There are a common set of headwinds — such as high construction costs and interest rates — facing the commercial real estate industry at large. But affordable housing development and operations also come with a unique set of challenges all their own.
Despite this, panelists at the InterFace Affordable Housing Southeast conference, held May 9 at the Cobb Galleria Centre in Atlanta, expressed an optimistic outlook for the sector.
Closing out the day’s events, speakers on the “Southeast Regional Housing Authorities & Legal Update” panel shared strategies for surviving within the current affordable housing landscape and highlighted the importance of planning ahead to succeed in the sector.
The devil’s in the details
Most crucial to navigating the sometimes tumultuous waters of affordable housing is engaging in thorough — even painstaking — preparation, concurred each of the panelists. This is especially true given the current macroeconomic climate and its difficulties.
When asked how her organization confronts these challenges, Yvonda Bean, chief executive officer with Columbia Housing, identified an emphasis on facilitating communication within the project team for planning purposes. More specifically, Bean reported that Columbia Housing connects the “general contractor with the architect to work on design plans” early on, such that when the project is about half done, the developer “can look at the budget and see where [it] might need to cut back.”
Douglas Faust, chief executive officer of the Decatur Housing Authority (DHA), echoed this mindset, pointing out that optimizing even seemingly minor details, such as choice of light fixtures, can be impactful. Faust emphasized that “one of the best things you can do to control costs is to plan ahead [for] every single thing you can imagine.” He added that not doing so can result in a “humongous” end cost.
This operating philosophy applies not only to individual projects, but likewise to long-term prospects. Moderator Richelle Patton, president of Collaborative Housing Solutions, pointed out that affordable housing developers are currently reaping the benefits of programs originally advocated for as far back as the early 2000s.
Phil Perkins, senior vice president of community development for Invest Atlanta — the official economic development authority for the City of Atlanta — said that he would advise developers approaching housing authorities to adopt this forward-thinking mentality. Perkins described some developers that approach Invest Atlanta as “foggy on what they want and what they need,” adding that “the more well baked the concept the better.”
For developers and would-be fund recipients, Faust said that not only clarity, but also transparency, is paramount. “We have to be able to show that there’s a public good,” elaborated Faust. “You’re getting a tax exemption, which helps you, but you have to do something that helps the community and those families.”
Of course, no one has a crystal ball, nor can anyone foresee every single roadblock and outcome. Patton highlighted this reality with an anecdote of her own, sharing the significant consequences of a single disgruntled subcontractor that deliberately flooded a building that was almost ready for occupancy. In the end, the situation required $3 million and four months of cleanup, demolition and restoration.
Catching capital
Even absent of dramatic setbacks and sudden redevelopment costs, financing in the affordable housing sector can be highly complicated. In contrast with other types of developments, affordable housing projects often involve public-private partnerships and more numerous sources of financing, to say nothing of tax credits and the policies surrounding government funding.
Simultaneously, affordable housing projects also encounter many of the same stresses as other property types. Today, that can often mean financial gaps due to disparities in pricing that arise between the initial planning and and construction. Perkins points out that post-COVID, supply-chain constraints and “escalation in costs” persist.
Perkins also noted that his organization addresses this issue by dedicating funds specifically for “stuck” projects. According to Perkins, it is not unusual for developers to approach Invest Atlanta with gaps of $3 million to $5 million, stymied by escalated costs.
Last year, Invest Atlanta secured a housing opportunity bond of roughly $100 million and earmarked about $29 million specifically for such “stuck” projects. Perkins noted that preference was given to projects that would be able to close within that same calendar year.
Another, related aspect of future success is investing in relationships with elected officials. Bean cited a Columbia Housing development currently under construction. Comprising 150 units of affordable seniors housing, the project received funding through a partnership with U.S. Rep. Jim Clyburn’s (D-South Carolina) office, in order to fully close a gap of $3 million.
Perkins touched on the role of political figures as well, crediting Atlanta’s mayor with being “really passionate and committed to affordable housing.”
Patton summed it up neatly: “Build relationships with local, federal and state officials, because sometimes it can pay off financially as well.”
Prioritize people
As important as it is to create relationships with officials and between project team members, the ultimate and continued success of affordable housing communities also depends upon fostering connection with and among residents.
“It’s not just about providing great housing,” said Faust. “How do you create a community? And how do you make sure that community operates in and works in a very effective way?”
This can be achieved in a number of ways, including service programs and the strategic inclusion of certain property amenities, like pickleball courts, said panelists.
DHA properties feature not only gardens, but also cooking classes for adults and kids alike to learn how to put the produce to good use. Faust also described a DHA focus on educational programs and touted the fact that 100 percent of its high school seniors graduated last year, underlining the impact that affordable housing communities and programming can have.
Ultimately, that is the ethos of the affordable housing sector, and the reason for its persistence, despite the many headaches. As Bean put it: “That’s what motivates me and makes me want to get up and look forward to the work each and every day.”
— Hayden Spiess