— By John Williams, president, CIO and COO of Avanath Capital Management —
It’s no secret that the dire shortage of affordable housing is an ongoing issue throughout the nation. The National Multifamily Housing Council reported in 2022 that the United States would need to build 4.3 million new apartments by 2035 to meet demand. The report also stated that the nation’s number of affordable housing units declined by 4.7 million from 2015 to 2020.
Unfortunately, there is no one-size-fits-all solution to the problem. Both local and federal governments are taking steps to address the lack of supply in the market. President Biden’s 2024 Economic Report to Congress, for instance, prominently featured plans to increase the supply of and access to affordable housing.
In the meantime, however, stakeholders must think outside the box to identify innovative ways to provide attainable housing. One effective way to do this, beyond the standard avenues, is through public-private partnerships.
Public-private partnerships are a strategy that can benefit a wide range of stakeholders — including investors, developers, institutional owners, operators, property managers, service providers and leaders in nonprofit and government entities. In addition to serving renters with lower incomes and other specialized needs, actively pursuing these partnerships can go a long way toward improving neighborhoods and creating a positive ripple effect on the surrounding communities.
Our team at Avanath Capital Management has realized the importance of using creative public-private partnerships to execute preservation strategies and solve for this significant need. Over the past 15 years, we have formed several fruitful alliances between public and private entities with the goal of delivering more affordable units in underserved markets.
For those willing to explore, there are a variety of ways to secure a public-private partnership.
Form Alliances with Municipalities
Affordable housing can undeniably elevate the lives of residents, nearby businesses and the overall health of a municipality. The presence of affordable housing can improve the quality of residential buildings, combat blight and boost employment figures and tax revenues. For this reason, many municipalities will seek our partnerships with private development and ownership groups to drive the creation and preservation of affordable housing.
Pursuing grants and other partnerships with city governments is one of the best ways to preserve affordability in underserved markets.
Avanath Capital was involved in a partnership like this a few years ago, when we converted a market-rate community in the Boston area into affordable housing. This project began with a public-private partnership involving the City of Boston.
We worked closely with the city to preserve the affordability of the community, implementing affordability restrictions and achieving special rent protections for existing residents. In exchange, the city of Boston provided a grant for the project. Additionally, by partnering with CBRE Capital and Fannie Mae on the financing aspect of this acquisition, we were able to purchase the property and ensure it remained affordable for many years to come.
Collaborate with Nearby Businesses
Like cities and government entities, businesses such as local companies, regional businesses and national corporations all have a stake in promoting affordable housing close to their places of operation. The addition of affordable housing can help enhance the talent pool for these businesses while elevating the markets where they operate — tangible benefits that positively impact success.
Seeking out these businesses to form public-private partnerships can be an excellent strategy for affordable housing stakeholders. For example, to acquire Baldwin Village, a 669-unit affordable housing community in Los Angeles, Avanath Capital formed a joint venture not only with the Housing Authority of the City of Los Angeles (HACLA) but also Kaiser Permanente, which has a large medical facility across the street from the property.
Also, by working with HACLA, we were able to join its Innovative Partnerships Solicitation program, whose goal is to expand affordable housing in L.A. Because our partnership structure with HACLA is compliant with the State of California Welfare Tax Exemption legislation, we can receive a real estate tax abatement that supports conversion of 70 percent of the units at Baldwin Village to affordable housing, designated for residents earning between 60 and 80 percent of area median income, while keeping the remaining units as workforce housing.
Baldwin Village is now designated for residents earning between 60 and 80 percent of the area median income. The remaining units have been set aside as workforce housing.
This project was a significant undertaking, as the property had been at risk of being converted to higher-income market-rate units that many of its long-time residents would have been unable to afford. Instead, their apartment homes remain attainable while also including many of the perks and features of nearby market-rate communities.
Get Creative with Land
Finding land to develop for affordable housing can feel like an insurmountable challenge to many stakeholders. Land can often be scarce in markets where affordability is low, not to mention too expensive to pencil for use as affordable housing.
One avenue of opportunity is to pursue available parcels of city-owned land that could be improved by quality affordable housing. Exploring creative possibilities of land use within a municipality can help push many affordable housing developments over the finish line.
For instance, through a partnership with the City of Detroit and several private firms, Avanath Capital is involved in the development of a 177-unit mixed-income residential property on formerly vacant city land.
The agreement aligns with Detroit’s Inclusionary Housing Ordinance by designating 20 percent of the units affordable and the entire project for seniors. The partnership will also contribute to external repairs at the project, as well as repairs to nearby homes and enhancements to a local park.
Innovative affordable housing sponsors have many tools at their disposal to help push their projects forward. Public-private partnerships are an innovative avenue to approach an affordable housing development. These alliances preserve affordability while delivering quality affordable housing developments to areas that need them most.
John Williams is the president, CIO and COO of Avanath Capital Management, a privately held investment firm with a focus on affordable and workforce housing investments throughout the United States.