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Preservation Strategies

Recently the National Housing Trust joined Enterprise Community Partners and Reconnecting America to demonstrate how nonprofit affordable housing developers can successfully preserve affordable rental housing near transit, using examples from Atlanta, Denver, Seattle, and Washington, D.C. (Case studies were published in the report Preserving Affordable Housing near Transit: Case Studies from Atlanta, Denver, Seattle and Washington, D.C.) Each of these metro areas has a robust transit system and/or plans to expand transit service. In spite of the challenges presented by the economic downturn, nonprofit developers in these metro areas have engaged in creative strategies to preserve and improve affordable rental housing near transit.

• Acquire buildings close to planned transit prior to price appreciation. Preserving affordable housing near transit often requires acting fast to secure buildings before redevelopment near transit results in property price appreciation. This was the challenge in preserving Jody Apartments, located adjacent to the future Sheridan Light Rail Station in Denver. The New West Side Economic Development CDC (NEWSED) purchased the unsubsidized but affordable rental property in 2007, six years before the scheduled opening of the Sheridan station. Early access to flexible acquisition assistance provided by Enterprise and a land lease from the Urban Land Conservancy were critical to allowing NEWSED to purchase Jody Apartments before the price rose too high to make buying the property for long-term affordable use feasible. Although NEWSED immediately made improvements to address life and safety issues, they were unable to obtain financing to make substantial physical improvements and secure long-term affordability on the same time frame. The seven-year term acquisition loan from Enterprise has allowed NEWSED sufficient time to assemble the financing needed for a complete property redevelopment.
• Use data to identify and target at-risk, affordable properties near existing and planned transit. Successful preservation often begins with good data that can be used to identify HUD-assisted, Low Income Housing Tax Credit, and unsubsidized rental properties near existing and planned transit and prioritize preservation targets. The Mt. Baker Housing Association in Seattle, Washington, is using a data-driven approach to carefully target and preserve unsubsidized rental properties for long-term affordable use along Seattle’s southeast transit corridor.
  
  Although the southeast corridor’s new light rail line opened in 2009, the economic downturn has minimized widespread investment in the area, giving nonprofits like Mt. Baker an opportunity to acquire rental housing before speculation occurs. Since accessing the public subsidies necessary to complete such a project can be a challenge, Mt. Baker’s approach to preserving unsubsidized affordable rental housing is to purchase properties that do not need significant rehabilitation. In order to identify cost-effective preservation targets, Mt. Baker reviewed data on approximately 350 buildings in the transit corridor, looking at factors such as the property’s age and construction type. The data allowed Mt. Baker to weed out properties that may have been poorly constructed or in bad condition and not good candidates for preservation. This approach allows Mt. Baker to stretch its limited resources as far as possible in order to secure affordable housing near transit before speculation picks up.
• Access public resources targeted toward providing affordable housing near transit. States and localities are increasingly prioritizing public resources for the use of providing affordable housing near transit. For example, 32 states provide an incentive for proximity to transit in their Low Income Housing Tax Credit competitions, usually by awarding points to properties near transit as part of the LIHTC competitive scoring process. In five states—Missouri, Mississippi, Oregon, Texas, and Utah—properties near transit can benefit from a 30 percent “basis boost” in LIHTCs, thereby improving project viability.
• Tap zoning incentives to lower capital cost of affordable units near transit. Capitol Hill Housing CDC preserved Brewster Apartments in Seattle by tapping into resources created by the city’s innovative Transferable Development Rights (TDR) program. Brewster Apartments is conveniently located just blocks from Seattle’s streetcar line. The TDR program allows commercial real estate developers seeking to construct buildings in excess of allowable density to purchase unused density from affordable housing owners. It provides an opportunity for affordable housing to benefit while increasing building density near transit. Through the program, Capitol Hill Housing agreed to sell Brewster Apartments’ unused development rights to Vulcan Inc., a private developer with plans to construct three office buildings taller than allowable heights for the neighborhood. The exchange provided $648,000 to Capitol Hill Housing, which was used to pay off Brewster Apartments’ underlying debt and improve the property’s replacement reserve accounts. The property is now sufficiently capitalized to continue serving as affordable housing for the next 50 years.
• Create acquisition funding sources. Critical to the success of preserving affordable housing near transit is providing flexible financing to acquire and hold properties near existing and proposed transit until permanent preservation financing can be assembled. The National Housing Trust and Enterprise are working to fill this gap in the Washington, D.C., metropolitan area through the creation of the GreenPATH Fund (Green Preservation of Affordable Transit-oriented Housing). GreenPATH is an acquisition loan fund targeting existing subsidized and unsubsidized multifamily buildings that serve low to moderate income families within one-half mile of rail stations in the D.C. metro area.

A significant number of low- and moderate-income renters in the metro region depend on rental housing near transit to live affordably. In Washington, D.C., approximately 55,000 renter households live in apartments located within one-half mile of a metro rail station. More than two-thirds of these apartments are unsubsidized. Many of these apartments are located in neighborhoods that have experienced dramatic increases in median household incomes from 1999 to 2009.

These households have significant lower housing and transportation costs than their counterparts who live in auto-dependent neighborhoods. According to data from the Center for Neighborhood Technology, combined housing and transportation costs for households living in D.C. neighborhoods are less than 45 percent of area median income, as compared to more than 55 percent of AMI in the region’s outlying suburbs.

Planned transit investments in Maryland and Virginia promise to bring improved transportation services to households in D.C.’s surrounding suburbs, but also raise the challenge of preserving affordable rental housing if neighborhood redevelopment occurs. In Montgomery County, Maryland, more than 26,000 apartments are located near existing or proposed rail stations. According to the Northern Virginia Affordable Housing Alliance, nearly 50 percent of multifamily rentals along three redevelopment corridors in northern Virginia’s inner suburbs are currently affordable to households with incomes below 80 percent of AMI.

NHT and Enterprise intend to raise about $54 million to preserve 1,000 affordable apartments through the GreenPATH loan fund. Potential sources of capital include banks, foundations, insurance companies, and local government. In addition, NHT and Enterprise each are contributing to the fund.

Critical to the success of the fund will be assembling the right mix of capital in order to provide preservation-oriented purchasers a low enough interest rate to maintain rents at affordable levels. Also key is providing long enough loan terms so that purchasers have sufficient time to assemble permanent preservation financing, especially in light of limited public subsidies and the challenge of securing private financing.

All of these preservation strategies can be put in place during an economic downturn. With these strategies in place, when properties begin to appreciate, we can ensure that families of all incomes enjoy the many benefits of living near public transit.