the population in Alexandria Old Town and was established by lives below the federal pover- slaves who had fled Petersburg ty line (City of Alexandria 2015) (thus the name) at the time of or $11,700 for a single member the Civil War. It continued to be a household in 2015 (U.S. Depart- predominantly African American ment of Health and Human Ser- neighborhood well into the 20th vices 2015). By household type century. The historic boundaries and size, Alexandria has a higher of the Berg originally encom- poverty rate than its neighbor, passed about 15 city blocks but Washington, DC, largely due to at the time of Chatham Square’s Alexandria’s smaller household construction in 2004, the Berg size. However, poverty in the city had shrunk so that its ties to the is not evenly distributed, with black community rested largely low-income families lodged in in the Samuel Madden Homes, older, multi-family structures scat- a public housing project of 100

6 units built in 1945. By then the from largely African American Berg was no more than two city to largely white, non-Hispanic blocks bounded by Pendleton, neighborhoods was already well North Pitt, Princess and North established. Royal streets. Though diminished, it continued to occupy a prime lo- Chatham Square built on the site cation within walking distance of of the Samuel Madden Homes the commercial activity along King public housing project, is made Street and only a few blocks from up of market-rate townhomes the green space and recreational and public housing units, situ- activities along the river. ated around a central courtyard of shared green space and play Old Town, itself, after undergoing areas. It was completed in 2005 a period of decay in the 1960s with 100 market-rate home own- and 70s was revitalized, largely ership units and 52 public hous- through the efforts of residents ing rental units. The remaining 48 who sought to restore the his- former residents of Samuel Mad- toric character of the communi- den Homes were relocated to ty and renovate the many 18th other newly renovated projects and 19th century rowhouses in Alexandria. At the time it was that comprise such an important one of the more unusual mixes of part of its housing stock. By the market rate and affordable units 1990s, when the first plans for in the country because of the Chatham Square were discussed, wide disparity between the value Old Town had outstripped oth- of the homes for sale and those er communities in Alexandria in for rent. The project was recog- terms of the income and educa- nized for its sensitive design and tional attainment of its residents, successful execution in the many as well as the rents charged for building and development awards its housing units. In other words, it received. it had become highly desirable as a place to live and the change

7 Figure 1. Samuel Madden Homes, Downtown Alexandria

Source: Virginia Housing Development

Figure 2. Chatham Square Today

Source: Virginia Housing Development

8 THE PLAYERS through the reorganization, al- teration, reconstruction and/or The Owner/Operator: Alexan- redevelopment of areas in which dria Redevelopment and Hous- unsanitary and unsafe conditions ing Authority (ARHA) exist.” (ARHA History). In light of its mission, ARHA has been ARHA administers and maintains restricted from enacting any poli- the city’s public and assisted cies that would reduce the num- housing and oversees the tenant- ber of affordable and/or assisted based voucher program as well housing units in the city. At the as the Moderate Rehabilitation same time, it is restricted from Program (Mod Rehab) and Low relocating more than 50% of Income Housing Tax Credit (LI- tenants already living in assisted HTC) Program. ARHA was cre- housing to off-site locations. The ated by state charter but gets one-for-one replacement policy most of its operating and devel- was ultimately made official as opment funds from the federal City Council Resolution 830 ad- government. While ARHA does opted in 1982. Since that time, not receive funding from the no publicly assisted housing has city of Alexandria, the board of been eliminated, yet neither has commissioners that governs the the resolution encouraged addi- housing authority is appointed by tional public or assisted housing the city. Currently there are nine to be built. All activities including commissioners on the Board in- both redevelopment and new cluding a public housing resident construction have been within and a member of the Alexandria the numbers that existed since Landlord-Tenant Relations Board. 1972. ARHA continues to over- An Executive Director manages see 1,150 affordable units. It is the operations of the authority at responsible for the administra- the direction of the Board. tion of about 1,722 vouchers and ARHA’s mission is to “maintain, receives about $33.5M annually preserve and provide safe, de- from the Department of Housing cent, sanitary and affordable and Urban Development (HUD) housing for low-income and for all its programs. low-moderate income families,

9 Because so much of the afford- The Developer: EYA (formerly able housing stock in the city Eakin/Youngentab Associates) was built in the 1940s much of it is entering the end of its useful EYA is a prominent and frequent life. Efforts at modernization and participant in Alexandria’s devel- redevelopment have included opment projects. Established an effort, within its policy limita- in 1992, the firm specializes in tions, to redistribute affordable urban neighborhoods that are units throughout Alexandria and transit-oriented, walkable, and not concentrate so much of it in sustainable. Since its founding the Old Town district. Proponents EYA has been responsible for the of redistribution argue that the development of more than 4,000 location of so much of the afford- homes in more than 30 neigh- able units in highly valued Old borhoods across the Washington Town reflects Alexandria’s histor- metro area. Its imprint on the ic roots and not a well-conceived Alexandria landscape is perhaps response to changing needs. In more pronounced than in any addition, redistributionists say, other community as it currently concentrating low-income fam- has completed or under develop- ilies in contiguous projects re- ment at least 18 residential and duces opportunities for these or mixed-use projects. families to improve both educa- EYA prides itself on choosing tional and economic attainment. projects that fulfill its mission of Opponents of redistribution be- creating “lifestyle friendly res- lieve that moving low-income idential neighborhoods (EYA).” families away from their tradi- It specializes in projects that tional neighborhoods is intended are transit-oriented, build on not so much to foster integration private-public partnerships, pro- but to free up valuable real estate mote mixed-use, mixed-income for higher income households. communities and, often capital- These arguments continued not ize on in-fill residential designs. only during the development of EYA submitted its qualifications Chatham Square but even after to ARHA when a Request for the project was completed and Qualifications (RFQ), Phase I was occupied. issued in 2001. EYA was among

10 five developers who submitted that funded the affordable units applications but was one of only in Chatham Square. Fannie Mae two who were then asked to sub- is a government-sponsored mit project proposals under RFQ, enterprise (GSE) and since 1968 Phase II. Project proposals had a publicly traded company. It was to conform to criteria chosen by established in 1938 following various stakeholders in a public the Great Depression in order process that took over a year. A to bolster the housing sector by 198-unit high rise project had pre- increasing the lending of local viously been rejected by the city banks. Fannie did this by securi- for the site. EYA’s plan for Cha- tizing mortgages in the form of tham Square showed a concern mortgage-backed instruments, in for maintaining open space for the process creating the second- the residents; it did not maximize ary mortgage market. the developable units but opted for a plan that was in keeping In the early 2000s, at the time with the lower density character of the project’s development, of the neighborhood; it wanted Fannie Mae was operating under to create a community where be- explicit guidelines to meet afford- fore there had been a project. The able housing goals. Anti-preda- plan EYA presented unanimously tory lending practices which had won the approval of all six mem- been stringently enforced pro- bers of the selection committee hibited the GSE from engaging and it was awarded the develop- in high-risk, high-cost projects ment contract in 2002. to satisfy those goals. As the financing for the affordable units at The Investor: Fannie Mae Chatham Square was being put in place, these rules still applied. The Federal National Mortgage In 2004 the rules were dropped Association, commonly known and Fannie could once again en- as Fannie Mae, was the sole gage in riskier projects to meet investor in the housing credits affordable housing goals.

11 PROJECT DELAYS struction until 2002. During that time, the project was fought over Chatham Square is one of the few in the courts as both the Resident examples of mixed-finance devel- Council representing tenants of opment where the market rate Samuel Madden Homes and the housing far exceeded the values Old Town Civic Association filed of the affordable housing. Given suit against the housing authori- the location of the project in the ty. When a federal HOPE VI grant heart of Old Town, ARHA wanted was awarded to ARHA for the to maximize the development po- project in 1998, a suit was also tential of the site but it still had brought against HUD, the fund- to provide, by law, replacement ing agency. It was only when a housing for at least half the resi- faction of the residents lost their dents of Samuel Madden Homes case in the Supreme Court for a in any new project that emerged. right of first refusal to develop From the start, ARHA knew that the project that ARHA’s plans for it was developing not just one Chatham Square could proceed. project but at least three: first, there were the 100 market rate townhomes; then, on the same PROJECT FINANCE site, there were the 52 public housing rental units; and finally, After persevering through the there were three scattered site court process, and suffering projects in other parts of the city through years of delays, ARHA that would house the remaining was determined to strike the best 48 families dislocated by the deal it could to make the wait demolition of Samuel Madden worthwhile. In a complex arrange- Homes. ment, EYA agreed to purchase the land from ARHA at 150% of While plans were being consid- its assessed value. The cash from ered as early as 1989, it took an- the sale was promptly placed in other dozen years before demo- escrow until construction on the lition work could actually begin. project was completed and units Opposition by the surrounding sold or leased. ARHA would also community as well as the public receive bonuses upon the sale of housing residents delayed con-

12 the market rate units if the value the tax credits and because the increased beyond a certain point. funds for the entire development Earlier, ARHA had been awarded had been escrowed until project a HOPE VI grant of $6.7 million completion, there was minimal for its proposed mixed-income risk to the investor and ARHA development at Chatham Square. was rewarded with a higher rate It now used that award to bolster for its credits. The HOPE VI funds its application for low income were used to cover administrative housing tax credits to fund public costs, tenant relocation costs, housing at both Chatham Square resident support services and and the three other relocation some construction costs at BWR. sites collectively known as Brad- The city assisted as well with a dock Whiting Reynolds (BWR) $3.5 million loan which helped Apartments. The Virginia State bridge costs during the develop- Housing Finance Agency award- ment process (ULI 2007). As for ed ARHA the credits in 2003. The the market-rate units, EYA was equity generated by the credits able to obtain straightforward eq- combined with proceeds from uity and debt financing from its the sale of the land was sufficient long time banking partner Wacho- to fund the entire cost of the via Bank. The relative ease of that public housing without additional financing contrasted sharply with capital subsidy from HUD. Fannie the complexity involved in financ- Mae stepped in to purchase all ing affordable housing.

13 Chatham Square Project Details

PROJECT DATA LAND USE INFORMATION Site area (acres): 4.16 Percentage complete: 100 Gross density (units per acre): 34 Number of off-street parking spaces: 272

LAND USE PLAN Area (Acres)/ Percentage of Site Buildings 2.24/ 54% Streets/surface parking 1/ 24% Landscaping/open space 0.92/ 22%* Total 4.16/ 100% *Does not include rooftop terraces and decks. Source: ULI 2007

Chatham Square Finance Details

DEVELOPMENT COST INFORMATION Site Acquisition Cost: $8,117,219 Site Improvement Costs: $8,799,485 Excavation/grading: $1,233,281 Sewer/water/drainage: $2,554,773 Paving/curbs/sidewalks: $1,179,014 Landscaping/irrigation: $162,306 Fees/general conditions: $3,670,111 Construction Costs: $28,161,000 Soft Costs: $10,418,646 Architecture/engineering: $1,199,444 Project management: $1,015,520 Marketing: $770,083

14 Legal/accounting: $555,208 Taxes/insurance: $758,276 Title fees: $3,933,330 Construction interest and fees: $3,933,330 Other: $1,425,034 Total Development Cost: $55,496,350 DEVELOPMENT SCHEDULE Planning started: July 2002 Construction started: November 2003 Site purchased: January 2004 Sales/leasing started: February 2004 Project completed: December 2005

Source: ULI 2007

PROJECT DESIGN AND families. The architect, Lessard OUTCOME Group, met the challenge and The design of Chatham Square created a design that seamlessly was more important to the suc- combined both types of housing cess of the project than is usu- and provided the requisite garage ally the case in public housing parking while reflecting the 18th developments. Not only did the and 19th century facades of the public housing units have to surrounding neighborhood. View- conform to quality housing stan- ing the project from the street dards set forth by HUD but it there would be no way of dis- also had to do so within the to- tinguishing between the market tal development cost limits that rate townhouses and the public were attached to the grant. This housing. In fact, false facades had to be done while satisfying make the rental units appear to the expectations of market rate be townhomes when they are homeowners that would be pay- actually grouped together as sin- ing luxury townhouse prices yet gle units next to actual 3-4 story living alongside lower-income townhouses.

15 in its contract with ARHA, guaran- Demand for affordable teed a maximum unit cost for the housing is so great that public housing of $217,000 each (ULI 2007). The considerable site in Alexandria, as in many development costs were prorat- other cities, the waiting ed and shared between EYA and ARHA. Given that part of the site time for an affordable unit was located directly across from is estimated to be the municipal bus depot and given the inherent riskiness of 3-5 years. valuing a mixed-income property, EYA set the initial price of the In addition to the design chal- market rate units slightly below lenges, the requirements of the those of surrounding properties. LIHTC allocation called for a very But when the first units were restricted construction sched- completed, the demand was sur- ule. All public housing units had prising. Interested buyers waited to be delivered within two years in line to view the townhomes. of receiving the funding. The “The sales office opened on a fully integrated design as well Saturday, and folks started camp- as the financing arrangements ing out to buy on Wednesday,” meant that the market rate units said Jack McLaurin, principal ar- had to be completed along the chitect with Lessard Group (Ol- same schedule. Luckily the de- iver 2006). The last townhomes lays caused by the controversy sold for a high of $1.4 million in of the project and the resulting January 2006 while the average law suits allowed ARHA to spend cost of a Chatham Square unit more time on project planning was $870,000. Ultimately the and testing of different design value of a Chatham Square unit models with the community. exceeded the value of surround- When the litigation was finally re- ing commensurate property on solved, both EYA and ARHA were a per square foot basis. With the ready to begin. increase from anticipated value, ARHA received an added bonus EYA served as the general con- of about $3 million based on the tractor for the entire project and, original purchase agreement with EYA (ULI 2007). 16 The 52 public housing units were ticipate in job training programs also in great demand. Many ten- and hire local residents for the ants who had previously lived in project. The fact that Chatham Samuel Madden Homes wished Square became such an econom- to return and if they met the in- ic success meant that the reve- come and work requirements nue generated could be used for for residency they were granted redevelopment of other public a preferred status. Those who housing projects in the city. More could not be accommodated at than that the public housing units Chatham Square could choose retained in ARHA’s portfolio have one of the three scatter sites. increased in value and add eq- Tenants who held vouchers or uity which can be leveraged to lived in other sites were put on finance additional housing. That another waiting list and as vacan- ARHA had a stake in the project cies occurred they would move that was in some ways no differ- forward. Demand for affordable ent than EYA’s meant that both housing is so great that in Alexan- were equal partners in ensuring dria, as in many other cities, the the project’s success. For a de- waiting time for an affordable unit veloper working with a difficult is estimated to be 3-5 years. site, with tight time constraints, and vocal neighbors, that was an The agreement to retain an own- invaluable asset. ARHA contin- ership interest in the market rate ues that relationship with EYA as units caused a great deal of sus- it is today one of the prime devel- picion in the community espe- opers of real estate projects in Al- cially regarding the fate of the exandria. The model set forth by public housing tenants. There is Chatham Square is not one that no doubt that maximizing prof- is easy to repeat but the finan- its from the redevelopment of cial rewards have been so great Samuel Madden Homes was a that ARHA has used the mixed key consideration for ARHA, but income model in several other it also extracted social benefits projects including most recently, in the interests of its tenants Old Town Commons, to modern- from EYA. Thus, there was an ize its public housing. agreement that EYA would par-

17 HOPE VI ties of up to $50 million per grant with about 5-6 such grants each The HOPE VI grant awarded to year. Over the course of about Chatham Square, though small, 20 years from the time of HOPE was instrumental in how the VI’s inception to 2012 when its project took shape and impacted last appropriation amounted to both the public housing tenants only $28 million, the program re- and the housing authority. It is flected a long discourse on how therefore worthwhile to examine America should address housing HOPE VI’s achievements as well its poor. as failures. By 1996, HOPE VI had become a HOPE VI, which stands for Hous- vehicle for urban experimentation. ing Opportunities for People Ev- With that year’s Notice of Funding erywhere, was launched in 1992 Availability (NOFA), applicants for in the wake of the National Com- HOPE VI grants were encouraged mission on Severely Distressed to use the funding for mixed-fi- Housing’s finding that about 6% nance, mixed-income projects that or 86,000 units of the nation’s reflected many of the design stan- 1.3 million units of public hous- dards of New Urbanism. Housing ing were in critical need of reha- Authorities were also exhorted to bilitation or reconstruction. The leverage the grants through use program was originally directed of tax credits and to partner with to provide for the demolition and private-sector developers and oth- rebuilding of the most dilapidated er lending institutions. In 1998, housing and to champion resi- the Quality Housing and Work dent empowerment through job Responsibility Act (QHWRA) al- training and other supportive ser- lowed housing authorities more vices. It was estimated that HOPE leeway to select tenants based VI should be funded at $7.5 billion on local preferences. There was a over a ten-year period. However, new emphasis on rewarding work through the first half of its life, and under QHWRA the require- HOPE VI never received more ment for PHAs to house 75% of than an annual appropriation of the lowest income families was $625 million. HOPE VI dispensed reduced. These important poli- grants to public housing authori-

18 cy changes were echoed in the HOPE VI NOFA for that year (Pop- Debate about whether kin et al. 2004). or not they should That Chatham Square incorpo- have been rebuilt on rated many of the incentives of HOPE VI into its development site or elsewhere is is certainly no coincidence. The relevant to projects application submitted by ARHA for its grant in 1998 was almost across the country. a verbatim list of the elements that now constituted the gov- al and building awards and based ernment’s efforts to “fix” public on resale values, buyers contin- housing.1 This is not surprising as ue to be attracted to the project. any PHA would want to adjust its The chief criticism of this aspect application to meet the require- of HOPE VI was that in order to ments in order to secure funding. achieve the lower densities dic- More to the point is how the re- tated by New Urbanist design, quirements of HOPE VI affected more units had to be demolished the development it helped fund. than necessary. Debate about whether or not they should have In EYA, ARHA found a partner been rebuilt on site or elsewhere that embraced many of the prin- is relevant to projects across the ciples of New Urbanist design. country. During HOPE VI’s first The project they developed was a ten years, it is estimated that low-rise, less dense project rath- of the 95,000 units funded for er than the high-rise tower that demolition, less than half would had once been proposed. With its be replaced as public housing. In interior pathways, individual en- addition, a chief criticism of the trances that faced the street, and program is that the time it takes attractive exterior elements such to actually get a HOPE VI project as variable rooflines, the design built is far too long. While Cha- embodied many of the concepts tham Square was built on time of both new urbanism and defen- with the start of construction to sible space. The Chatham Square completion taking two years, the design has won many architectur- HOPE VI grant had actually been

19 awarded in 1998 when litigation capital needed is far greater and was on-going and plans were not the real estate values can’t ap- yet finalized. The approximately proximate those in Alexandria. A seven years between award and greater issue in the case of Cha- project completion is not unusual tham Square is whether or not for a HOPE VI project with some, the HOPE VI award was needed especially in the early years, tak- in the first place. In “hot” mar- ing far longer. kets, the private sector is eager to participate with or without the Tax credits which financed Cha- added federal benefit (Popkin et tham Square, were now being al. 2004). Although the degree touted by housing experts as the of interest in Chatham Square best way to fund the huge back- may not have been accurately log of reconstruction that public predicted, there was no doubt at housing needed. HOPE VI was the start of the project that mar- the lever that would move other ket rate units would be well resources of capital to invest in af- ceived in the heart of Old Town. fordable housing. In the case of The sale of the land plus the tax Chatham Square, this seemed to credit equity was sufficient to work as ARHA did receive both cover all ARHA’s costs in the de- LIHTC and city funding as well velopment without the need for as a single private sector investor ARHA to expend any additional in Fannie Mae. Furthermore, the capital resources of its own. The market rate units including the award of the HOPE VI grant may shared amenities were financed have been useful as a signal to with a private bank loan. An ar- the state finance agency respon- gument against HOPE VI is that sible for dispensing LIHTC that it has not been able to attract suf- Chatham Square had the support ficient non-federal funds into the of HUD. financing mix (LIHTC is considered a tax expenditure and there- The HOPE VI program has strong- fore federal). While this was not ly favored mixed income devel- the case with Chatham Square, opment and Chatham Square this criticism often applies to certainly reflects that. Having much larger projects where the tenants of varying income levels

20 serves multiple purposes: these Crime statistics indicate that projects are more likely to be bet- there has been an overall benefit ter maintained and have higher to the neighborhood: according level amenities than if all tenants to the police, both violent crime were very low or extremely low rates and nuisance crime rates income; mixed-income projects have declined although some deconcentrate poverty and allow community residents dispute socioeconomic integration which the statistics for nuisance crime might bring benefits to all parties; (Branch 2011). Since funding for having higher income tenants the market rate and public hous- can be a safeguard against the ing units were kept separate and risk of fluctuating federal funds costs for shared infrastructure for operations and debt financing. improvements prorated, there In choosing to develop Chatham was no added benefit in terms of Square as a mixed income proj- cross subsidizing project operat- ect, ARHA was responding more ing costs. Furthermore, research to market conditions than to the shows that “mixed-income de- other potential benefits. The value velopment rarely reduces the per- generated by developing market unit subsidies needed to serve rate homes was simply too much households at a particular income to leave on the table. That the city level” (Popkin et al. 2004). How- required at least 50% of demol- ever, the greater hope that there ished units be replaced on site would be socioeconomic benefits and that HUD favored this kind of through increased interactions, development, helped determine especially for affordable housing the exact mix for the project. tenants, has proven elusive. To- Deconcentrating poverty was an The value generated ARHA objective despite the fact that many residents were sus- by developing market picious of this effort. Chatham rate homes was Square contrasts sharply with the low-income housing that still simply too much to exists across the street in both leave on the table. appearance and general upkeep.

21 day, years after the last unit was CHOICE NEIGHBORHOODS sold, tensions among tenants at (CHOICE) Chatham Square are still the subject of city council discussions In its last ten years, HOPE VI was and community meetings. The seldom funded at its earlier lev- designation of a special liaison to els and each year saw diminish- report to the City Manager about is- ing allocations. By 2011, it only sues at Chatham Square indicates received $28 million. By then, the magnitude of the problem. the conversation about public housing focused not simply on The other major goal of HOPE VI demolition and revitalization of was to improve the lives of pub- the worst-case housing, but on lic housing tenants through sup- how entire communities could portive and community services. benefit from some of the lessons Chatham Square did require that learned from HOPE VI. EYA set up job training programs and employ members of the proj- In response to some of these ect in appropriate jobs. The idea criticisms of HOPE VI, the Obama was that these tenants would Administration funded in 2010, learn a trade by helping to build Choice Neighborhoods, a neigh- their own housing. Today some of borhood revitalization program, those trainees are still working for with an initial allocation of $90 EYA or a subcontractor although million. There were several sim- because of the lack of tracking, it ilarities to HOPE VI, including is hard to quantify the actual ben- Choice’s emphasis on develop- efits. This remains true with other ing mixed-income communities HOPE VI projects because the through partnerships with a vari- kind and level of supportive ser- ety of financial institutions; hav- vices varies so much from project ing a diversity of financing mod- to project. In addition, the original els so that reliance was not on intent to allocate 20% of HOPE single stream of financing; and, a VI funds for supportive services continued interest in providing re- was seldom realized and was relocation and supportive services duced each year. to those being displaced. Impor-

22 tantly, Choice expanded the field hoods grant or were part of the of applicants who could apply for Department of Justice’s juvenile Choice grants to include not just crime prevention program. This PHAs but also owners of private is perhaps a natural evolution of and other federally subsidized de- what HOPE VI first set out to ac- velopments. Improvements not complish, which the Commission just of the decaying public hous- on Severely Distressed Housing ing project but of the entire neigh- did not fully recognize: namely borhood were sought. In support the nation’s housing problem is of an early mantra that proclaimed too large for one program to ad- poverty was determined by one’s dress in all its complexity. It will zip code (Kaufman 2015), Choice take an expansion of the original deliberately set out to layer fed- vision to test the limits of what is eral funding to targeted neighbor- possible. hoods. Choice applicants were scored higher if they also had been awarded the Department of Education’s Promise Neighbor-

Miami-Dade Public Housing and Community Development and the Related Urban Develop- ment Group Collins Park, Private-Public Cooperation

INTRODUCTION ners to achieve the mutual benefits they all desire.2 As we will see in greater detail later in the case of Skyline Vil- lage, Los Angeles, the ability to MIAMI-DADE COUNTY develop affordable housing is PUBLIC HOUSING greatly aided by federal incen- AND COMMUNITY tives that encourage the par- DEVELOPMENT (PHCD) ticipation of non-profits in the marketplace. But sometimes, as Miami-Dade County in the south- in the case that follows, private ern tip of the state of Florida developers are more than willing sprawls across vast tracts of ur- partners with public agencies for banized as well as agricultural reasons unique to the project or and undeveloped lands. Within property being developed. Such its boundaries are included 34 public-private partnerships are incorporated cities of which the the very kind of relationships that largest is the city of Miami. The are sought after across all sec- county works in tandem with its tors of government. The difficulty incorporated localities to provide is recognizing the opportunities a complete array of services. for such partnerships when they While police and fire protection, arise and then facilitating the pro- zoning and code enforcement cesses that will allow the part-

25 are provided at the local level, the Documentary Stamp Surtax other services including afford- Program and State Housing Ini- able housing and housing de- tiatives Partnership (SHIP), both velopment are administered by state funded programs that pro- the county. Miami-Dade Public mote and provide competitive Housing and Community Devel- funding for affordable housing opment (PHCD), a department of development. Miami-Dade County, serves both the larger county as well as city Leading PHCD is Michael Liu, for- populations. As of 2013, the pop- mer Assistant Secretary of Public ulation of Miami-Dade was 2.6 and Indian Housing at the Depart- million with much of that concen- ment of Housing and Urban De- trated within Miami’s metro area. velopment (HUD). He was selected as PHCD director in 2014 by PHCD is the sixth largest public County Mayor Carlos A. Gimenez housing agency (PHA) in the na- who said upon announcing his tion. It administers federal funds choice, “Michael Liu brings a that support almost 10,000 units wealth of experience to the posi- of public and other assisted hous- tion of director with more than 25 ing serving more than 30,000 years of being actively engaged residents distributed over 100 in transforming communities at separate projects. An additional the local, state and national lev- 16,000 residents receive Section els” (Miami-Dade County 2014b). 8 vouchers which are payments As director, Mr. Liu leads a work- to private landlords funded by force of 430 and manages a bud- the federal government and ad- get of over $450 million. Under ministered by PHCD. Other fed- the county governing structure, eral grant programs such as the the director of PHCD reports to Community Development Block the Mayor of Miami-Dade Coun- Grants (CDBG), HOME, the ty and the 13-member Board of Emergency Shelter Grant (ESG) Commissioners. At the same and Neighborhood Stabilization time, the director must be re- program are also administered by sponsive to both the state and PHCD. In addition to its federal federal entities that provide fund- responsibilities, PHCD oversees ing for affordable housing programs in Miami-Dade.

26 PHCD is engaged in an active re- In the face of this pressing need, development program intended PHCD identified in its mission to modernize and upgrade avail- statement the objective of serv- able units. Based on its most re- ing low and moderate-income cent 5-Year Plan, PHCD intends families by providing affordable to move forward in the next few housing in stable neighborhoods years with construction activity with economic opportunities for on over 3,000 units of housing self-sufficiency. More importantly currently in its portfolio. PHCD’s mission statement high- lights the importance of “part- PHCD’s Mission Statement nerships with private and public entities to optimize resources There is no doubt that the need through innovative programs” for affordable housing in the Mi- (Miami-Dade County 2014a). ami area is great. According to a 2013 University of Florida rental With a myriad of programs to ad- housing study, an increasing num- minister and millions of dollars ber of low-income households of funding to oversee, PHCD re- are rent burdened, meaning they lies on an in-house project man- pay more than 40% of income agement team and successful on rent. At the time of the study partnerships to implement its there were about 250,000 cost development plan and ensure the burdened families in the metro necessary expertise to complete area. This number had increased often complex and difficult proj- substantially among all lower in- ects. Its development partners come families including elderly can be either private for-profit families over a 10-year period. In companies or non-profits. Collins Miami-Dade, which accounts for Park was developed in a unique approximately half of all low-in- arrangement with Related Urban come families in the area, the Development Group. rent burden is even greater with at least 50,000 families paying more than 50% of their income on rent (Affordable Housing for All 2015).

27 RELATED URBAN itself to be a reliable partner that DEVELOPMENT GROUP can deliver on its commitments with skill and efficiency. Related Urban Development Group (RUDG) headed by Jorge The Collins Park project was Perez, its chairman and chief overseen by RUDG’s senior vice executive officer, is a private president Alberto Milo, Jr. who for-profit real estate company brought to this project and to with projects throughout Florida. RUDG’s corporate leadership his It was founded by Perez in 1979, own extensive experience in af- drawing on his background with fordable housing, and in particu- public housing development in lar his work providing affordable Miami to focus on affordable homeownership opportunities in housing in South Florida. Since underserved communities. Mi- then it has grown to encompass lo’s familiarity with the county or- luxury condominiums and work- ganization and requirements no force housing as well. In the Flor- doubt contributed to the success ida marketplace, RUDG has led in of the Collins Park partnership. the construction, redevelopment RUDG is an arm of Related Com- or management of over 10,000 panies, a private corporation with affordable units with the goal “to diverse interests in real estate create affordable housing oppor- development and financing and tunities in a variety of geograph- associated service industries. ically, economically and socially Related Companies has an own- diverse neighborhoods” (Related ership interest in RUDG and the Group 2011). Part of its success CEO of RUDG is part of the se- can be attributed to the years of nior management team at Relat- relationship building it has had ed Companies. The $30 billion with local government, finan- Related Companies was founded cial institutions and community by Stephen Ross in 1972 and is groups. In the numerous inde- headquartered in New York. pendently awarded development contracts that RUDG has won from Miami-Dade it has shown

28 COLLINS PARK: THE NEIGHBORHOOD Today, it is a diverse

The Collins Park project is locat- urban community ed at 3625 NW 20 Avenue in the that supports a mix community identified as Allapat- tah. Allapattah is a name derived of Caribbean, Central from the Seminole Indian word American and Latin meaning alligator, but it is hard to imagine that this densely pop- American cultures. ulated urban neighborhood was ever a marshy habitat for such creatures. The neighborhood is is bounded by State Road 112 otherwise known as Little Santo and the Miami River to the north Domingo, a more recent nick- and south, and Interstate 95 and name that also identifies it as Northwest 27th Avenue on the home to a large proportion of east and west. The Collins Park Miami’s Dominican population. project is located near the north- Today, it is a diverse urban com- ern boundary of Allapattah which munity that supports a mix of is also its boundary with the Lib- Caribbean, Central American and erty City community, the neigh- Latin American cultures. borhood with the lowest home prices in the city. Roughly 5 square miles and one of Miami’s oldest neighborhoods Once a vibrant commercial and it is predominately working class residential district, small busi- with a large number of residents nesses fled with the middle who are low-income and eligible class families they serviced in for housing assistance. The me- the 1950s and ‘60s. Today, the dian household income based commercial strip along 36th St. on census information was only is occupied with pawn shops, slightly above $19,000. Recent bodegas, car mechanics and data shows that the median price bare-bones restaurants. Along of a single-family house in Alla- its border with the Civic Center pattah was $123,000, the sec- neighborhood to the south, there ond lowest in the city. Allapattah exists healthy industrial activity

29 characterized by clothing manu- THE PROJECT facturers, auto repair, carpentry and upholstery shops. Additional- When Collins Park was officially ly there are several shipyards and opened in January 2015, it was drydocks along the banks of the proclaimed by Miami-Dade Coun- Miami River towards the south- ty Mayor Carlos Gimenez as a west. Together with the Produce “model to address aging public Market, the largest open-air food housing throughout the coun- distribution center in Miami, try.” County Commissioner Au- these enterprises provide jobs drey Edmonson declared that the to many of the more than 45,000 project “demonstrates what we residents of the neighborhood. can accomplish when the public and private sector work together There is today in Allapattah the to address our pressing housing potential for neighborhood trans- needs in our community.” PHCD formation and gentrification. The Director, Michael Liu, hailed it as Miami Herald noted that it has an example of a “one-of-a-kind the fastest increasing home pric- public approach to private part- es in all of Miami. With abundant nerships that will greatly improve housing stock, investors are tak- the quality of the living conditions ing another look at the neighbor- for our public housing communi- hood and those willing to risk its ties” (Miami-Dade County 2015). current high crime rates are starting to buy up single family homes Collins Park was built on land orig- and convert them into duplexes inally assembled by RUDG from or renovate them for rent (Ne- various individual property own- hamas 2015). ers. Like much of the surrounding neighborhood, these parcels Into this changing environment, were once occupied by small in- the Collins Park project rep- dustrial businesses, auto repair resents a positive step toward and tire shops. Collins Park was continuing the transformation not initially conceived as public that is occurring while also con- housing; that came later as ideas sidering the residents that live for the development of two oth- there and call it home. er projects were being discussed and the construction of Collins

30 Park was underway. RUDG had in need of repair and moderniza- recently won contracts from tion. In fact, the entire site was PHCD to redevelop two public to be reimagined with a medical housing developments; Three facility and additional mixed uses Round Towers, about six blocks and housing to maximize the va- from Collins Park Apartments, cant land that was part of the proj- and Harry Cain Towers, located in ect and to bring existing units up downtown Miami close to anoth- to standard. As part of the first er ongoing RUDG project. Both phase of the project, it was now were developments for the el- RUDG’s intention to complete the derly. As plans to redevelop Harry Collins Park Apartments so that Cain Towers progressed, PHCD tenants from Three Round Tower and RUDG agreed upon the idea C, who wished to do so, could be of using Collins Park as a building moved permanently into the new for relocation of the Harry Cain Collins Park units so that their Towers residents. Harry Cain Tow- current substandard apartments ers would then be redeveloped could be redeveloped. This would as a mixed-income project that permit construction to proceed at would include market rate units the Towers and relocation of exist- to increase revenues to PHCD ing elderly tenants to occur with for use in maintaining Harry Cain minimum disruption. The arrange- Towers. However, Harry Cain res- ment would benefit RUDG for two idents voted to keep the project reasons: they would eliminate in its all-public housing configu- the need to market the property ration by only a slim margin. At and residents would not need to this point, the attention turned be temporarily relocated off-site to Three Round Towers and the during construction of the Towers. possibility that Three Round Tow- er residents might be given the Collins Park as built consists of option of moving to Collins Park. 124 new 1-bedroom units for the elderly in a modernistic, 7-story Three Round Towers had been elevator building. completed in 1974 and was spread over almost 7 acres. It comprised 391 units in three 14-story structures which were

31 Figure 3. Collins Park Today

Source: Miami-Dade County

The project was praised for including the latest environmentally sensitive amenities such as porcelain flooring, hurricane impact windows and doors, and energy efficient appliances. It included high-end features generally found in market rate buildings and common space to unite tenants typically living alone. When you walk into the Collins Park Apartments you will find a computer center, a library, a fitness center and a community room. Additionally, each unit boasts stylish finishes that include wood cabinets and granite countertops. It is not, however, the design of Collins Park that sets it apart from other affordable rental projects. Instead, the manner in which this project came together is what makes it unique.

Collins Park Apartments, LLC, (the owner) is the entity created by RUDG to own and develop the project. It was charged with obtaining all the necessary financing to build the project, to develop the

32 site plan and undertake construc- build, yet it eliminated the need tion, and to relocate tenants. for procurement processes that The owner, once the project was would have added time and com- completed, would donate the plexity to the project. land to PHCD so that it would have an ownership interest in The Collins Park Apartments the project and thus be eligible project exemplifies all that the for federal operating subsidy un- county hoped to gain through a der the public housing program. public-private approach to devel- A private entity related to the opment. However, the details of developer, TRG Management the project are challenging to rep- (TRG), would be responsible for licate; thus it will be interesting maintaining and operating the to see whether or not future proj- project in accordance with all ap- ects can be developed in a similar plicable public housing and state fashion. An essential prerequisite housing finance requirements. for successful public-private part- In turn, PHCD would execute a nerships is the establishment of ground lease back to Collins Park mutual trust between the public Apartments, LLC. PHCD would and private entities. Trust grows also turn over all federal funds it and is strengthened when the received for the operation of Col- developer and the government lins Park Apartments to TRG less agency have worked together a fee for oversight and adminis- in the past and are comfortable trative costs. The regulatory and with each other’s organization operating agreement would be and staff. Each partner must have in effect for an anticipated peri- a commitment to the mission od of 75 years. The county thus which in this case was the pro- gained 124 new units of elderly vision of affordable housing. Im- housing and the developer was portantly, the project must con- able to manage a larger project tain specific winning elements with relative ease while adding for each partner. Collins Park was to his development portfolio. The a success first because it was project was completed as a pri- located close to another project vate development, thus it did not which RUDG was in the process come at a cost for the county to of developing. Second, because

33 the timing was right, it was avail- in order to obtain federal funding able to be developed when it for its operations. The donation would serve the developer’s pur- was executed as a warranty deed pose and would not exceed the approved by the County Board maximum public housing units of Commissioners which in turn allowed to PHCD by law. Finally, ground leased it back to the own- each partner brought to the table er, Collins Park Apartments, LLC, important financial aspects of the for a leasehold fee of $1 per year deal, a key aspect of private-pub- for a period of 75 years. As a lic partnerships. bridge construction loan, $21.5M was obtained. An affiliate of the developer, Fortune Construction PROJECT FINANCING Company, was the general contractor. Both the developer and In 2012 RUDG was awarded 9% the contractor took fees out of Low Income Housing Tax Cred- the project amounting to $5.14 its (LIHTC) by the Florida Hous- million of the total costs of the ing Finance Corporation for the project. All predevelopment costs Collins Park Apartments project. of about $500,000 for the project The developer through Boston were borne by the developer. Financial Collins Park, LLC was the equity investor in the cred- Given the private development its raising $26.3M in permanent aspect of the project, financing financing. This was based on a the Collins Park Apartments was cost, at the time, of $1.044 per relatively straight forward. While credit over the 10-year allocation the fees charged by the project period. In addition, Low-Income were higher than typically seen Housing Development (LIHD) in mixed finance projects, at proceeds provided up to $1.8M of 13.75% rather than the standard Miami-Dade county funding. The 9-12%, the unique arrangement cost to the developer of purchas- between the developer and the ing the land on which the project local government entity, which sits was $4.03M. As noted earli- resulted in an additional 124 new er, the property was donated to units to PHCD’s public housing the county as a HUD requirement inventory, more than made up for

34 the slightly higher fees. More im- months. This compares favorably portant was the savings in time. to the completion record for oth- From the award of the LIHTC er federally funded development allocation in December 2012 to projects which typically take six the completion of construction years or longer. in October 2014, the entire project took slightly more than 22

Collins Park Financing

Construction Financing Amount Source Type Structure ($mm) Boston Financial Equity 3,996,051 Construction CitiBank 21, 500,000 1st mortgage loan Deferred GP Capital developer’s 2,657,437 fees

Permanent Financing Amount Source Type Structure ($mm) LIHTC Equity 26,328,488 Miami-Dade LIHD Loan 1,825,000 Total Development 28,153,488 Cost

35 with public housing operations Much of this effort guidelines. It was with these requirements that the experience was concentrated and the willingness of all parties on ensuring to work together became most compliance with evident. Staff from PHCD, RUDG, HUD and FHFC had to coordinate federally mandated numerous contracts and agree- regulations regarding ments to make the deal work. the admissions of low-income tenants LOW INCOME HOUSING DEVELOPMENT and the establishment PROCEEDS AND THE of management STATE DOCUMENTARY practices... SURTAX PROGRAM The only direct public contribu- Perhaps the most complicated tion in Collins Park Apartments aspect of this project was the was the Low-Income Housing donation of the property to the Development proceeds. Other county and the effort to ensure a funding that is generally used for stable funding source for opera- development projects, although tions and maintenance. Numer- not used at Collins Park, is the ous approvals and sign-offs by State Documentary Surtax Pro- state and county officials, PHCD gram. This program, established officials, and officials from vari- by the Florida state legislature in ous offices of the Department of 1984, allowed certain counties to Housing and Urban Development levy a tax on real property trans- (HUD) were required. Much of actions within their jurisdictions. this effort was concentrated on Money collected from approved ensuring compliance with feder- transactions is used to address ally mandated regulations regard- affordable housing needs and ing the admissions of low-income funding is targeted for programs tenants and the establishment of that assist very low to moderate management practices in keeping income families.3 In Miami-Dade,

36 the Surtax Program funds inter- county’s representatives have ar- est-assisted mortgages for el- gued vigorously for an extension igible families to buy their first of the tax as it provides direct home. It provides housing coun- funding for their affordable hous- seling services and low-cost con- ing projects while also providing struction financing for non-profit local flexibility over how those and for-profit developers of afford- funds can be used. Despite deep- able housing. The program has ly divided arguments about the been credited for helping to pro- benefits of a documentary sur- duce over 15,000 units of afford- tax, the Miami-Dade Surtax Pro- able housing in Miami-Dade since gram continues to be a big part of its inception. In 2013, the program PHCD’s responsibilities. generated $27 M to fund affordable housing programs. OPERATING AND State surtaxes on real estate CAPITAL SUBSIDY transactions are not new and have been employed in various In this public-private partner- jurisdictions around the coun- ship, RUDG, through its various try. Currently, 37 states and the affiliates, provided the develop- District of Columbia employ doc- ment expertise and the financ- umentary transfer taxes to fund ing. PHCD, once the transfer of various programs, not just afford- ownership to the county was ac- able housing. How they are lev- complished, then stepped in to ied and how the funds are used provide the operating and capital distinguish one program from an- subsidy for the life of the project. other. Though many localities use Because of the relocation of pub- them, they are not always well lic housing tenants from Three received as they are an obvious Round Towers, it had been rea- form of additional taxation and sonable to convert Collins Park can have a regressive impact on Apartments to public housing to the economy. Therefore, some provide the level of subsidy nec- localities, Miami-Dade being one, essary. TRG Management, a de- provide exemptions from the tax veloper entity, provided property for transfers of single family real management with oversight from property. At the same time, the PHCD.

37 ference between rents collected Other factors that from tenants (no more than 30% of tenant income in most cases) can influence costs and the actual costs of maintain- at individual PHAs ing and operating public housing included the extent of in “decent, safe, and sanitary” (Housing Act of 1937) conditions. recent modernization Since both funds are subject to efforts, the amount annual budget appropriations by Congress, the monies provided of elderly housing can be less than requested by ei- compared to family ther the PHAs or the administration. In those cases, the formula housing, the age of amounts for each PHA are then the existing housing prorated against the total allocat- stock... ed. The shortfall in the operating budget leads to greater pressure on the capital budget even though Funding of public housing is for many PHAs these funding based on a formula calculated pots are distinct and accounts for annually and then distributed to each are kept separate. The 2010 each of the nation’s 3200 public Capital Needs Report estimated housing authorities as a grant. an existing need of $21 billion The money appropriated each to bring all PHAs up to a decent year by Congress is stipulated and economically sustainable in law under Section 9 of the US condition. In order to maintain Housing Act of 1937. PHAs re- that condition, an accrual need, ceive both capital funds and op- assuming all existing needs are erating funds under separate for- met, of $3.4 billion would be nec- mulas. The operating fund covers essary each year (Finkel 2010). day-to-day operations and normal maintenance activities while the The report sampled over 1 million capital fund covers major repairs units to obtain cost data. It con- and long-term upkeep. The fund- cluded that accrual needs at the ing is intended to cover the dif-

38 lower end of the spectrum were share of elderly housing that is about $2,400 per unit per year, less costly to operate. ranging upwards to about $3,200 per unit per year. On the other PHCD estimated an annual sub- hand, existing needs were con- sidy need of $402,442 when the ditioned by project size, location project opened. This represents and kind of development. For very the amount needed to operate large housing authorities such as Collins Park Apartments after in- PHCD, the existing needs were come from rent is deducted. In- greatest, averaging $28,553 per come from rent was initially cal- unit. Other factors that can influ- culated at an average of $175 per ence costs at individual PHAs in- unit per month for an annual rent- cluded the extent of recent mod- al income of $260,400. Increases ernization efforts, the amount of were built into the revenue and elderly housing compared to fam- expense calculations for inflation ily housing, the age of the exist- as well as other fees. The project ing housing stock relative to the operates under a Management age of their systems and the type Plan that conforms to all oper- of housing. Thus developments ating procedures applicable to located in the Western United public housing units in the coun- States, with newer housing that ty. Because it is a mixed finance had not yet been modernized but project, which includes tax cred- with relatively older housing sys- it funding, it has additional rent tems; with a greater percentage regulations to meet; specifically, of townhouse/row house devel- 10% of its units can only be rent- opments that are more costly ed to residents with income be- to operate; and with fewer mod- low 28% of area median income. ernization grants awarded in this This was not a difficult condition region, have an average existing to meet as many elderly tenants need of $39,221 per unit. At the on fixed incomes easily met that lower end of the scale, housing requirement. in the Midwest has an average existing need of only $9,500 per unit based in part on its higher

39 CONCLUSION The unique aspect of Collins Park is the donation of property to the Public-private partnerships can county. Often, affordable housing work as they encompass a wide programs have relied on subsidy range of models. However, the in the form of reduced land costs model presented by Collins Park to the developer. While this is Apartments would be difficult to ultimately what happened, the replicate as it demands very spe- extra step of the transfer in own- cific players and project character- ership to the county makes this istics, as well as location and tim- case unusual. The more common ing. The plan for relocating Harry partnership that exists today be- Cain Towers’ residents failed due tween the federal government to the objections of the tenants. and affordable housing develop- If Three Round Towers had not ers is the one that funds afford- been available, the partnership able housing development with might never have occurred. How- low income housing tax credits. ever, once the idea to partner is This is a partnership that has accepted with obvious benefits gained in importance over the and good faith on all sides, then it last decades and will continue to is possible that no administrative play an important role in the af- hurdles in and of themselves, can fordable housing market. jeopardize the agreement.

40 41

Thomas Safran and Associates Skyline Village: Using Low Income Housing Tax Credits and Tax Exempt Bonds

INTRODUCTION founding in the late 1970s, TSA has developed and managed In this case study, we examine over 6,000 units of housing in the the use of Low Income Housing Los Angeles region. With the ex- Tax Credits (LIHTC) in the financ- ception of 31 market rate units, ing of an apartment project for all are affordable rental units for the elderly. LIHTC has become seniors and families. A TSA proj- the key to whether or not new ect is marked by its regard for affordable housing gets built. architectural design, its sensitiv- As the case studies in this pa- ity to site and locational consid- per explore, almost all affordable erations, and, perhaps above all, projects today use some form of its meticulous attention to tenant LIHTC often combined with other management and day-to-day op- forms of financing. erating details.

When Safran began his career BACKGROUND in the development of affordable housing more than 40 years ago, Thomas Safran and Associates he took advantage of new financ- (TSA), led by its energetic founding instruments and housing er and chairman Thomas Safran, programs that the federal gov- is a well-known presence in the ernment was then beginning to affordable housing markets of promote. After decades of build- southern California. Since its

43 ing housing through mortgage the introduction of the Section rate or other interest reduction 8 program, it also began to dis- programs aimed at developers cuss incentivizing the supply-side and home buyers, as well as set- of the market in much broader ting massive affordable housing ways than had previously been goals for its own agencies, the done. This discussion eventually federal government began to ex- led to the creation of the LIHTC plore alternative ways of meeting program which was introduced the demand for more low-cost as part of the Tax Reform Act of housing (Miles et al. 2015, 105). 1986. In that era, the Section 8 program which gave vouchers to in- In this fervent and challenging come-qualified tenants to subsi- time, individuals like Safran decid- dize housing found in the private ed they could enter the housing market, was born. Incentives be- development field with a more gan to explore ways that tenants humanistic approach to housing themselves could be involved in for low-income tenants. Non-prof- their housing choices rather than it and limited-profit developers, merely creating more fixed place, such as TSA, were able to ma- federally subsidized and govern- neuver in the development arena ment controlled housing. It was with financing tools that made it in that time that disturbing stories possible to build affordable hous- about the alienating effects of the ing, rent out projects and then re- forbidding and institutional-look- invest in the next project. Safran ing high-rise blocks the govern- had been informed by the five ment had been building began years he spent working at the De- to surface. Critics of this kind partment of Housing and Urban of federal architecture cited the Development before he moved Robert Taylor Homes in Chicago to southern California and began and, most famously, Pruitt-Igoe in his first project. He managed to St. Louis. obtain development rights to a property with only $1,000 and a As the federal government ex- partnership deal with the owner. plored new ways of meeting Since that first project, he has the demand for housing through continued to develop high-qual-

44 ity and well-designed projects care and consideration go into throughout Los Angeles and the the development. That affordable surrounding communities. housing need not be unattractive is a major tenet of TSA’s development philosophy. As a result, TSA: THE FIRM TSA has won numerous awards for design, including the 1978 Ex- Today, TSA is a thriving limit- ceptional Design Award from the ed-profit development company Inglewood Planning Commission with more than 50 projects un- for his first project, the 1980 Hon- der management. With a grow- or Award for Project Design from ing team of development finance HUD for Ponderosa Village and and management professionals the 1993 National Award of Merit including his co-presidents, An- in Project Design for the Strath- drew Gross and Jordan Pynes, ern Park Apartments. In addition Safran continues to develop a TSA has been inducted into the variety of affordable, market rate 2016 California Housing Hall of and mixed-use rental housing Fame by the California Housing (residential plus retail). A TSA Consortium. project is often characterized by its moderate size, generally TSA is as concerned with the between 75-125 units, and its on-going management of a proj- thoughtful design. Safran con- ect once it has been completed tends that the attention to “supe- as it is with the front-end details rior design helps him attract high of acquisition, finance, design quality low-income residents as and construction. well as ‘sell’ affordable housing, especially family developments, Safran’s group puts great to communities that would not stock in good manage- otherwise accept them” (Miles ment. Resident managers et al. 2007, 372). Good design are hired during project should not be limited only to luxu- construction so that they ry developments for high-income will develop a commitment residents. Good design can be to a given project. As a rebuilt into affordable housing when sult, they go the extra step

45 in selecting good residents. to be only a means to an end. And good residents are crit- However, it goes without saying ical to a project’s success that without the hard work of put- (Miles et al. 2007, 372). ting the financial pieces of a project together, there often would Tenants, who are often chosen be no project and no affordable from a long waiting list of appli- units for low-income families or cants, must also be committed to the elderly. the rules established to live in a TSA project. These include strict limits on the number of occu- SKYLINE VILLAGE pants in a unit, rules forbidding any kind of drug use, cooperation “Probably the hardest thing for units to be inspected regularly about this type of development and cooperation with annual in- is coordinating the endless vari- come re-certifications to ensure eties of approvals and financing. tenants continue to meet eligibil- It can be numbing to put a deal ity requirements. Because of the together because of the incon- attention to tenant selection and sistencies from one group to the occupancy issues, TSA projects other.” Thomas Safran (Miles et are able to operate and maintain al. 2007, 373) their properties at a high level Safran believes this statement while meeting projected reve- applies to all of his affordable nues. As a result, TSA projects projects, but was particularly ap- have a low delinquency collection plicable to Skyline Village, a 73- rate–less than half of 1%–and an unit affordable housing complex equally low vacancy rate. built within sight of downtown With a development philosophy Los Angeles. It is what made this that focuses on the physical and project more challenging but ulti- design details at the beginning mately more satisfying when the of the process and the manage- pieces did come together accord- ment and occupancy issues at ing to Andrew Gross, President project completion, the actual fi- of Development at Thomas Sa- nancing of the project may seem fran and Associates. This project was first discussed with the city of Los Angeles in 2000 and was brought into service in 2004. Despite the short timeline, the financing deal was complex and ultimately involved more than 7 different agencies and 6 separate deeds of trust.

Skyline Village is located at 444 Lucas Ave, Los Angeles in a part of the city now identified as Center City West. It lies between the par- allel arteries of W. 3rd Street to the north and W. 6th Street to the south. Two blocks to the east is the Hollywood Freeway, a major thor- oughfare that traverses the city in a north-south diagonal. Surrounding the site are a major hospital center, two elementary schools, low-rise apartment complexes, and numerous commercial and retail enterprises. Importantly, the high rise office towers of downtown Los Angeles are just on the other side of the Hollywood Freeway. Bus routes exist along 3rd Street and also Wilshire Boulevard to the south, taking pas- sengers to the Westside or to Downtown.

Figure 4. Skyline Village Courtyard

Source: Thomas Safran and Associates

47 Figure 5. Skyline Village Common Area

Source: Thomas Safran and Associates

The project itself, built on 1.67 acres, is arranged in groupings of apartments and townhomes. It is composed of a total of 73 units, in a mix of 1-4 bedroom units ranging from 600 to 1400 sf. The majority are 2 and 3 bedroom units, comprising 80% of the total units and reflecting the family orientation of its residents. Twenty percent of the units are reserved for seniors. All units have either patio or balcony space with views of downtown or the landscaped interior courtyards of the property. A portion of the project is devoted to common space with amenities such as a community room with library and ping pong table, an exercise room with gym equipment, a computer lab with free inter- net access, two playgrounds, a basketball court and a gas barbecue picnic area. The grounds are extensively landscaped distinguishing the project from the surrounding two story apartment buildings. A central courtyard built over the underground garage takes advantage of the sloping nature of the property and is entirely at grade level. A nonde- script and rundown apartment block similar to some still standing in the area had occupied the site prior to its redevelopment as Skyline Village.

48 While Skyline does not limit the affordable level through the its rents based on the Section LIHTC program was particularly 8 voucher restrictions, it does competitive and Skyline Village conform to affordable housing did not win a reservation of LI- rents set forth by the tax credit HTC funds. Instead of abandoning financing rules. Therefore, rents or even shelving the project for have been set at 35%, 50% and a time, TSA felt strongly enough 60% of Area Median Income about Skyline Village to adjust its (AMI). With AMI in Los Angeles financing expectations. The loca- currently $60,600, rents, which tion of the project and the strong are generally calculated at 30% commitment of local officials of income, range from $568 eased concerns about a more for one- bedrooms to $909 for difficult financing arrangement. 4-bedrooms. Two-bedrooms and TSA restructured the deal to use 3-bedrooms are about $682 and 4% LIHTC which also required $795 respectively. Tenants with the use of tax-exempt bonds. This higher incomes pay slightly more generated about $5.4 million in while those at the lower end of tax credit equity rather than the AMI pay slightly less. When Sky- approximately $13.2 million that line Village opened, the project’s 9% credits might have generat- amenities, its location, and its ed. Given the disparity in the ex- affordable rents attracted more pected equity between a straight than 2,600 applicants for the 72 construction loan and the tax-ex- affordable units. empt bond approach, TSA needed to scramble to fill in the financing SKYLINE VILLAGE gap. “They pieced together the FINANCING remaining financing by obtaining five permanent loans, each se- When TSA first conceived the cured by deeds of trust. The Cal- project, it had planned for an allo- ifornia Housing Finance Agency cation of 9% tax credits from the also provided about $9 million in state. At that time in early 2000s, bond funds for a loan-to-lender well before the financial crisis, the deal with Bank of America. The housing market was getting heat- bank then used the funds to pro- ed and investment in residential vide the project with a construc- construction projects abounded. tion loan” (Miles et al. 2007, 374). The competition for financing at 49 Skyline Village Financing

Construction Financing Total $10.966 M Los Angeles Residual Receipts $ 2.872 Housing Dept. Alliant Capital Equity Investment Bank of America Construction Loan $ 9.0 Via CAHFA City of Industry Funds Residual Receipts Loan AHP – Federal Home Loan Bank of San Fran- Grant cisco General Partners/ TSA and Housing Equity/Deferred Corporation of America Fees

Interim Financing Century Housing Bridge Loan $ .550

Total Permanent Financing $17.98 M Los Angeles Housing Residual Receipts $ 2.872/3.26 Loan Dept. City of Industry Funds Residual Receipts $ .600 Loan AHP - Federal Home Loan Bank of San Grant $ .300 Francisco Multifamily Housing Program (CA Dept of Loan $ 4.00 55 yrs/3% Housing & Comm. Devel.) California Housing 40 Bonds $ 3.75 Finance Agency yrs/5.35% Alliant Capital Equity Investment Tax Credit Allocation Tax Credit Equity $ 5.40 Committee (4%) Source: Thomas Safran and Associates

50 The award of the 4% LIHTC 55-year $4 million soft sec- funds, though limited, allowed ond loan at 3%. The Los TSA to move forward to secure Angeles Housing Depart- the remainder of the necessary ment agreed to a 45-year construction financing. The LI- $3.3 million third loan at HTC funding indicated to other 5%. Funds from the City of potential financing institutions Industry program provided that the California State Housing an approximately $600,000 Finance Agency had reviewed fourth loan, and the Fed- this project and that it met very eral Home Loan Bank of stringent guidelines for viability San Francisco provided a and for meeting the state’s public $300,000 Affordable Hous- purposes. In meeting LIHTC re- ing Program loan through quirements, it further defined the Broadway Federal Bank, nature of the project for primarily which counts as the fifth low-income working families. loan. The formula for the repayment of the soft sec- The property had been purchased ond, third, fourth and fifth for $2.1M in cash with $1M ad- loans is complicated. It is vanced by TSA. There was no based on a pro rata share owner financing but the purchase of a percentage of total re- price was supplemented by other sidual receipts, applied first sources including Century Hous- toward accrued interest ing. It was evident to the TSA and then to unpaid principal partners early on that multiple of each loan. sources would need to be used. As each transaction presented In another move, CalHFA itself, TSA worked through the also provided about $9 mil- requirements, adding new trans- lion in bond funds for a loan- actions to fill the gaps until there to-lender deal with Bank was enough financing to com- of America. The bank then plete the project. used the funds to provide the project with a construc- The state Department of tion loan. Century Housing Housing and Community provided a $550,000 bridge Development provided a loan (Kimura 2006).

51 LOW INCOME HOUSING TAX CREDITS

The LIHTC program, written into As a federal program, LIHTC is law as Section 42 of the US Tax distributed among all 50 states Code as part of the Tax Reform on a per capita basis. In 2015, Act of 1986, is today the prima- each state received $2.30 per ry means of funding affordable capita with a minimum of $2.68 housing for construction and million for small states. These redevelopment in the country. funds are channeled through the It does this by providing tax in- state’s Housing Finance Agen- centives to investors who in ex- cy (HFA) which is charged with change for tax credits over a ten administering the program, al- year period, provide the equity locating the funds and ensuring funding that is used to build and/ they are spent for the intended or rehabilitate affordable housing purpose. The HFA does that by is- projects. While LIHTC was nev- suing their state’s qualified alloca- er intended to provide all the fi- tion plan (QAP) which puts forth nancing a developer needs, the the state’s affordable housing equity investments reduce the priorities and eligibility require- overall debt burden of otherwise ments. QAPs can also be used to risky, below market projects. To- award tax exempt bonds and oth- day, LIHTC has made possible er state-level tax credit programs. the acquisition, development Based on QAP submissions, the and/or modernization of close to HFA awards their LIHTC funds 3 million rental homes between in a highly competitive process. 1987 and 2014 (HUD). It wasn’t The only federal requirement im- until the early 1990s that LIHTC posed on the states with regard really took off, yet today it ac- to LIHTC awards is that at least counts for an average of 1,400 10% of these funds have to be projects and more than 104,000 reserved for non-profits. units annually (HUD). Figure 6. How the LITHC Program Works

Source: Desai et al. 2010

Once awarded a LIHTC allocation, the developer must conform to the rent restrictions for affordability that the program imposes. At the out- set, developers decide if their projects will be targeted to tenants at 50% or 60% of AMI. Since rents are pegged to 30% of the target AMI, of course, some developers would prefer to receive higher rents from slightly higher income tenants. However, at 60% of AMI, the project would have to devote 40% of its units to this low income group, while at 50% of AMI, only 20% of all units would be devoted to the very low income group. The trade-offs are up to the developer and ultimately depend on the financials for the project as well as the neighborhood characteristics of the project. Since the guidelines only set minimums there is still leeway for developers to create mixed-income projects or to go beyond the minimums and serve even lower income families or more low income families. At Skyline, 100% of the rentals serve

53 units converted to market rate. the compliance period In that case tenants are given vouchers to make up the differ- imposed was for ence between the affordable and a total of 55 years the market rate rents. The state and was deemed therefore likes to deal with developers that they trust to continue appropriate given the operating the project as afford- need for affordable able housing. Because states vary widely in the degree of their housing, particularly need for affordable housing and housing so close to the type of housing necessary, compliance periods are kept flex- downtown... ible and largely determined by state requirements. At Skyline, the compliance period imposed low income families including was for a total of 55 years and those at the very low (50% AMI) was deemed appropriate given and extremely low (30% of AMI) the need for affordable housing, levels. The more restrictive rents particularly housing so close to were required by the City of Los downtown. The HFA compliance Angeles which provided some of requirements even exceeded the permanent financing. those of the City of Los Angeles In addition to meeting income which typically requires only 45 limits, projects that receive LI- years. TSA considers its primary HTC allocations must also meet role as a developer of affordable requirements for how long units housing so did not balk at the stay affordable. Usually, this is more stringent compliance re- for a minimum of 15 years and quirements, regarding it as nec- an extension of an additional essary for obtaining the financing 15 years for a total of 30 years. that would get the project built. The second 15-year period can Since the credits are stretched be relinquished and the origi- out over a ten-year period, the nal developer bought out or the responsibility is on the HFA to ensure that units remain affordable day should equal 70% or 30% of by monitoring income and rent eligible development costs. restrictions. Credits can be re- captured if the developer fails to Skyline failed to win an alloca- comply or violates other require- tion of the 9% credits which are ments such as housing code or much more popular with housing fair housing mandates. Syndica- developers and therefore more tors who package the credits and competitive. The project was sell them to investors therefore not located in a Qualified Cen- have an interest in dealing with sus Tract (QCT) which, if it were, only credible and experienced might have made it more attrac- affordable housing developers. tive to the HFA and given it an TSA was already well established edge in the competition. Quali- in the Los Angeles housing com- fied Census Tracts or Difficult to munity when it first proposed the Develop Areas (DDAs) as they Skyline Village project to city of- are also known, were added to ficials. “It’s a top quality project the LIHTC legislation in 1989 to from a top-quality developer,” further target the use of credits said Carl Wise, senior vice presi- to lower income neighborhoods. dent at Alliant which has invested DDAs added a 30% bonus to the in several Safran developments usual credits for projects within and was the syndicator for Sky- the tract. This credit “boost” is line (Kimura 2006). used to incentivize development in areas with a poverty rate of at There are two types of tax credits: least 25% or in areas where at 9% and 4%, formally known as least half the population has an “applicable percentages.” Proj- income no greater than 60% of ects can combine these credits the area median. during the development process thus magnifying the government Four percent credits are more support and potential equity. widely available but are limited Yields from 9% and 4% tax cred- by certain conditions. For ex- its are either 70% or 30%; or, in ample, 4% credits can only be other words, over the lifetime of used for acquisition of a building the credits the expected value to- for substantial rehab; it can be

55 used for new construction only The additional 30% credit boost in combination with other federal is also calculated on the eligible funds; and finally, the provision basis after the 9% credit has TSA used, 4% credits can only been applied. 4% credits cannot be used with projects which also be granted a credit boost even if employ tax exempt bonds. If a located in a DDA. project can qualify for tax exempt bond financing, it automatically is Finally, how tax rates are deter- awarded the 4% LIHTC. The bond mined affects the amount of eq- financing helps fill the gap in the uity investment that will be gen- 4% yield but because of the ex- erated. While the terms 9% and tra step in applying and qualifying 4% imply fixed rates, at the time for the bonds, 4% tax credits are of the Skyline project they were, considered both cumbersome in fact, determined on a monthly and costly by developers, and un- basis and seldom fell exactly as like the popular 9% credits, had described. For example in De- for years been left unused in a cember 2004, when Skyline was state’s volume cap allocation. As placed in service, the tax credit housing developers have become percentage was actually 7.96% more familiar with the intricacies for 9% credits and 3.41% for 4% of bond financing combined with credits. Housing advocates have tax credits, there has been great- perennially argued for a fixed rate er use of the 4% LIHTC so that minimum LIHTC program as a today they have become a staple way of providing some certainty in the developers’ financing tool to affordable housing subsidies. box. Such an adjustment was introduced in 2008 during the reces- The amount of tax credit a project sion and was made permanent in receives is based on a calculation 2015 for 9% credits only. known as the “eligible basis.” This is the cost of the project, While certain provisions of the LI- less land acquisition and perma- HTC program can vary from state nent financing costs. Any federal to state and some aspects of the funds used in the project are also program can be adjusted to re- deducted from the eligible basis. spond to market conditions or to meet national policy needs, the ed public resources for a public attraction of LIHTC to the devel- benefit which by some estimates opment community is that they would require another 20-40% of are a tax expenditure and not local contribution. subject to budget appropriations each year. As a tax expenditure, the Treasury Department exerts TAX-EXEMPT BONDS primary control over how chang- As discussed above, tax-exempt es are made in a formalized man- bonds are the first step in gain- ner and seldom varies from year ing an automatic award for 4% to year. In 2016, the total cost of tax credits. Even so, such bonds LIHTC is $7.9 billion. This com- are subject to a state’s volume pares to the $6.5 billion for Public cap which means that affordable Housing Operating and Capital housing projects must compete Funds (supply side) and $21.1 with all other private activity proj- billion for the Housing Choice ects that serve a public interest Voucher program (demand side). and that the state wishes to fund. There is no doubt that LIHTC in (Per Sec. 142(d) of the Tax Code). both its forms, has become the These can include other kinds of primary means of financing affordable housing in this country. Both advocates and developers Both advocates and favor the tax credit approach as developers favor the it provides financing for all the major components of project de- tax credit approach as velopment, construction and re- it provides financing habilitation. By incentivizing outside investors it brings together for all the major a savvy pool of expertise through components of syndicators, investment bankers, and tax attorneys who act as a project development, filter for project viability and con- construction and tinued affordability. Most impor- rehabilitation. tantly, tax credits leverage limit-

57 housing projects, student loans of a project’s cost which includes and industrial development as land and depreciable costs. This well as other privately developed rule requires that at least 50% enterprises. Given the tax bene- of the project costs be financed fits of such bonds, interest rates with bonds otherwise there is paid for the bonds are also lower the potential that anything more allowing for a higher loan amount. than 50% of the project’s costs The California Housing Finance would not be considered for the Agency awarded TSA bond funds non-competitive credits. That worth $3.75 million for Skyline Vil- could mean a forfeiture of some lage. Together with the tax cred- part of the maximum potential al- its of $5.40 million, the total of location. In addition, very specific approximately $9 million was the rules govern how much funding cornerstone on which the rest of must be used for a project once the financing package for Skyline bonds are awarded. was built. TSA entered into a partnership with the California Hous- These rules for tax-exempt bond ing Finance Agency as the issuer financing under the tax code are of these bonds and Alliant Capital complicated and the number of as the equity investor. participants necessary to complete a 4% deal are numerous, Unlike 9% tax credits, the 4% making the cumulative fees for credits are allied to the tax-exempt these deals high. It is estimated bonds by what is called the 50% that affordable housing develop- test. Where tax credits do not al- ers can pay 5-6% of project costs low funding of land costs, tax-ex- in administrative fees for bond empt bonds do. The 50% test is financing (Novogradac 1999). But applied to the “aggregate basis” as in the case of Skyline Village, it can often be the only source for Where tax credits do low-interest loans and equity financing of affordable rental hous- not allow funding of ing. Higher costs do demand land costs, tax-exempt even more layers of financing bonds do. and makes even more important a strong and attractive project.

58 Skyline met the criteria and was opers are willing to use this tool. able to piece together multiple fi- Public agencies are also finding nancing programs to get the proj- that this approach can leverage a ect built. greater share of public dollars, especially in localities where there Since 1998, the use of bond fi- are limited capital resources and nance together with LIHTC has a highly competitive 9% tax cred- steadily increased. This has been it market. Use of bonds and 4% due to the increasing sophistica- credits frees up more availability tion of both non-profit and public for 9% credits and does not affect agencies that apply for and dis- the cap on tax credits imposed by tribute these funds. As familiarity the federal government, another with use of bond financing cou- attractive feature of bond plus LI- pled with tax credits has spread, HTC funding. more affordable housing devel-

Pond View Village, Gloucester, MA: Mixed-Income Development on an Historic Site– Failure and Success in the Same Project

INTRODUCTION from 1876 until 1951 when the factory moved elsewhere. The This case study takes another land and its buildings remained look at a mixed-income develop- under the ownership of the ment but one where the market LePage Co. and continued to conditions were not as fortunate be used for its operations until as those at Chatham Square, Al- 2001, when it became available exandria. We also consider the for sale. At about the same time, impact of outside forces in the the City of Gloucester had identi- development of affordable hous- fied a critical need for affordable ing and how federal and local housing within its limits espe- grants can be used to target af- cially for working people with fordable housing development moderate incomes. A non-profit even in the worst of times. organization, Wellspring House, Inc., composed of Gloucester citizens, some of whom also sat on BACKGROUND the Mayor’s Task Force on Hous- The Pond View project sits on a ing, was encouraged to come up 20-acre site located at 147 Essex with ideas that could promote Avenue in the city of Glouces- more affordable housing in the ter, Massachusetts (Shotwell area. Wellspring, whose expe- 2006, 35). The property includes rience was primarily with hous- a 7-acre pond, hence its name, ing for the homeless, decided and was the site of a manufac- to create a non-profit dedicated turing plant that produced glue

61 to the construction of affordable board. It immediately set about housing for Gloucester workers. raising money to purchase the Its executive director was to be old LePage Co. glue factory for Nancy Schwoyer, a housing ad- the future Pond View Village site. vocate and founder of Wellspring Within a year, in August 2002, House. Its first project would be CAHO had raised sufficient funds the purchase of the former glue to accomplish the first step of its factory and the development of goal. However, a condition of the a mixed income, mixed use com- purchase had been to limit the munity. Thus, Cape Ann Housing time allowed to perform its due Opportunity (CAHO) was born diligence of the site, a factor that with many members from Well- later led to difficulties. spring serving on its volunteer

Figure 7. Le Page Co. 1887

Figure 8. Pond View Today

Source: MAPC

Source: The Caleb Group

62 POND VIEW VILLAGE, for sale and 43 for rental. The PHASE I AND II project would serve not just the residents but it would also have Due to its roots in social service a large community center with a development and community kitchen and room for a public gal- organizing, CAHO spent a good lery and other communal events. part of the following year gath- To conform to CAHO’s commit- ering input and meeting with the ment to sustainable develop- community to come up with a ment, the project would be built plan that would satisfy both com- with improved window glazing, a munity needs and the concerns central heating and air condition- of surrounding neighbors. CAHO, ing system, Energy Star compli- founded on a commitment to ant appliances, and a higher rat- affordable housing and environ- ed building insulation (Shotwell mentally responsible develop- 2006, 39). More cutting-edge ment, was particularly interested techniques, such as thermal heat in a project that would respect or solar energy, proved infeasi- Gloucester’s past and reflect the ble and were not cost effective tightly knit small village that it had for a project of this size. The vi- Figure 8. Pond View Today once been. The village concept sion for Pond View also inspired was transferred to Pond View CAHO to obtain a rezoning of with plans that called for a se- the property from “Industrial” to ries of buildings to be clustered “Village Business District (VBD).” together with most of the rest The new zoning allowed it great- of the property devoted to open er design flexibilities but it also space. Pond View would offer allowed for home businesses housing plans to satisfy a range that would minimize the need for of incomes with homeownership long commutes or inject more units at both the affordable and traffic onto local streets. The new market rate levels but it would zoning also harkened back to a also have affordable rental units more crafts-oriented era and was for families that were not yet able in keeping with the bucolic ideal to buy or did not wish to own. In that Pond View represented to its all there would be 118 units, 75 non-profit developer.

63 Of the 11 buildings originally on multi-level duplexes. The sepa- the site, 7 were retained and rate structures are knit together rehabilitated for residential use. by a walkway which connects Three others were demolished buildings to each other and to and new structures were built the shared facilities. Phase I con- in their place while one other sisted of the 43 affordable rental building was razed to allow more units. Phase II was the mix of af- room for open space. The units fordable and market rate home- varied in size from one to three ownership units. While Phase III bedroom configurations. They was originally slated for condos, also varied in style ranging from it was ultimately developed as af- single level apartment units to fordable rentals.

Pond View Project Mix

Rentals* Condos 1 bdrm 2 bdrm 3 bdrm PBV**

Phase I 43 10 19 6 8

Phase II 41 --Market --26 rate --Affordable --15

*All rentals are affordable **Project Based units use federally subsidized tenant vouchers

PHASE I AND II FINANCING

Working with its financial advisor, VIVA Consulting, CAHO devised a business plan for financing the project in pieces. The phasing of the project was a deliberate strategy to secure funding that would allow CAHO to complete all three segments of the project without the need to obtain financing for the entire project at once. Phase I consisted en-

64 tirely of rental units because tax less than half of the projected de- credit equity was only available velopment costs. The remainder for affordable rental units. Also was pieced together from multi- there were more funding sources ple sources. Chief among these for affordable units than for mar- was the Massachusetts Housing ket rate units and successfully Partnership (MHP) which provid- completing the first phase would ed an additional $2.8M. Of that, make the second phase more at- $2.4M was a direct loan and the tractive to traditional lenders. The remaining $450,000 was provid- business plan relied on revenue ed through another arm of MHP, from the rental units to help fi- Home Funders (MHP). The low nance and complete the second interest loan from Home Funders phase. In turn the sale of the mar- in combination with other sourc- ket rate units would finance the es of low-interest loans, served third phase of affordable owner- to write down the long-term ship units which would not be el- interest rate on its permanent igible for LIHTC. debt. The total amount of debt provided by mission oriented Equity from LIHTC was put to- funders such as Housing Stabili- gether by a nonprofit investment zation Funds and the MA Afford- syndicator, the Massachusetts able Housing Trust amounted to Housing Investment Corporation $3.86 million in funding. In addi- (MHIC). Since Pond View was tion to grants that helped fund part of a designated Difficult to site development costs, the total Develop Area, it also benefited development cost of Phase I was from the additional credit boost. $12,952,897. Still tax credit funding met slightly

65 Pond View Sources of Funding – Phase I Rental

Tax Credit Equity $6, 121,975 Facilities Consolidation Funds and Philanthro- $721,922 py MHP/Bank of America $2,425,000 Home Funders $450,000 Subordinate Debt $3,234,000

(Federal Home Loan Bank, City of Glouces- ter, North Shore Housing Consortium, CDBG + HOME, Department of Housing and Com- munity Development) Total Development Costs $12,952,897 Source: Shotwell 2006

Phase II financing for the own- together by MHIC. The remain- ership units, in comparison, was der of the funding came primarily less complex as it relied primari- from mission oriented debt that ly on ownership equity. Some of included Community Develop- this would have included rental ment Block Grant funds, the MA revenue as well as presale of the Housing Trust Fund and DHCD units but a large part came from Housing Stabilization Funds. a consortium of bank loans put

66 Pond View Sources of Funding – Phase I Ownership

Developer’s Cash Equity (MHIC) $9,653,365 Grants $59,315 Mass Development $216,344 Energy grants and rebates $38,375 Subordinate Debt $2,175,000

(Affordable Housing Trust, City of Gloucester CDBG, DHCD Housing Stabilization Funds) Total Development Cost $12,142,399 Source: Shotwell 2006

MASSACHUSETTS Grants, are often not enough to HOUSING PARTNERSHIP provide the funding needed. It is (MHP) worth looking at how the state of Massachusetts addressed this As we see above, MHP stepped problem. MHP was established in to provide a sizeable share of in 1985 as a public non-profit that the development financing for works closely with the Governor the rental units. State and local and the Department of Housing players are a crucial element of and Community Development funding for affordable housing (the state housing finance agen- but many communities do not cy) to identify and assist in af- have the resources to devote to fordable housing development. this. Even if it is identified as a Its mandate is to work with cit- critical need it often falls below ies and towns across the state to other pressing priorities includ- increase housing production and ing education and infrastructure. to explore new ways of doing so. This is especially true for smaller In 1990, Massachusetts became communities such as Glouces- the first and only state to pass ter whose share of federally dis- an interstate banking act aimed tributed formula grants, such as at benefiting housing. The act Community Development Block requires companies that acquire

67 Massachusetts banks to make signed from the project in early funds available to MHP. With 2004 citing the rising materials access to credit, MHP created costs that would make it difficult a bank funded loan pool for af- for him to realize any profit from fordable housing uses. Between the deal. It took CAHO almost a 1990 and 2014, MHP has extend- full year to find another general ed more than $1 billion in loans contractor, Cutler Associates, and and is responsible for the de- construction successfully began velopment of more than 22,000 in April 2005. Construction pro- units of housing. A separate arm ceeded rapidly and Phase I and of MHP is Home Funders which Phase II were completed in 2006. was established in 2003. Home While the affordable rental units Funders’ loan pool is established were fully occupied soon after solely from local philanthropies completion, the condos suffered and in its first year of operation from poor timing and a mistaken it raised about $19 million. Home pricing strategy. The pitfalls of the Funders is often used to supple- project’s early slow pace of devel- ment the more significant loans opment, its agreement to short- extended by MHP. cut the due diligence process and its prolonged consultative process, aided in the unfortunate PROJECT DEVELOPMENT: timing. By the summer of 2006, PROBLEMS AND PITFALLS the condo market had begun to drag. “It was about the perfectly CAHO, as evidenced by its found- wrong time to go to market” said ing, was well connected to city Bob Gilles, one of CAHO’s board officials and other leaders in members (Anderson 2008). As Gloucester and the surrounding construction continued, the first communities. It easily obtained condos were being put on the the permit it needed to proceed market. In the course of two with development of up to 118 months more than 400 potential units of housing and by the end buyers viewed the for-sale units. of 2003 it was ready to break Not a single market rate unit sold ground. Unfortunately, CAHO’s and CAHO finally decided to take original general contractor re-

68 them off the market in the spring to resolve. The sharp grade dif- for repricing. ferences between buildings and access roads added to design Nevertheless, problems only and construction costs. Labor seemed to accelerate. While and materials costs also rose. Phase II units were being shown, CAHO’s contractors sued for work had continued to prepare payment of cost overruns adding the site for Phase III, the 34 af- to financing problems. At least fordable rate condos. CAHO 8 of the 15 affordable units sold sought and was granted a height but the project relied on sales amendment for its Phase III from the market rate units to building which involved removing meet their loan obligations and another building and replacing it. to fund the subsequent Phase III. As a result, the 276 neighbors With needed sales at a standstill, bordering Pond View filed suit. CAHO sought an additional $1.5 Despite more than a year of open million from the state so they meetings and public previews could make all the condo units prior to the start of construc- affordable for tenants at 110% of tion, the neighbors feared that area median income. They were the change in design would ob- turned down but if the plan had struct their views. To settle the worked CAHO and its investors lawsuit, the owner agreed that would have had to write off $1 Phase III would not begin until a million. certain number of Phase II condo units had been sold. This liti- In any event, CAHO had already gation delayed the completion of defaulted on a payment and was Pond View Village considerably about to be foreclosed upon by its and added additional costs that major investment partner, Mas- CAHO could ill afford. sachusetts Housing Investment Corporation (MHIC). The condos Costs had been rising in unex- went back on the market in Sep- pected ways throughout the proj- tember 2007 with new prices ect’s construction. Most notably, considerably lower than the orig- the site had difficult drainage inal pricing. Still, investors and problems that were expensive CAHO under this pricing scheme

69 had to take a $2 million write off. nation’s housing crisis was in full The first market-rate unit finally force and CAHO was not alone in sold in November 2007 below facing foreclosure, even though the asking price and after that, many of CAHO’s problems pre- units would sell slowly and inter- ceded the crisis. MHIC, the ma- mittently. Too slowly, as it would jor investor, took over Pond View take several more years before all Village and experienced its first the market rate units were sold, major loss in 18 years of lending and by then CAHO could no lon- across the state. ger hold on. It filed for bankruptcy in January 2009. At that time the

Pricing Pond View Condos

Affordable Market Market 2-bdrm 2-bdrm 1-bdrm Scheme 1 (2006) $265,000 $359,000 Scheme 2 (2007) $175,000 $225,000 $195,000- Scheme 3 (2009) $154,000 $159,000 235,000 Source: Anderson 2008, The Caleb Group

THE HOUSING CRISIS OF 2007-2010

There is an old adage that says location is the most important component of any real estate transaction. But those people are forgetting the importance of timing. CAHO could not have picked a worse time to market its units. While the Phase II units were completed when they could still have been sold with credit available to extend financing, the window was rapidly closing for both those activities to occur. What had fueled the crisis, easy credit and over-confidence in steadily rising home prices, led to a spectacular bubble that burst in 2007-2008. Pond View itself had been prompted by the double digit increase in home values of the early to mid-2000s. By 2006, when Phase II came

70 on the market, some estimated PHASE III: NEW that housing prices were already DEVELOPMENT PLANS at their peak and possibly over- valued by as much as 70% (Wil- Since construction had never liams 2017). When prices plunged been completed on Phase III due and foreclosures became wide- to the lawsuit filed by the neigh- spread, uncertainty became ram- bors and subsequent settlement, pant. With uncertainty, the finan- the property went through fore- cial markets dried up and lenders closure proceedings to transfer were reluctant to lend even to ownership rights to MHIC. The other financial institutions. By Community Economic Devel- 2008 multiple failures or im- opment Assistance Corporation pending failures of some of the (CEDAC) had been a secondary biggest players in the mortgage lender to CAHO, and reached an lending markets led to a housing agreement with MHIC to pur- crisis which was a leading cause chase the ground lease on Phase of the economic downturn that III and sell the development has come to be known as The rights to an experienced afford- Great Recession. able housing developer.

CEDAC is a nonprofit community development finance institution which provides seed capital, bridge financing and predevelopment financing to developers of affordable housing. It also provides tech- nical assistance and consulting services to affordable housing developers. With about $20 million a year in investment funds, CE- DAC provides loans to 50 affordable housing developers to generate approximately 2,400 units of housing a year (CEDAC).

71 The original plan to develop the it organization and its founders final phase as affordable home drew from fellow members of ownership units was abandoned their church to serve on its first in favor of affordable rental. The Board. While today, Caleb no enormity of the 2008 housing longer identifies as a faith-based crash had depressed any hopes organization, the role of these of a quick turnaround in the hous- organizations in establishing and ing market. Condos especially, as leading community development Phase II showed, did not appeal to efforts is a critical one. buyers in the area. Also abandoned were remnants of the building that The Caleb Group was a well-re- CAHO had intended to redevelop. spected and known developer of Instead, new construction would affordable housing when it was take its place. The five-story struc- selected to assume manage- ture that would be built would in- ment of Pond View Village and clude a ground level garage and completion of Phase III. In addi- four levels of apartments. tion, Caleb’s mission “to provide secure, affordable homes and build stable communities that of- THE CALEB GROUP: fer diverse populations the tools A NEW DEVELOPER and resources to empower indi- STEPS IN viduals to make positive changes in their lives”(The Caleb Group) The Caleb Group was founded in was in keeping with the original 1992 by Warren and Joan Sawyer vision for Pond View Village. By and Debra Nutter. After years of the time of its selection Caleb experience in developing market had an extensive portfolio of af- rate and senior housing, Warren fordable housing projects to its Sawyer saw a need for high quali- name in Maine, New Hampshire, ty, affordable housing in the com- Massachusetts and Connecti- munities in and around Boston, cut. It owned or managed more MA where he both lived and had than 16,000 units throughout many of his for-profit projects. New England. What made it an The Caleb Group is a non-prof- especially good choice to complete Pond View was its affinity

72 Faith-based organizations are more numerous and diverse than is commonly recog- nized. Current public conversations about the possible role of faith-based organization in community life often assume that these organizations are local worship communities. In fact, many other types of organizations are faith-based. One useful typology (Castelli and McCarthy 1997) divides faith- based groups into three sets: (1) congrega- tions; (2) national networks, which include national denominations, their social service arms (e.g., Catholic Charities, Lutheran Social Services), and networks of related organizations (such as YMCA and YWCA); and (3) freestanding religious organizations which are incorporated separately from con- gregations and national networks but have a religious basis. Freestanding organizations can be as simple as an independent nonprofit organization spun off by a congregation to pursue a particular social purpose such as affordable housing (Vidal 2001).

73 for the tenant development as- PHASE III FINANCING pects of its projects. Each Caleb property also included a Resident Caleb acquired the leasehold Services coordinator to assist development rights to the prop- tenants of affordable units with erty from CEDAC which had pur- locating the social services they chased the ground lease in a set- needed. Moreover, with its years tlement arrangement with MHIC. of experience in the affordable The lease which was for a period housing field, Caleb had a trust- of 99 years worked to the bene- ed and proven group of partners fit of Caleb as it involved only the for the project. From its general building footprint and allowed contractor, Keith Construction, to them to be absolved from the its legal representative at Nixon, environmental issues on parts Peabody, Caleb could rely on a of the remaining property. Con- professional network that had trolling the new project through been developed over time and leasehold also did not affect their numerous projects. eligibility for LIHTC funding which was critical to the project. Caleb broke ground on the Pond View Village site in July 2010 in a The primary sources of funding ceremony attended by previous were $4.6 million of 9% LIHTC supporters of CAHO. The project and $5 million of Tax Credit Ex- was not an easy one for Caleb or change (TC-X) under the Ameri- any other developer to assume. can Recovery and Reinvestment There were legal issues associ- Act of 2009 (ARRA). Additional ated with reviving a failed project funding came from HOME ad- and a number of environmental ministered by DHCD, state fund- concerns to resolve. However, ing, deferred developer fees, and the project was well supported MHP permanent debt. by the city, which wanted a potential eyesore removed and continued to support efforts to provide more affordable housing in Gloucester.

74 Sources of Funding - Phase III Rental Tax Credit Equity $4,634,260 Deferred Developer Fee $173,470 Tax Credit Exchange $5,000,000 HOME (DHCD) $550,000 Affordable House Trust (Mass Housing) $765,000 MHP Permanent Loan $740,000 Total Development Cost $11,862,730

Source: The Caleb Group

The LIHTC award of 9% credits largest part of that money, about came at a time when the housing 75%, was distributed among crisis was most intense. Private the states and localities through finance had all but dried up and a formula process. The remain- housing construction was at a vir- ing 25% was awarded through tual standstill. As Rob Bernardin, competitive grants. Because of Director of Acquisitions for Caleb the intensity of the housing crisis recalls, “After months of search- and the impact to the economy ing, the highest pricing we could as a whole, funding was allocat- attract for the LIHTC was only 68 ed to projects which could be cents per dollar of Award…To- quickly implemented and would day’s pricing would be closer to have immediate positive impacts 92 cents for each dollar of award” on populations and communities (Bernardin). As a result the need that were most in need. Thus, for additional funding was acute. more than $4 billion was allocat- ed to “shovel ready” projects; In response to the housing cri- projects which had been stalled sis, HUD received $13.61 billion due to lack of financing resulting under the American Recovery from the crisis. Of that allocation, and Reinvestment Act of 2009 $2.25 billion was designated for (ARRA) for programs that would the Tax Credit Assistance Pro- help stimulate the economy. The gram (TCAP).

75 TCAP was conceived as a re- without the timely introduction of sponse to the reduced funding the much needed ARRA funds” from LIHTC. It was aimed specif- (Bernardin). The full $5 million ically at projects that had already grant was provided to Caleb as met LIHTC qualifications but still a 30-year, non-interest bearing fell short of needed financing. loan. In return, Caleb agreed that Similar to LIHTC, TCAP was dis- Pond View III’s 34 units would be tributed to states to administer affordable to tenants whose in- and distribute according to local come is 60% or less of area me- criteria. It substantially differed dian income (AMI). Four of the from LIHTC in the basis of its units would be reserved for ten- statutory authority. While LIHTC ants with income less than 30% was created within the Tax Code, of AMI. TCAP was a grant program gov- erned by the federal Home In- Today, Pond View Village is com- vestment Partnerships Program plete and fully rented. Rents es- (HOME) regulations. Instead of tablished for the newest units receiving funding based on a range from $348 to $758 for a per capita allocation, Massachu- one-bedroom and $402 to $901 setts would ultimately receive for a two-bedroom, based on the $31 million dollars of TCAP based income of the tenant. Caleb man- on its 2008 HOME allocation. In ages the entire complex. Despite the process it became known as the many setbacks in getting this the tax credit exchange program project to completion, Pond View (TCX) throughout the state. has finally met the objectives of its earliest supporters. It is pro- Pond View III met all the criteria viding a high quality living envi- for TCX since it had already quali- ronment to working households fied for LIHTC and met the state’s at affordable rents. With its mix QAP requirements. According to of unit types and income quali- Rob Bernardin, “This community fications it presents a model for could not have been completed communal living.

76 Figure 9. Pond Village

Source: The Caleb Group

New York City The Effectiveness of 421-a Midtown West, Manhattan

INTRODUCTION A BRIEF HISTORY OF In this case study, we will track MIDTOWN WEST the evolution of New York City’s 421-a program through the Since its colonization by Euro- lens of six apartment buildings peans in the 17th century, New developed by private, for-profit York City has been a destination developers in a single district, for immigrants. Millions of immi- Midtown West. Although the grants were processed in Man- 421-a program was created hattan and later through Ellis Is- to spur development, it was land. Many chose to settle in the modified to become a vehicle port city, evolving it into a dense for for-profit developers to create and diverse economic power- affordable housing. While it house. was undoubtedly successful in Midtown West, the area from 34th incentivizing development, its to 59th Street between Eighth Av- effectiveness as an affordable enue and the Hudson River, was housing program is the subject once New York City’s worst slum. of contentious debate. In the 19th century, it was an industrial area populated by mostly German and Irish immigrants living in overcrowded tenements and working in factories, lumber yards, and slaughterhouses.

79 After the Civil War, gangs ruled Besides the rampant criminal ac- the streets, with The Hell’s Kitch- tivity, the development of public en Gang at the top of the hierar- transportation infrastructure cre- chy. As a result, Midtown West ated a less desirable living envi- has to this day been referred to ronment. The Lincoln Tunnel was as “Hell’s Kitchen.” The industri- built in three phases between al landscape coupled with orga- 1937 and 1939 to service traffic nized crime made Hell’s Kitchen coming in and out of the City from a hotbed for bootleg distilleries New Jersey. It became one of and speakeasies during the Pro- the most highly trafficked under- hibition Era. ground roadways in the world, but it also cut off the area below 39th New York City continued to rise Street from the rest of the neigh- on the global stage, though, borhood. Additionally, the Port Au- and there was a severe hous- thority Bus Station was opened ing shortage in the 1920s with in 1950 to service an increasing vacancy rates falling below 1%. need for public transportation. To combat the problem, the City However, dissenting political opin- exempted all new housing devel- ions resulted in a series of costly opments from property tax be- renovations that lacked a cohesive tween 1920 and 1926. Hundreds vision. And despite the accessi- of thousands of new apartments bility via car and bus, the subway were built within the decade, system did not extend into Mid- raising the vacancy rate to 8%, town West at all. and the exemption was gradually phased out by 1929. The success of this tax measure is often cred- HISTORY AND ited as the precursor to the 421-a ENACTMENT OF 421-A tax abatement program. By the late 1960s, New York City Midtown West was largely left was a metropolis in decline, char- behind in the development boom, acterized by soaring crime rates, however, because a number of labor union strikes, racial tensions, factors worked against the gen- civil unrest, corruption, economic trification of the neighborhood. stagnation and a fleeing popula-

80 tion. The City lost nearly a million lized or vacant land in New York residents to the suburbs between City. Over the ten-year exemption the late 1960s and late 70s. period, the exemption decreased 20% every two years with up to Falling from a 1962 peak of 70,686 a three-year tax-free construction permits issued for new housing period. The owners were still obli- units to only 3,810 in 1975 (Wu gated to pay the prior tax assess- 2012, 21), real estate investment ment throughout the exemption and development nearly came period. to a standstill in New York City. Many had written off the City due The legislation proved to be suc- to its near bankruptcy. cessful in spurring development and creating employment opportu- Using the tax exemption program nities. And with 90% of new res- from the 1920s as a precedent, idential development capitalizing Mayor John Lindsay sought to on the 421-a exemption (The Mu- combat disinvestment and popu- nicipal Art Society “The History of lation decline through changes to 421a”), New York State renewed New York’s tax law. Working with the program in 1977. legislators in Albany, Lindsay sur- mised that a dramatic reduction in property taxes for developers 421-A’S FIRST REFORM: would jump-start residential de- GEOGRAPHIC velopment in an otherwise specu- EXCLUSION AREAS, lative investment environment. AFFORDABLE HOUSING AND CERTIFICATES On July 1, 1971, Albany enacted Section 421-a of the New York As real estate development re- State Real Property Tax Law. This bounded, legislators and city of- tax reform provided building own- ficials began to view 421-a as an ers and developers a ten-year excessive windfall for develop- exemption from the increase in ers of luxury condominiums and property tax resulting from the sought to impose restrictions on development of new multifamily the scope of the exemptions. The housing on otherwise underuti- first reform to 421-a emerged from a landmark court battle be-

81 tween Donald Trump and Antho- of low- and middle-income hous- ny Gliedman, the head of the ing. Thus, it is immaterial that lux- NYC Department of Housing & ury housing is an issue.” In fact, Preservation under Ed Koch’s “the New York City Legislative mayoral administration in 1981. Representative explained, ‘Un- der this bill, the City would not Trump sought a ten-year tax actually lose tax revenues since break through 421-a for Trump the owner would continue to pay Tower, his 58-story replacement during the period of the exemp- of the Bonwit Teller department tion the amount of prior taxes on store at 725 Fifth Avenue. The the property, and future tax yields City rejected his request for the would be greatly enhanced by tax abatement, arguing that as it the improvements.’” (Trump Eq- was generating $30 million in an- uitable Fifth Ave. Co. v. Gliedman, nual revenues, the Bonwit Teller 62 N.Y2d 539) Trump was award- building did not meet the defi- ed a ten-year tax break worth $50 nition of an “underutilized prop- million. erty.” Trump sued, and despite lower court’s ruling in his favor, Three months after the ruling, the Appellate Division of the Su- the City reformed 421-a to ex- preme Court sided with the City. clude market-rate developments Trump appealed to the New York in “Geographic Exclusion Areas” Court of Appeals. (GEAs) from receiving the tax breaks. The first GEA included On July 5, 1984, the Court of 14th through 96th streets in Man- Appeals concluded that NYC- hattan along with Greenpoint and DHP “impermissibly erected a Williamsburg in Brooklyn, as the barrier to the benefit provided by City determined that sufficient the Legislature” given that “no market demand in these areas definition of the key phrase ‘un- made the incentives unneces- derutilized land’ is set forth in the sary. statute.” Furthermore, the court found that “the Legislature did In addition to creating GEAs, the not choose to restrict availability City added an affordable housing of this exemption to construction component to the 421-a program.

82 In order to be eligible for the tax For each affordable housing unit exemptions, all new develop- built anywhere in New York City ments within the GEAs were without government subsidy, the required to include affordable developer would receive four to housing either on or off site. De- six tradable tax abatement cer- velopments outside of the GEAs tificates. Each certificate entitled that included affordable housing a market rate unit to a10-year tax would receive an extended 15- abatement. These certificates 25-year tax break. have historically traded on average between $12,000-$15,000 Sites within the GEA with no each on the open market. on-site affordable units were allowed to take advantage of Table 1 illustrates the phasing of 421-a with the introduction of a the exemptions based on loca- negotiable certificate program. tion and affordable components.

Figure 10. Midtown West

Photo by Derek Hsiang

83 Table 1. 421-a Exemption Schedule After 1985 Reform

Location Manhattan Manhattan Rest of Rest of Outer Outer between between Manhattan Manhattan Boroughs Boroughs 14-96th, 14-96th, below below or Above or Above Greenpoint & Greenpoint 110th 110th 110th St 110th St Williamsburg & Wil- waterfront liamsburg (GEA) waterfront (GEA)

Affordable Purchase 20% afford- As of right 5% afford- As of right As-of- Component certificates able units for mar- able for for market- right for for off-site on-site ket- rate middle rate units Neigh- affordable units income borhood units. Preserva- tion Area

Length of 10-year 20-year 10-year 20-year 15-year 25-year Exemption exemption exemption exemption exemption exemption exemption

Year Amount of Exemption Construction 1 100% 100% 100% 100% 100% 100% Construction 2 100% 100% 100% 100% 100% 100% Construction 3 100% 100% 100% 100% 100% 100% 1 100% 100% 100% 100% 100% 100% 2 100% 100% 100% 100% 100% 100% 3 80% 100% 80% 100% 100% 100% 4 80% 100% 80% 100% 100% 100% 5 60% 100% 60% 100% 100% 100% 6 60% 100% 60% 100% 100% 100% 7 40% 100% 40% 100% 100% 100% 8 40% 100% 40% 100% 100% 100% 9 20% 100% 20% 100% 100% 100% 10 20% 100% 20% 100% 100% 100% 11 0% 100% 0% 100% 100% 100% 12 100% 100% 80% 100%

84 Table 1. 421-a Exemption Schedule After 1985 Reform 13 80% 80% 60% 100% Location Manhattan Manhattan Rest of Rest of Outer Outer 14 80% 80% 40% 100% between between Manhattan Manhattan Boroughs Boroughs 15 60% 60% 20% 100% 14-96th, 14-96th, below below or Above or Above Greenpoint & Greenpoint 110th 110th 110th St 110th St 16 60% 60% 0% 100% Williamsburg & Wil- 17 40% 40% 100% waterfront liamsburg 18 40% 40% 100% (GEA) waterfront (GEA) 19 20% 20% 100% 20 20% 20% 100% Affordable Purchase 20% afford- As of right 5% afford- As of right As-of- 21 0% 0% 100% Component certificates able units for mar- able for for market- right for for off-site on-site ket- rate middle rate units Neigh- 22 80% affordable units income borhood 23 60% units. Preserva- tion Area 24 40% 25 20% Length of 10-year 20-year 10-year 20-year 15-year 25-year 26 0% Exemption exemption exemption exemption exemption exemption exemption FROM LAWLESSNESS sion to create The Special Clinton TO LUXURY: THE RISE District in November 1974: Year Amount of Exemption OF HELL’S KITCHEN The Special Clinton Dis- Construction 1 100% 100% 100% 100% 100% 100% Despite a redubbing of Hell’s trict (CL), generally be- Construction Kitchen to the more genteel tween West 41st and West 2 100% 100% 100% 100% 100% 100% name of Clinton (after former 59th Streets west of Eighth Construction Mayor and Governor DeWitt Clin- Avenue, was created to 3 100% 100% 100% 100% 100% 100% ton), the neighborhood still large- preserve and strengthen 1 100% 100% 100% 100% 100% 100% ly missed out on the wave of new the residential character 2 100% 100% 100% 100% 100% 100% 421-a development and gentrifi- of a community bordering 3 80% 100% 80% 100% 100% 100% cation. Organized crime persist- Midtown, maintain a broad 4 80% 100% 80% 100% 100% 100% ed throughout the 1970s, and mix of incomes and ensure 5 60% 100% 60% 100% 100% 100% the lack of subway transportation that the community is not 6 60% 100% 60% 100% 100% 100% made it unattractive to develop- adversely affected by new 7 40% 100% 40% 100% 100% 100% ers and residents alike. Further- development. Special reg- 8 40% 100% 40% 100% 100% 100% more, there was a strong effort ulations for designated 9 20% 100% 20% 100% 100% 100% by the community to preserve perimeter areas provide 10 20% 100% 20% 100% 100% 100% the residential core of the neigh- appropriate transitions be- 11 0% 100% 0% 100% 100% 100% borhood. The local council met tween the lower-scale side 12 100% 100% 80% 100% with the City Planning Commis- streets, and the Special

85 Hudson Yards District to of the Jacob Javits Convention the south and the Special Center as part of a larger master Midtown District to the plan for the area. Several zoning east (Special Purpose Dis- changes were made on the out- tricts). skirts of Hell’s Kitchen, opening the doors for the largest apart- Critical points of the special ment buildings in New York City zoning included a height limit of to be developed under 421-a pro- 66 feet with no more than six gram. The first development we’ll stories. Additionally, structural- examine is just above the north- ly sound buildings could not be ern border of Hell’s Kitchen. demolished without a special permit approved by the City Plan- ning Commission. Appendix 1 vi- 75 WEST END AVENUE: sualizes the effect of this special MANHATTAN WEST zoning. The father and son team of Na- As the saying goes, good things than and Daniel Brodsky had come to those who wait, and established the Brodsky Organi- Hell’s Kitchen finally began a zation as masters of moderate-in- gradual metamorphosis in the come rentals by 1991. Having just 1980s. Organized crime phased finished the 248-unit, 36-story out with several key convictions “Concerto” at 200 W 60th St, of mob bosses, clearing the way they were positioning to develop for Broadway’s theater culture, their largest rental building yet as with many actors and artists tak- their encore. ing residence in the neighborhood. Old speakeasies and bars They had acquired a 4-acre prop- along Eighth and Ninth Avenues erty located between 61st and turned into “Restaurant Row,” 64th Streets on West End Ave- featuring a diverse selection of nue and planned to construct a ethnic cuisines. 38 story, 1000-unit rental building geared towards the middle Along with the gentrification, the market. Unlike Trump, who was City approved the development

86 pursuing super-luxury finishes in 421-a abatement coupled with his multi-building complex a few the 2.2% surcharge was still not blocks northwest, Brodsky went enough to offset rising operating for lower finishes and more ef- costs for a mid-market rental de- ficient common spaces to cater velopment with typical 75% LTV to moderate income renters. 75 financing. “It worked fine when West End Avenue, dubbed Man- you had the inflation rates of the hattan West, included a 24-hour early 1980s,” Mr. Brodsky said. “It attended lobby, complimentary doesn’t work in a noninflationary shuttle service to Columbus Circle, environment” (Bagli 2016). a 350-car parking garage, 5,000 sf of community facilities, a 12,500 sf Therefore, the Brodsky Organiza- New York Sports Club with swim- tion pursued a 20-year abatement ming pool and 38,000 sf of retail by building 200 (20%) affordable space. The project also provided a units on site. After public review, 1.25-acre public park between 63rd the State Legislature under Gov- and 64th Streets. Total project cost ernor Mario Cuomo approved the was approximately $180 million, of plan, and 75 West End became which about a third went towards the first 80/20 development to re- acquisition. ceive the 20-year tax abatement. The affordable units were made As part of the 421-a program, rent available to renters with house- on all units are stabilized during hold incomes at 50% Area Me- the abatement period. Landlords dian Income (AMI), which was may collect an annual surcharge $20,000 at the time. The abate- on top of the stabilized rent in- ment also helped reduce the pric- creases equaling 2.2% of the rent ing for the 800 mid-market units, in order to offset the gradual dim- which were targeted towards inution of tax abatements. How- young professionals with in- ever, with lower inflation rates comes ranging from $40-90,000. projected into the mid-1990s, the forecasted rise in rents created an environment where the 10-year

87 Figure 11. 75 West End Avenue

Source: The Brodsky Organization 75 West End Avenue

Address 75 West End Avenue Developer The Brodsky Organization Year Built 1994 Type Rental Total Units 1000 On-site Affordable Units 200 Building area (SF) 978,985 Floors 37 Zoning C4-7 Exemption Period 20 years Beginning of Exemption 1996/97 Development Cost $180 million Tax Class/2016 Rate 2 (11+ units) – 12.892% 2014/15 Abatement (20%) -$1,471,738 2014/15 Taxes $6,593,976 2016 Taxes (Abatement $9,386,594 expires) 2015/16 Average Rent/sf $54

88 2016 AVAILABLE MIDDLE INCOME UNITS

Monthly Units Household Annual Household Unit Size Rent Available Size Earnings Studio $2,024 32 1 $70,732-82,550 1 $75,772-82,250 1 bedroom $2,170 15 2 $75,772-94,250 2 $90,926-94,250 2 bedroom $2,611 3 3 $90,926-106,080 4 $90,926-117,780

Appendix 2 illustrates a very • Taxes: The primary argument rough estimate of the difference from rental developers is that in potential cash flows if the proj- without the tax abatement, ect had been done with 421-a ver- many projects are not feasi- sus without 421-a. The calculation ble. is performed using available public data from the perspective of • Rental Revenue: Without Brodsky back in 1994 (and some 421-a, 100% of the units from 2016), as this may have would be market rate, in- been a very similar approach they creasing rental revenue. would have taken in evaluating • Debt Service: Without 421-a, whether to use 421-a at the time. all units would have the same Keep in mind, there was a lot of fixtures and appliances, so uncertainty in the market in the development cost would be early 1990s, and interest rates slightly higher. This in turn were significantly higher. affects the construction loan The calculation is made under the amount. assumption that there are three For simplicity, all other figures streams of cash flow that are (other expenses, other income, most affected: vacancy, etc) in the calculation

89 are assumed to be equal in both LARRY SILVERSTEIN scenarios and therefore left out PIONEERS W 42ND of this comparison. STREET DEVELOPMENT

The net difference comes out Midtown West is often labeled to approximately $30-40 million the final frontier for real estate in benefits in 1994 dollars using developers in Manhattan. While 421-a (the range is based on sen- the Brodsky Organization would sitivity analysis not shown). On eventually develop rentals on a project with a total budget of West 42nd Street, it was Larry $180 million, this is clearly signif- Silverstein who pioneered luxury icant and can make a substantial residential development on the difference in feasibility. far west end of the street. The owner of Silverstein Properties However, note that the option is primarily known for his invest- with 421-a generates less cash ment in the World Trade Center flow than the 100% market rate and other commercial office proj- scenario after the expiration of ects. He is also distinguished for the abatement. Even if Brodsky’s recognizing the value created models showed better cash flows by plans for Class A office tow- beyond 20 years without 421-a, ers just west of Times Square. it would have been very difficult To complement the commercial to secure financing since few in- development, he envisioned a vestors and lenders would rely on highly luxurious mega-apartment such a long-term prediction. The primed with amenities three 421-a option was clearly less risky blocks west on 42nd Street’s and easier to build. Hudson River waterfront. As we’ll see with the next proper- During the construction of Javits ty, 75 West End helped set a prec- Center in 1984, Mr. Silverstein edent for 421-a mega-apartments purchased a block-through lot be- at the south end of Hell’s Kitchen. tween 11th and 12th Avenues on 42nd St for $20 million (financed with a $25m loan from Bankers Trust Company). Although he had

90 luxury residential in mind, the and two-bedrooms. River Place area was still zoned M1-5 (indus- was intended for the luxury mar- trial/manufacturing). And so, the ket with high-end finishes and a waiting game began. long list of amenities. The building features a 24-hour concierge, The City had planned for ambi- complimentary shuttle service tious office, residential and hotel along 42nd Street, valet parking expansions as part of the greater at a 200-space garage and (for a master plan surrounding Javits monthly fee) access to a 34,000 Center. A small cluster of blocks sf residents-only gym with a 75- directly to the north was eventu- foot swimming pool, two tennis ally rezoned to C6-4 (commercial/ courts, and basketball court. retail), paving the way for potential mixed-use development. But Figure 12. River Place a recession followed by political debate over the expansion plans prevented anything from materi- alizing. The City intended to purchase Mr. Silverstein’s property and develop a hotel, but the plans fell through. Sixteen years after he purchased the property, Mr. Silverstein was able go forward with his own plans. He financed the $225 million development with a mix of his own equity and lenders led by Bank of New York.

Like Brodsky’s 75 West End project, Mr. Silverstein opted to participate in the 80/20 program for River Place I. The 40-story rental tower had 921 units, of which 184 were affordable. The unit mix was comprised of mostly studios, one-bedrooms Photo by Derek Hsiang

91 Table 3. 1 River Place

Address 1 River Place / 650 W 42nd St Developer Silverstein Properties Architect Costas Kondylis & Partners Year Built 1999 Type Rental Total Units 921 On-site Affordable Units 184 Building area (SF) 887,879 Floors 40 Zoning C6-4 Exemption Period 20 years Beginning of Exemption 2002/03 Development Cost $225 million Tax Class/2016 Rate 2 (11+ units) – 12.892% 2014/15 Abatement (80%) -$6,316,336 2014/15 Taxes $2,172,990 2016 Average Rent/sf $51

2016 WAITING LIST FOR LOW INCOME UNITS Monthly Household Unit Size Rent Size Annual Household Earnings Studio $562 1 $18,060-24,080 1 bedroom $604 1-2 $19,350-27,520 2 bedroom $733 2-4 $23,220-34,360

MOINIAN GROUP JOINS THE 42ND STREET PARTY

Joseph Moinian, founder and CEO of Moinian Group, built a reputation as one of New York’s top real estate developers and investors. Before venturing into Manhattan’s West Side, he accumulated a portfolio of 20 million square feet of office and luxury residential buildings in Manhattan, Long Island and New Jersey. He certainly saw the potential in Midtown West, having con-

92 verted The Biltmore on W 47th lis, to maintain a consistent de- Street into luxury apartments in sign on the rapidly transforming 2003, and completing another block. But instead of an 80/20 luxury rental, The Marc, on W rental building, The Atelier was 54th Street in 2004. In 2005, Mr. a luxury condo subsidized with Moinian purchased a six-story 421-a certificates from 96 off-site Verizon office building at 563-569 units, thus only making it eligible 11th Avenue for $120 million—di- for a 10-year exemption period. rectly across the street from Riv- Like River Place I, The Atelier er Place I. was loaded with amenities: 24- hour concierge, valet parking, Mr. Moinian shared Mr. Silver- roof deck with an outdoor sports stein’s vision for West 42nd court, gym with swimming pool, Street. He even recruited the children’s playroom and common same architect, Costas Kondy- lounges.

Table 4. The Atelier

Address 635 W 42nd St Developer Moinian Architect Costas Kondylis & Partners Construction Period 2005-2007 Type Condo Total Units 478 Affordable Units 96 off-site units (certificates) Building area (SF) 434,119 Floors 46 Zoning C6-4 Exemption Period 10 years Beginning of Exemption 2008/09 Development Cost Tax Class/2016 Rate 2 (11+ units) – 12.892% 2016 Average Price $1.6 million/unit 2016 Average Price/sf $1,682

93 421-A’S SECOND REFORM portions of Queens and portions of Staten Island. In ad- As evidenced by River Place I dition, the GEA became sub- and the Atelier, developers were ject to review by Boundary capable of creating luxury con- Review Commission every dos and rentals with the help of two years. 421-a benefits. A study by the In- dependent Budget Office found • Within the GEA, new afford- that of 192,000 apartments ability requirements were in- units built between 1985-2002, troduced. All affordable units 69,000 (36%) of them received were subject to rent stabiliza- 421-a abatements. However, only tion for 35 years. Tenants in 5,500 (8%) of those units were occupancy through the end affordable. of the period would remain rent stabilized for the dura- Lawmakers took notice that own- tion of their tenancy. ers of new luxury units under 421- a were paying a disproportionate • New requirements based on amount of tax compared to own- AMI were also introduced. ers of older units. Although 421- Within the GEA, 20% on- a was creating affordable units, site affordable units were lower to middle income families required to be affordable for were not actually receiving the tenants at or below 60% bulk of the benefits. AMI. Outside the GEA, affordability was set at 80% As Section 421-a approached AMI. another expiration date, the Bloomberg Administration paired • Outside the GEA, a cap of its renewal with a series of $65,000 of assessed value changes that went into effect on (AV) per unit was placed on July 1, 2008: the amount eligible for tax exemption. • The GEA was expanded to include all of Manhattan, • Negotiable certificates were portions of the Bronx, more eliminated. Existing certif- neighborhoods in Brooklyn, icates could still be used to

94 receive partial benefits, but proportional to the market the last certificate was is- rate units. At least 50% of sued July 1, 2008. the affordable units must have 2 or more bedrooms. • As-of-right 25-year benefits for developments in Neigh- • A new requirement was add- borhood Preservation Pro- ed for certain building employ- grams (NPP) or Rehabilitation ees of projects with 50+ units Mortgage Insurance Corpo- to be paid the prevailing wage. ration (REMIC) areas were eliminated. Instead, these Table 5 illustrates the updated ex- developments now required emption schedule based on the 20% affordable units on site. reform. In the following development examples, we will examine • Buildings receiving 421-a how the reform affected new de- benefits were required to velopments. have an affordable unit mix

Table 5. 421-a Exemption Schedule after 2008 Reform

All of All of Manhattan, Manhattan, Outer Outer Portions of Portions of Bor- Bor- Brooklyn, Brooklyn, Outside Outside Location oughs or oughs or Queens, Queens, GEA GEA Above Above Bronx, Stat- Bronx, Stat- 110th St 110th St en Island en Island (GEA) (GEA) 20% affordable 20% afford- units Purchase As of 5% able units As of on-site certificates right for afford- Affordable on-site. right for within a for off-site market- able for Component Rent Stabi- market- Neigh- affordable rate middle lization for rate units borhood units. units income 35 years. Preser- vation Area 10-year 20-year 15-year 25-year Length of 10-year 20-year exemp- exemp- exemp- exemp- Exemption exemption exemption tion tion tion tion

95 MANHATTAN’S Moinian proved with River Place TALLEST RENTAL I and the Atelier, large apartment communities could absorb the As Moinian Group was complet- expense of maintaining an exorbi- ing the Atelier, Larry Silverstein tant list of amenities. Silver Tow- was nearly breaking ground on ers features two 24-hour attend- the rest of his parcel on 42nd ed lobbies (one for each tower), a Street with plans to build River circular driveway, parking garage, Place II. The World Trade Center a complimentary shuttle down investor once again collaborated 42nd Street, gym, swimming with architect Costas Kondylis to pool, public park and yoga lawn. design twin towers of his own. The towers literally mirrored de- As of 2016, Silver Towers com- sign elements of the Atelier with mands market rate rents be- a reflective all-glass facade, and it tween $2,690 for a studio and up was appropriately named Silver to $8,600 for a 2-bedroom. Towers. This was the most ambi- tious and largest rental develop- Figure 13. Silver Towers ment in Manhattan to date, with 1,359 luxury rental units across one million square feet. Each tower is 61 stories and at the time, it was Manhattan’s tallest rental building.

Continuing the trend that he started, Mr. Silverstein addressed the far west side’s transportation problem by creating a living environment that residents wouldn’t have to leave. As he and Mr.

Photo courtesy of Wikimedia.org

96 Table 6. Silver Towers

Address 600 W 42nd St Developer Silverstein Properties Architect Costas Kondylis Construction Period 2006-2009 Type Rental Total Units 1359 Affordable Units 272 Building area (SF) 1,049,441 Floors 61 Zoning C6-4 Exemption Period 20 years Beginning of Exemption 2010/11/12 Development Cost Tax Class/2016 Rate 2 (11+ units) – 12.892% 2014/15 Abatement Figure 13. Silver Towers 2014/15 Taxes 2016 Average Rent/sf $82

EXTELL CREATES THE FIRST AND LAST “POOR DOOR”

Back uptown next to 75 West End Ave, Gary Barnett of Extell Develop- ment sparked a new debate with his liberal interpretation of the 421- a requirement in his development at 50 Riverside Blvd (also marketed as One Riverside Park). Mr. Barnett was not a stranger to pushing the limits of 421-a, having taken advantage of the negotiable certificate program to help finance One57, a 1,004-foot ultra-luxury condomini- um tower overlooking Central Park. Units at One57 were the antithe- sis of affordable housing, breaking price per sf and sales price records in Manhattan (one unit sold for $100.5 million).

97 At 50 Riverside Blvd, Mr. Barnett sons. First, as Assemblywoman opted to use the 80/20 program, Linda B. Rosenthal stated, “No creating 216 condo units and 55 landlord should be allowed to tell rental units in one building. How- a child that they are not able to ever, he created two very differ- walk through the same doors, or ent, segregated products with play in the same areas, as their two separate entrances under neighbor” (Licea 2016). Second, one roof. At 50 Riverside Blvd, it was perfectly legal to have the condo owners have access to 24- separate entrance. The press hour concierge in a lavishly ap- labeled the second entrance pointed lobby, a 40,000 sf La Pal- a “Poor Door” and politicians estra gym with two pools, rock moved swiftly to ban the practice climbing wall, basketball court, henceforth in New York City. squash court, a movie theater, bowling alley and a private gar- Despite the controversy, 50/40 den. At 40 Riverside Drive, ten- Riverside was a financial success ants enter via an unadorned side for Extell. The parcel was located door on 62nd Street. In lieu of a in an Inclusionary Housing Bonus doorman is an intercom and buzz- zone which awarded an addition- er. River views are replaced with al FAR (floor area ratio) bonus for views of the garden that they are building 20% affordable on-site. restricted from accessing. Fix- Although Extell did not use the tures and appliances are much extra air rights on this project, lower quality, and living rooms the company intends to sell them and bedrooms are not adorned to the eventual developer of the with preinstalled lighting. southern parcel. The market rate condos have sold for an average The announcement of the sep- of $2250/sf and $4.6 million per arate entrance immediately unit. sparked controversy for two rea-

98 Table 7. 40 & 50 Riverside Blvd

Address 40 & 50 Riverside Blvd Developer Extell Development Company Architect Goldstein, Hill, & West Architects Construction Period 2012-2015 Type Condos & Rentals Market Rate 216 Condos Affordable Units 55 Rentals Building area (SF) 541,114 Floors 33 Zoning R10 Exemption Period 20 years Beginning of Exemption 2015/16 Tax Class/2016 Rate 2 (11+ units) – 12.892% 2014/15 Abatement -$695,549 (Rental portion only) 2014/15 Taxes $1,053,136 (Rental portion only) 2016 Average Price/sf $2,250

2016 Available Affordable Units Unit Size Monthly Units House- Annual Household Rent Available hold Size Earnings

Studio $833 10 1 $30,240-35,280 1 $32,400-35,280 1 bedroom $895 15 2 $32,400-40,320 2 $38,880-40,320 2 bedroom $1,082 30 3 $38.880-45,360 4 $38,880-50,340

In the face of the negative feedback from the press and City Council pushing for equality in the affordable units, Barnett noted, “If you say that in any project getting an inclusionary bonus zoning, the affordable units would have to take up some of our best views and units, nobody would build them” (Cuozzo 2013).

99 Moinian Reaches for the Sky renowned Japanese artist Yayoi In what appeared to be a game Kusama. Lifetime Fitness occu- of one-upmanship with Mr. Sil- pies three of the lower floors, verstein, Mr. Moinian (this time and includes a 15,000 sf fitness working with his son, Mitchell center, two outdoor pools, one Moinian) also planned a sequel to indoor lap pool, a basketball court his development on 42nd Street. designed by Knicks star Carmelo He had acquired the adjacent par- Anthony, a water club with a hot cel in 2005 (a gas station at the tub, sauna, a hammam, or Turk- time) with the intention of top- ish bath and daily fitness classes/ ping the Atelier in scope. Excava- training included in membership. tion did not begin until 2008, and Also located on the premises are the project hit substantial delays a children’s playroom, billiards after the recession. lounge, café (offering free break- fast to residents), private resi- Earlier in 2016, Sky became Man- dent’s park and pet spa. hattan’s largest apartment building with 1,175 units (including Market rate apartments are orna- 235 affordable units mixed in with mented with higher-end finishes units below the 31st floor) in a and Miele appliances, while the single, 71 story tower. Mr. Moin- affordable rate units have lower ian hypothesized that an unparal- end finishes. On the upper half of leled level of luxury and ameni- the building, units feature higher ties could yield unparalleled rents ceilings, with the top five floors for Midtown West. Sky features reserved for Penthouses with a lobby adorned in marble and ultra-luxury finishes such as sol- wood paneling with triple-height id wood doors and marble floor- ceilings (equally accessible to all ing. As of the end of 2016, Sky tenants) with a lifestyle concierge is approximately 50% occupied and valet service. The circular car with average market rate rents at port showcases a sculpture by $4,300/month.

100 Table 8. Sky

Address 605 W 42nd St Developer Moinian Architect Rockwell Group Year Built 2008-2016 Type Rental Total Units 1,175 Affordable Units 235 Building area (SF) 1.2 million Floors 71 Zoning C6-4 Exemption Period Pending Beginning of Exemption 2015/16 Development Cost $850 million Tax Class/2016 Rate 2 (11+ units) – 12.892% 2016 Abatement Pending 2016 Taxes $7,967,764 2016 Average Rent/sf $90+

2016 Available Affordable Units

Unit Size Monthly Units Household Annual Household Rent Available Size Earnings Studio $868 70 1 $31,132-36,300 1 $33,326-36,300 1 bedroom $931 120 2 $33,326-41,460 2 $39,978-41,460 2 bedroom $1,124 45 3 $39,978-46,620 4 $39,978-51,780

101 The project cost approximately officially called a “housing lot- $850 million, and was partial- tery.” For 40/50 Riverside Blvd, ly financed with $539 million in 88,000 applications were sub- 4-year low interest bonds provid- mitted for the 55 available units. ed by Bank of China. SL Green Similarly, Sky attracted 91,000 also provided $50 million in mez- applicants for 235 units. Given zanine debt which included an the tremendous number of ap- option (which they exercised af- plicants, the chances of getting ter open) to acquire a 20% own- an affordable unit are extremely ership interest. slim, with odds hitting 1000 to 1 in 2016. As of November 2016, Moinian has filed a suit against the City For 80/20 developments, the pro- for starting the 421-a benefits in cess for applying begins with fill- 2008 (when excavation began). ing out a form on the NYC Housing Moinian is seeking to have the Connect website. New buildings benefits begin from when con- post advertisements (following struction began on revised plans an NYCHC format) listing available in 2014. As shown in Table 1, de- units, rents and required house- velopers receive a 100% exemp- hold size and income ranges and tion for up to a three-year con- an application deadline. struction before the exemption period commences. Therefore, Applicants must prove their eligi- the way the City interprets the bility by first meeting the house- start date will have significant im- hold and income criteria. Ap- pact on the project’s financials. plicants may apply for as many different buildings as they want, but they may apply to each build- AFFORDABLE HOUSING: ing only once. If selected, the ap- A LOW-INCOME RENTER’S plicant is interviewed in person PERSPECTIVE anywhere from 2 to 10 months after the application deadline. If As one might expect, there’s approved, they are assigned a unit steep competition for affordable based on their household size. housing units--so much that it’s

102 Once approved, income levels taste of what’s to come as almost do not affect the level of rent (al- every major private developer though tenants must recertify in- has a stake in the district. Relat- comes annually). Instead, the units ed Companies is anchoring the are subject to rent stabilization. district with the nation’s largest private real estate development project— a 22 million square foot THE EXPIRATION OF 421-A mixed use master plan— and it AND ONGOING DEBATE will surely be one of Manhattan’s most desirable neighborhoods Today’s New York City real estate upon completion. environment is markedly different from when 421-a was first With record numbers of luxury passed in 1971. Over the last condos in the pipeline, a new several decades, many neigh- problem has emerged. Apart- borhoods in New York City have ments are fetching astronomical gentrified due to declining crime prices, widening the divide be- rates and a strong, resilient econ- tween income classes and push- omy. New York City bounced back ing lower income residents fur- from the recession in 2009 to ther out from Manhattan. In stark create one of the strongest real contrast to the fleeing population estate markets in its history, with of the 1970s, New York City now luxury condo development lead- faces an affordability problem. ing the way. To combat this, one of Mayor de Blasio’s primary goals under his Midtown West has made huge administration is to create or pre- strides since the Hell’s Kitchen serve 200,000 affordable housing gang ruled the neighborhood. units within 10 years (beginning It still has some catching up to in 2014). do, but is poised to do so in an unprecedented manner with the Section 421-a approached expi- rezoning of the Hudson Yards ration in June, 2015, and while District south of 42nd Street. The it was responsible for 110,000 developments by Silverstein and affordable housing units since its Moinian on W 42nd Street are a inception, it was also padding the

103 profits on luxury condo develop- From the City’s perspective, 421- ments and lowering the tax bills a represents one of the largest for their wealthy foreign or ce- subsidies, which makes it one of lebrity buyers. Thus, the program the City’s largest “expenses.” It’s has become the center of an in- not a true expense in the sense tense debate. that City funds are being spent, but rather potential tax revenue The City authorized a record is foregone when it could be 33,910 permits for 421-a units in collected and spent directly on the quarter before expiration (see government-sponsored housing Appendix 3), as Governor Andrew projects instead. Cuomo attempted to work out a fair proposal between all sides. The issue of a prevailing wage He issued a temporary extension also became a part of the discus- through January 15, 2016 while sion, as it did in the 2008 reform. the debate raged on. This time, the Building and Con- struction Trades Council of New From the developer perspective, York (BCTCNY) clashed with the many proponents of 421-a as- Real Estate Board of New York serted that rental development (REBNY). BCTCNY is represent- wasn’t possible in certain mar- ing unions seeking higher min- ket conditions without the sub- imum wages for construction sidy. Furthermore, taxes are the workers in order to allow the largest operating expense for renewal of 421a, while REBNY a rental building, and imposing is pushing for the renewal of the taxes based on the full assess- program. ment value from inception would be infeasible in many cases. And The program has officially expired finally, many developers claim since January 2016 with the de- that the City doesn’t actually lose bate locked in a stalemate. New any income if the buildings aren’t construction permits have fallen built in the first place because the significantly since its expiration. base taxes are still billed.

104 CONCLUSIONS if the economics don’t work. 421-a certainly succeeded in spurring de- We have seen examples of six velopment when in slow periods, different development projects but the affordable housing compo- that successfully utilized the 421- nent was tacked on and modified a tax abatement to generate a over time. The program wasn’t profit. The developers in this case designed to adapt to market con- study were all driven by the finan- ditions, making it appear unneces- cials, and as such, they interpret- sarily generous towards developers ed the law in what they perceived in strong markets, and absolutely to be the most economically ef- necessary in weak markets. ficient manner to achieve their For large developments like the goals. The Brodksy Organization ones in this case study, developers believed in the moderate-income meticulously calculate a project’s niche and created a product to ca- risk and determine if it’s an appro- ter to it. Next door, Extell believed priate fit for their risk appetite. With that segregating the market rate proper market timing, the results condos from the affordable rent- can be overwhelmingly in their fa- als would yield the best returns. vor. Or it can also wipe them out. Silverstein Properties and Moin- Rental developers are exposed to ian Group consistently raised the significant market risk once they bar on each other in the luxury commit to a multi-year construc- rental market on 42nd Street, and tion timeline with a long-term pay- will continue their rivalry in Hud- back period, and programs like 421- son Yards. a offer a much needed cushion in While all of these developers the event of a downturn. were wildly creative in achieving City treasuries on the other hand profitability, we’ve also seen that rely on a much more predictable profits do not necessarily align de- and stable cash flow through tax- velopment with the intention of leg- ation, and when developers take islation. Lawmakers cannot expect advantage of policies such as developers to follow the spirit and 421-a in a strong economy, the intention of affordable housing laws public cries foul for handing out

105 unnecessary subsidies. The concerns are certainly valid, as tax subsidies are one of New York City’s largest expenses. Policy- makers must seek to find a better middle ground that mitigates both market risk and outsized developer returns.

106 Appendix 1. Aerial of Midtown West

Note the lower building heights as a result of the Special Clinton Zoning District

Source: Google Earth

107 108 109 Appendix 3: Residential Permits Issued in NYC

Source: United States Census Bureau

110 Appendix 4: 421-a Development Map

Source: The Municipal Art Society “421-a: Tax Exemption”

111 Appendix 5: Zoning Map

Source: NYC Planning “Zoning Maps”

112 ENDNOTES

1 See Popkin et al. (2004) for a full discussion of policy elements of HOPE VI.”

2 It is important to make sure that we distinguish what is meant by “public-private partnerships.” In a sense, the public sector engages the non-profit and private sectors in many forms of such partnerships on an on-going basis: when the Treasury grants tax credits to private investors for public priorities; when private companies are funded to provide federal prisons; when religious organizations provide schools. In the case study here, we are defining such partnerships to be primarily a “long- term contract between a private party and a government entity” (World Bank). The case presented is but one along a continuum of possible “partnerships.”

3 Very low-income families are those with incomes below 50% of area median income (AMI). Moderate income families have income greater than 80% but less than 140% of AMI.

REFERENCES

Anderson, Bendix. 2008. “Nightmare at Pond View Village.” Affordable Housing Finance. January 1. Retrieved from: www.housingfinance.com/news/nightmare-at-pond- view-village_o

ANHD. 2015. “421 A Developer’s Tax Break.” January. Retrieved from http://www.anhd.org/wpcontent/uploads/2011/07/AN- HD-421a-Analysis-Maps_-012815.pdf

ARHA History and By-Laws. n.d. Retrieved from www.arha.us/content/arha-history-and-laws

Bagli, C.V. 2016. “A Trump Empire Built on Inside Connections and $885 Million in Tax Breaks.” New York Times, 18 September. Retrieved from http://www.nytimes.com/2016/09/18/nyregion/donald- trump-tax-breaks-real-estate.html

Bindleglass, E. 2016. “Everything You Need to Know About NYC’s 421-a Tax Program, Poised to Expire Today.” Curbed NY, January. 113 Retrieved from http://ny.curbed.com/2016/1/15/10846176/everything-you- need-to-know-about-nycs-421-a-tax-program-poised-to

Branch, Carla and Alex Hampl. 2011. “Race, Class and Misinformation Collide At Community Meeting,” Alexandria News, 15 July.

The Caleb Group. Retrieved from http://www.thecalebgroup.org/wp1/en/home/

CEDAC. Retrieved from https://cedac.org/housing

City of Alexandria, Virginia. 2015 American Community Survey Estimates for the City of Alexandria. Retrieved from https://www.alexandriava.gov/uploadedFiles/planning/ info/StatisticsDemographics

City of Alexandria, Virginia. 2016. A Brief History of Alexandria. City of Alexandria Virginia, January. Retrieved from https://www.alexandriava.gov/historic/info/default.aspx- ?id=29540

City of Alexandria. 2016. Population Characteristics. Retrieved from https://www.alexandriava.gov/planning/statistics

Cohen, M. 2016. “Odds You’ll Score an Affordable Apartment Through a City Lottery Are 1,000 to 1.” 6sqft, May. Retrieved from https://www.6sqft.com/odds-youll-score-an-affordable- apartment-through-a-city-lottery-are-1000-to-1/

Cuozzo, S. 2013. “The truth about the ‘Poor Door’.” New York Post, 27 August. Retrieved from http://nypost.com/2013/08/27/the-truth-about-the-poor- door/

Desai, M., Dharmapala, D., Singhal, M. 2010. “Tax Incentives for Affordable Housing: The Low Income Housing Tax Credit.” Retrieved from http://www.journals.uchicago.edu/doi/pdf- plus/10.1086/649832

EYA. 2017. The Neighborhoods of EYA. Retrieved from: https://www.eya.com/

Finkel, M. 2010. “Capital Needs in the Public Housing Program.” Bethesda, MD: Abt Associates Inc. 114 Furman Center. 2015. “The Latest Legislative Reform of the 421-a Tax Exemption: A Look at Possible Outcomes.” Retrieved from http://furmancenter.org/files/NYUFurmanCen- ter_421aOutcomesReport_9Nov2015.pdf

Habitat NYC. “Understanding the NYC ‘421-a’ Property Tax Exemption Program. How Can it Be Reformed to Create Affordable Housing?” Retrieved from https://www.habitatnyc.org/pdf/advocate/Pratt421a.pdf

Kimura, D. 2006. “Urban Village Grows in L.A. Neighborhood.” Affordable Housing Finance, 1 May. Retrieved from http://www.housingfinance.com/news/urban-village- grows-in-la-neighborhood_o

Kamping-Carder, L. 2015. “Brick Underground. Yes, you CAN apply to multiple affordable housing lotteries at the same time.” Retrieved from http://www.brickunderground.com/blog/2015/01/multi- ple_affordable_housing_applications

Kaufman, Greg. 2015. “Why Achieving the American Dream Depends on Your Zip Code.” 17 Dec. Retrieved from: www.tlakpoverty.org/20015

Knakal, R. 2012. “421-a For Dummies: When It Comes to Benefits, Politicos Don’t Have a Clue.” Commercial Observer. Retrieved from https://commercialobserver.com/2012/10/421a-for-dummies-when-it-comes-to-benefits-many-politicians-dont-have-a-clue/

Konopko, D.A. 1986. “Targeting Tax Dollars More Efficiently: Proposed Modifications to the 421-a Real Property Tax Exemption.” Fordham Urban Law Journal 15, 4, Article 6. Retrieved from http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1312&context=ulj

Licea, M. 2016. “‘Poor door’ tenants of luxury tower reveal the financial apartheid within.” New York Post, 17 January. Retrieved from http://nypost.com/2016/01/17/poor-door-tenants-reveal-luxury-towers-financial-apartheid/

MAPC. “Gloucester-Pond View Village (lePage Glue Factory). Retrieved from http://ma-smartgrowth.org/wp-content/uploads/Glouces- ter_Pond_View_Village.pdf

115 Massachusetts Housing Partnership (MHP). Retrieved from http://www.mhp.net

Metropolitan Council on Housing. “New York City’s Affordable Housing Programs.” Retrieved from http://metcouncilonhousing.org/help_and_answers/ nyc_affordable_housing_programs

Miami-Dade County. 2014a. “About Public Housing and Community Development.” Retrieved from http://www.miamidade.gov/housing/about-us.asp

Miami-Dade County. 2014b. “Mayor Carlos A. Gimenez names Michael Liu Director of Miami-Dade Public Housing and Community Development.” Press Release, 20 August. Retrieved from http://www.miamidade.gov/mayor/releas- es/2014-08-20-michael-liu-director.asp

Miami-Dade County. 2015. “Miami-Dade County and Related Urban celebrate the opening of the first new building constructed without the use of Public Housing Capital Funds.” Press Release, 9 January. Retrieved from http://www.miamidade.gov/housing/releas- es/15-01-09-celebrate-opening.asp

Miami Herald. 2015. “Affordable housing for all.” April 26. Retrieved from http://www.miamiherald.com/opinion/editorials/arti- cle19428933.html

Miles, M.E., Berens, G.L., Eppili, M., Weiss, M.A. 2007. Real Estate Development: Principles and Process (4th ed.). Washington, DC: Urban Land Institute.

Miles, M.E., Netherton, L.M., Schmitz, A. 2015. Real Estate Development: Principles and Process (5th ed.). Washington, DC: Urban Land Institute.

The Municipal Art Society of New York. “The History of 421a.” Retrieved from http://www.mas.org/ourwork/421a/history/

The Municipal Art Society of New York. “421-a: Tax Exemption.”

116 Retrieved from https://www.mas.org/ourwork/421a/

Navarro, Mireya. 2014. “Poor Door in New York Tower Opens a Fight Over Affordable Housing.” New York Times, 26 August. Retrieved from: www.nytimes.com/2014/08/27/nyregion

Nehamas, N. 2015. “Neighborhood profile: Investors bank on a renaissance in working-class Allapattah.”Miami Herald. Retrieved from http://www.miamiherald.com/news/business/real-estate- news/article35676789.html

Nelson, J. 2012. “421-a Certificates – Going, Going,….” National Real Estate Investor. Retrieved from http://nreionline.com/blog/421-certificates-going-going

New York City Rent Guidelines Board. 2015. “2015 Income and Expense Study.” Retrieved from http://www.nycrgb.org/downloads/research/pdf_reports/ ie15.pdf

Niblack, P., & Park, M.W. 2003. “Worth the Cost? Evaluating the 421-a Property Tax Exemption.” Retrieved from http://www.ibo.nyc.ny.us/iboreports/421aTaxFiscalBrief.pdf

Novogradac, M. J. 1999. “Financing Affordable Housing.” CIRE Magazine, March-April. Retrieved from http://www.ccim.com/cire-magazine/articles/financing-affordable-housing/?gmSsoPc=1

NYC Housing. 2016. “Mayor De Blasio: NYC Sets Affordable Housing Record, Highest Production Since 1989.” Press Release, 26 July. Retrieved from http://www1.nyc.gov/site/housing/news/07-26-16.page

NYC Housing. “Housing New York.” Retrieved from http://www1.nyc.gov/site/housing/index.page

NYC Planning. 2008. “Special Purpose Districts: Manhattan.” Retrieved from https://www1.nyc.gov/site/planning/zoning/districts-tools/special-purpose-districts-manhattan.page

117 NYU Furman Center. 2015. “New York City’s Building Permits Spike Ahead of 421-a Deadline.” Retrieved from http://furmancenter.org/thestoop/entry/new-york-citys- building-permits-spike-ahead-of-421-a-deadline

Office of Policy Development and Research. 2016. “Low-Income Housing Tax Credit Dataset. U.S. Department of Housing and Urban Development.” 15 May. Retrieved from: https://www.huduser.gov/portal/datasets/lihtc.html.

Oliver, F. 2006. “A Good Mix. Professional Builder.” Retrieved from http://www.probuilder.com/good-mix

Parker, W. 2016. “Crossing Trump.” Curbed NY. Retrieved from http://therealdeal.com/issues_articles/crossing-trump/

Parker, W. 2016. “The Real Deal - New York Real Estate News. New construction permits low as Albany winds down.” Retrieved from http://therealdeal.com/2016/06/15/new-construction-permits-low-as-albany-winds-down/

Popkin, S.J., Katz, B., Cunningham, M.K., Brown, K.D., Gustafson, J., Turner, M.A. 2004. A Decade of HOPE VI: Research Findings and Policy Challenges. Washington, DC: Urban Institute.

Related Group. 2011. “Affordable Housing.” Retrieved from http://relatedgroup.com/2011/12/affordable-housing/

Shotwell, Sarah E. 2006. “Mixed-Income Housing and Historic Preservation: How Existing Structures Can Fulfill Housing Needs Through Incorporation With Mixed-income Housing Developments.” Thesis, Historic Preservation, University of Pennsylvania ScholarlyCommons. Retrieved from http://repository.upenn.edu/cgi/viewcontent.cgi?article=1015&context=hp_theses

Thomas Safran and Associates. “Skyline Village.” Retrieved from http://www.tsahousing.com/affordable_housing. php?property=1161&name=Skyline_Village#&gid=1&pid=13

ULI. 2007. “Chatham Square.” ULI Development Case Studies, Vol. 37, No 08, Case Number C037008, April-June. Retrieved from https://casestudies.uli.org/wp-content/uploads/ sites/98/2015/12/C037001.pdf

118 United States Census Bureau. “Building Permits Survey.” Index. Retrieved from https://www2.census.gov/econ/bps/

United States Census Bureau. “Building Permits Survey.” Retrieved from https://www.census.gov/construction/bps/

U.S. Department of Health and Human Services. 2015. 2015 “Poverty Guidelines.” Retrieved from https://aspe.hhs.gov/2015-poverty-guidelines

U.S. Department of Housing and Urban Development (HUD). “Low-Income Housing Tax Credits.” Revised 5/15/16. Retrieved from https://www.huduser.gov/portal/datasets/LIHTC.html

Vidal, Avis. 2001. “Faith-Based Organizations in Community Development.” The Urban Institute and HUD, Office of Policy Development and Re search, August. Virginia Housing Development. “Chatham Square.” Retrieved from http://www.vhdllc.us/uploads/7/1/8/4/71842297/cha- tham_final.pdf

Virginia Housing Development. “Samuel Madden Homes.” Retrieved from http://www.vhdllc.us/uploads/7/1/8/4/71842297/samu- el_madden_v2_final.pdf

Washington Post. 2013. “President Barak Obama. December 4 Remarks on the Economy.” 4 December.

Williams, John C. 2017. “Looking Back, Looking Ahead.” Federal Reserve Board of San Francisco: Economic Letter, February. Retrieved from http://www.frbsf.org/economic-research/publications/ economicletter/2017/january/looking-back-looking-ahead-economic-out- look-speech/. World Bank. “What are Public Private Partnerships?” Retrieved from http://ppp.worldbank.org/public-private-partnership/over- view/what-are-public-private-partnerships

Wu, J. C. 2012. “NYC property tax exemption program: Existing policies and future planning.”

119 ABOUT THE AUTHORS

Bessy Kong has over 35 years of experience in the affordable housing field both domestically and internationally. She was a project manager in the first US Housing Guarantee Program for international development working on projects in Africa and Asia. She has also worked in the private sector as a land use planner with both private and non-profit housing developers in California. From there she went on to successfully develop her own land use consulting firm special- izing in medium size non-profit developments. Most recently and for the last 18 years she has worked at the Department of Housing and Urban Development (HUD) in the Office of Public and Indian Hous- ing (PIH). She has served HUD as a Deputy Assistant Secretary for Policy, Planning and Legislative Affairs as well as a senior advisor to the Assistant Secretary of PIH. She has been the HUD representative to the White House, serving as a senior policy analyst on the Domestic Policy Council, Office of Urban Policy. Ms. Kong has also been a Policy Scholar at the Woodrow Wilson International Center for Scholars where she first developed an understanding of South Korean housing programs. Bessy Kong graduated from Smith College with a BA in History and from Columbia University with an MS in Urban Planning.

Derek Hsiang has been working in New York real estate since 2011 as an investor, developer and consultant. He specializes in Real Estate Technology and Data Science, and his clients include Gale Internation- al (developer of Songdo IBD in South Korea) and Common Living (a co-living startup). In his spare time he enjoys playing classical music and reading about sociology. Derek obtained his BS in Industrial Engi- neering from Cornell University and is a Licensed Real Estate Sales- person in New York.

120 One Woodrow Wilson Plaza 1300 Pennsylvania Avenue, N.W. Washington, DC 20004-3027

www.wilsoncenter.org/usl [email protected] Facebook.com/urbansustainabilitylab @Urban_WilsonCtr 202.691.4137