PRESERVATION ENABLING ENVIRONMENT

Small to medium multifamily (SMMF) acquisition and preservation requires a supportive enabling environment of practitioners and advocates advancing capabilities of the preservation field, complementary policies and programs that will scale preservation impacts, and fast moving and targeted financing resources to mitigate or overcome market-based challenges.

Key stakeholders that contribute to a strong enabling environment

Identifying a region’s preservation stakeholders can help guide decision-making, inform coordination efforts, and facilitate capacity building within the field. See the State of the Market briefs for key preservation stakeholders in different metropolitan regions across the country.

Policymakers and municipal staff play a critical role in setting policy, allocating public resources, and ensuring preservation priorities are reflected in public processes and regulatory requirements. These stakeholders may include elected officials and councilmembers, local and regional housing and planning departments and agencies, building code enforcement departments, public housing authorities, development authorities, and land bank authorities.

Actions policymakers and public sector actors can take to advance preservation include:

  • Set specific preservation priorities in city plans that respond to local challenges and needs

  • Adopt new preservation policies and programs that fill in existing gaps

  • Allocate public resources, including seed funding and consistent funding, to preservation initiatives and capacity building programs, as well as dedicate the necessary staff for program and policy implementation

  • Collect, disseminate, and publish data to inform program design, administration, and advocacy efforts

  • Coordinate and facilitate collaboration across different public agencies and departments that touch on preservation

Setting Preservation Priorities in City Plans and Processes: The City of Detroit’s Affordable Housing Preservation Strategy

Aligning affordable housing objectives and policy goals among city leadership, municipal agencies, and policymakers is critical to dedicate the proper resources and develop necessary programs to scale preservation. The City of Detroit has prioritized affordable housing preservation as a key strategy to retain and create affordable housing opportunities for the city’s current residents, aiming to preserve 10,000 units of regulated and unsubsidized affordable units by 2023. Read the Detroit Preservation Action Plan here.

Incorporating preservation within city plans with clear measurable goals. In 2017, the city convened the Detroit Affordable Housing Preservation Task Force to develop a Preservation Action Plan that identifies near-term preservation efforts over the next five years. The Preservation Action Plan objectives include 1) Developing and maintaining an affordable housing inventory that tracks regulated and unsubsidized affordable housing 2) Developing a framework that guides preservation efforts and prioritizes action for properties most at risk of loss 3) Training, technical assistance, and outreach for local developers and existing owners to ensure adequate investment, maintenance, and safety of existing affordable housing, and 4) Improving city coordination to better meet preservation funding requests.

Creating dedicated funding resources to achieve preservation benchmarks. To help ensure proper resources are dedicated to implement Detroit’s preservation objectives, the city plans to create additional local funding sources and streamline existing tax incentives. The City of Detroit’s newly created Affordable Housing Leverage Fund, seeded by $50 million in grant funding from city sources, provides low-cost financing and gap funding for property owners and developers preserving or creating affordable rental housing. By consolidating these financing sources in a single source, developers have access to capital which can be quickly deployed, and this capital provides greater predictability. The City is also prioritizing resident stability within their preservation policies, requiring building owners with occupied properties who are seeking tax incentives to create a plan that does not displace residents and maintains affordable rents.

Ensuring proper staffing and capacity to advance preservation efforts. Lastly, the City of Detroit is establishing the Office of Policy Development and Implementation to lead implementation of new policies and work across city agencies and help ensure that preservation goals and objectives are reflected in plans and processes.

 

Financial institutions and funders are critically important partners for developers, housing providers, and preservation purchasers to acquire existing affordable properties, make improvements, and operate homes at an affordable rate for low- and lower-income households.

Learn more about the funding sources available for SMMF preservationFunding Sources Inventory

These financial partners include community development financial institutions, banks, state finance agencies, and philanthropic and impact investment funders. Without flexible lending products and grant support, developers would not be able to preserve properties: There are few financing tools targeted to the needs of SMMF properties while existing financing processes are geared towards larger transactions.

Financial partners can assist mission-aligned developers and purchasers by:

  • Providing grant, subsidy, or below market resources with favorable terms tailored for SMMF properties. These resources help close financing gaps, keep rents affordable to avoid displacement of current residents, and can help mitigate the lack of operational efficiencies smaller properties face.

  • Creating dedicated funding sources across all stages of the preservation development process so developers and purchasers have a reliable source of funding to turn to, including bridge, construction, and permanent financing. Properly funded and consistent sources of funding is a requirement to scale preservation efforts.

  • Streamlining processes, centralizing funding sources, and finding creative underwriting solutions so that mission-aligned developers can compete and outbid well-capitalized purchasers in the private market.

Bay Area Preservation Pilot: A Flexible and Fast Acting Financing Tool to Acquire Affordable Properties Near Transit

Launched in 2019, the Bay Area Preservation Pilot (BAPP) is the nine-county Bay Area’s first preservation financing tool seeded by a transportation agency, the Metropolitan Transportation Commission (MTC). BAPP seeks to provide fast moving capital for organizations and developers to purchase, meet immediate rehabilitation needs, stabilize SMMF properties and prevent resident displacement until longer-term financing is identified and secured.

Administered by Enterprise Community Loan Fund and the Low-Income Investment Fund, the pilot provides $49 million in low-cost flexible loans for 10 years to nonprofit organizations to acquire and preserve unsubsidized affordable homes near high frequency transit stations. Since its launch, an advisory committee of public sector agencies, CDFIs, and nonprofits with preservation experience have shaped the pilot program’s implementation. In 2021, BAPP underwent several revisions so that the funds are more accessible to a greater number of preservation projects throughout the Bay Area and prioritize communities where there is a high risk of displacement among current residents and/or are home to marginalized groups.

 

Buyers, existing owners, and brokers are critical partners at the transactional level when affordable unsubsidized properties change ownership. These key stakeholders include independent property owners, institutional owners, mission aligned non- and for-profit developers, community ownership entities such as community land trusts and cooperatives, and public entities such as municipalities and land banks. Relationships between these stakeholders are critical in unsubsidized affordable SMMF preservation. In particular:

  • Increasing the capacity of mission-aligned buyers, developers, and community ownership entities is critical to advance preservation efforts and develop efficiencies in the acquisition-rehabilitation field. To learn more about how developers can increase their organizational capacity, read the Developer Capacity brief.

  • Brokers, land banks, and municipalities that understand the nature of SMMF properties and have strong relationships with existing property owners can help mission-aligned purchasers identify strong preservation candidates and off-market opportunities.

  • Supporting the network of existing owners and operators of SMMF properties is also important so they can continue to provide safe, stable, and affordable housing. In instances where existing owners seek to sell, strong relationships are critical to facilitate ownership transfer to another mission-aligned housing provider.

Residents and community members. Residents living in SMMF properties are key partners across all phases of unsubsidized SMMF preservation. Read more about resident and community engagement during the SMMF preservation process.

  • Engagement, trust building, and buy-in from residents and community members is critical during the permitting and approvals process, renovation and relocation process, leasing and marketing period, and continued operations and long-term stewardship of SMMF properties.

  • Residents living in SMMF properties feel the most direct impacts of loss of affordability, as without preservation from a mission focused owner, they may see rising rents, poor housing quality, or displacement through demolition of a property. They also may not necessarily know when an affordable SMMF property is up for sale or in foreclosure, and thus engagement from the buyer is critical.

Community-based organizations and advocacy partners vary by region and may include community-based organizations, including tenant advocacy and direct service organizations, policy and advocacy organizations, broad-based coalitions, educational institutions or research centers, and philanthropy.

  • Preservation programs and policies have often started with community-based organizations and advocates identifying local preservation needs and working with other stakeholders to make the case and secure preservation resources to develop targeted interventions.

  • These stakeholders are also key partners to provide feedback and inform the revision of existing program and policy guidelines to “ground-truth” assumptions and meet evolving challenges.

Renters Organizing Ourselves to Stay (ROOTs): From Community Organizing to a City-Adopted Preservation Model

On Chicago’s northwest side, investors were buying foreclosed 2-to-4-unit rental properties, a critical source of the city’s affordable housing supply, and redeveloping them into higher-cost rentals and single-family homes. In response, Communities United (CU) connected with low-income residents living in foreclosed buildings and began organizing for a solution. CU partnered with Enterprise Community Partners to provide a line of credit to acquire the foreclosed properties and partnered with a Chicago affordable housing developer, Chicago Metropolitan Housing Development Corporation (CMHDC), to rehabilitate and manage the properties.

Through data provided by the Institute for Housing Studies at DePaul University, CU learned that Fannie Mae owned many foreclosed 2-to-4-unit properties. Local elected officials pressed Fannie Mae to sell these properties to CMHDC at a discount. Through a donation tax credit, the Cook County Land Bank was able to acquire, hold, and transfer these properties to CMHDC at an affordable rate. As a result, 42 units of affordable housing were preserved for low- and moderate-income households in a community experiencing rising rents and house prices.

Residents part of the ROOTs initiative and Communities United organized in response to displacement risks and affordability, brought together tenant advocates, developers, and decision makers, and directly shaped the design and implementation of a preservation model that resulted in the creation of the City of Chicago’s Preserving Existing Affordable Rentals (PEAR) program. The Chicago Department of Housing is considering changes to implement the PEAR program in the Woodlawn neighborhood to preserve existing affordable housing as the neighborhood faces redevelopment pressures from a catalytic investment – the Obama Presidential Library.

Core components of a strong enabling environment

A strong enabling environment should take a systems level approach that includes accessible data and information to guide decision making, strong preservation policies that strengthen our affordable housing system, accessible flexible capital resources for preservation deals, and opportunity for coordination and collaboration among preservation stakeholders.

Improve the accessibility and application of data, information, and tools

Often, preservation partners are not informed of what properties to preserve and where preservation efforts are needed. Data and information can help decision makers and partners understand the local affordable housing inventory and preservation needs; identify and strategize around properties at risk of loss; or inform policymaking and resource allocation and use. However, it takes time and expertise to clean, analyze, and apply this data to preservation objectives, as well as “ground truth” data with place-based or qualitative information.

Best practices to support data availability and use for preservation that you can implement: 

  • Create accessible, regularly updated, and user-friendly tools that are informed by and respond to the needs of practitioners and advocates

  • Partner with and leverage the expertise of research centers, educational institution or real estate industry professionals

  • Commission and maintain open databases to support ongoing preservation activities

  • Share available administrative data collected by public-sector agencies

  • Pass policies to ensure key housing preservation metrics are being collected on a consistent basis, such as requiring a preservation analysis and update to be part of local and regional plans

  • Translate technical data into actionable information for practitioners and preservation advocates

  • Balance quantitative data with qualitative information and lived experiences of residents

Local jurisdictions, research centers, and practitioners can collaboratively create an up to date, accessible, and easy to understand preservation inventory that tracks subsidized and unsubsidized affordable properties that a variety of actors can use to guide preservation activities and deploy resources. Washington DC’s Housing Insights tool, initially formed as the DC Preservation Catalog, uses data from local and national sources to understand neighborhood change and identify income-restricted properties at-risk of expiring affordability. This tool was developed to help DC’s Preservation Network identify preservation interventions and prioritize funding.

Community-based organizations and advocacy groups can form partnerships with municipal and regional agencies, research organizations, and private sector organizations who have access to proprietary data and have the expertise to analyze data into actionable guidance.

Experts can create free, accessible, and user-friendly platforms that take publicly available yet unwieldy administrative data to reveal where affordability and displacement is a concern. Web-based tools such as Displacement Alert Project (DAP) and Organizers Warning Notification and Information for Tenants (OWN IT!) consolidate fragmented property-level information to help advocates understand eviction risk, sales and permitting activity, ownership patterns, building violations, and more.

What data are available? To better understand unsubsidized properties at risk, preservation partners can use a variety of property level data sources, such as administrative assessor data, local building code information, Census data, and real estate data sources.

  • Property-level characteristics. A key step to assess where to dedicate resources for preservation is understanding what properties may be in distress or are at risk of being sold, foreclosed on, or lost to deterioration based on their physical or ownership characteristics. Read more about identifying SMMF properties for acquisition.

  • Demographic and economic data on households and residents. Data on household characteristics can help practitioners and advocates identify communities where residents and families are experiencing affordability pressures and inform tenant outreach efforts.

  • Housing market data. Data on property transactions, foreclosure risk, and changes in property use can help developers better understand acquisition opportunities and can help decision makers understand what is required of policies and programs to incentivize preservation.

  • Neighborhood and place-based characteristics. Understanding neighborhood characteristics surrounding SMMF properties, such as presence of amenities, proximity to job centers, and access to transportation, can help developers and funders prioritize funding resources for preservation.

Strong Preservation Policies

A suite of strong and complementary policies is a necessary factor to stabilize the affordable SMMF housing stock and the residents that depend on them. The success of these policies may be influenced by a jurisdictions’ complementary or contradictory network of policies, implementation and enforcement mechanisms, dedicated resources, and capacity of actors. Policies can be categorized to achieve the four objectives below.  Read the policy inventory to learn more about specific policies that can help achieve these outcomes. A forthcoming Advocacy Guide brief will discuss best practices to pass preservation-minded policies and programs.

[1] “Nomination” programs, SF Small Sites Program (San Francisco). TOPA and right of first refusal. Tenant/District Opportunity to Purchase Act (Washington DC), Community Opportunity to Purchase Act – (San Francisco)

[2] Adaptable to preserve historic properties that are also affordable. Could protect the property and shield from development pressures

  • Tenant protections – A key goal of preservation includes stabilizing and protecting residents living in SMMF rental properties. Common local and state tenant protections policies include just cause evictions (which limit evictions to a set of defined circumstances); lease requirements (written leases; preferred language); exemptions from penalties for early termination of leases by tenants without penalty (such as illness); notice requirements (lease termination; before and after filing an eviction; proof of notice; provision of counsel in eviction proceedings; sealing or expunging of eviction records; and information and outreach requirements).

  • Right-to-return preferences – This anti-displacement policy creates a preference for displaced residents to return to their communities, often tied to former residence or property ownership in areas affected by discriminatory policies such as eminent domain. It can be used to create opportunities for residents to relocate in preserved properties.

  • Renters’ notice periods – This policy gives residents advance notice of an owner’s intention to sell the property or convert it to condominiums. Longer notice periods enable renters additional time to look for a new home or in justifications with tenants’ right to purchase policies, start the process to purchase the property.

  • Eviction prevention as a preservation strategy – While many jurisdictions respond to evictions after they occur, upstream eviction strategies can build a strong safety net for residents before evictions occur. Read more about eviction prevention strategies across the spectrum of the eviction cycle in Home For Good: Strategies to Prevent Eviction and Promote Housing Stability.

  • Rent data collection policies – Rent data collection policies require property owners to report rent data, among other data, about their rental properties, often in tandem with the administration of rental registry or rental licensing programs. These policies can provide a way to fill in gaps from existing data sources, including tracking rents as unsubsidized affordable properties with properties of less than five (5) units (which may not be captured in proprietary rental market datasets, such as CoStar).

  • Right of first refusal or offer – This policy, also known as Tenant or Community Opportunity to Purchase (TOPA/COPA) programs, enables a governmental entity or other designated buyers - nonprofits, mission-driven for-profits, tenants – to purchase rental properties and can provide these buyers with greater power within the real estate transaction process. In some instances, such as the Tenants’ Right to Purchase Act (TOPA) in Washington, DC, local governments limit designated buyers to tenants, who can purchase a property for sale or assign their rights to another buyer. Some policies allow eligible buyers the right of first offer, where eligible buyers have a set period to make an offer before outside offers are entertained. Other policies require eligible buyers to match the offer.

Right of First Refusal Keys to Success

  • Community organizing and engagement – Education and messaging about the importance of right of first refusal programs is critical to their adoption because these programs are not as familiar to a general audience. Additionally, organizing tenants within a building to exercise their purchasing rights requires trust building and significant time.

  • Organizational and Tenant Capacity - Purchasers need to have experience purchasing and operating rental housing. In cases where tenants purchase the building, they will need to connect with experienced organizations quickly.

  • Timeline – By design, right of first refusal programs lengthen the timeline to negotiate and purchase affordable properties. However, these programs should opt for a longer timeline to provide sufficient time to engage and educate tenants on their rights and for purchasers to assemble their financing sources.

  • Preservation financing and coordination - Purchases need access to flexible funding that can be accessed quickly. Some government funding programs pre-authorize funding rather than approve it on a project-by-project basis to enable quick use and shorten the time needed to secure financing, submit an offer, and close a deal.

  • Technical assistance and support – While some purchasers may be experienced in preserving unsubsidized affordable properties, emerging organizations and tenant associations will likely require additional technical assistance to navigate the development process, negotiate legal requirements, and fully exercise their rights. Washington DC’s TOPA policy provides funding and pairs tenant purchasers with technical providers.

  • Preserving affordability – Some right of first refusal programs do not require affordability restrictions while others do. Programs should help ensure that existing residents can remain and where possible, introduce deeper affordability and eliminate rent burdens, after a building has been acquired. Decisionmakers should be careful that financing tools for TOPA/COPA programs are not significantly higher than existing residents in SMMF properties and do not result in displacement.

  • Complementary policies and tenant protections – Right of first refusal programs without a supportive and complementary policy environment may face challenges and require greater commitment from tenant organizations and engagement. For example, without policies such as just cause eviction or condominium conversion restrictions, property owners may stymie purchase efforts by evicting tenants before they can exercise their TOPA rights or taking rental units off the market by converting them to condominiums.

  • Preservation zones or overlays – Preservation zones or overlays are land use tools designed to protect existing affordable homes in specific locations. Some jurisdictions require the preservation or replacement of affordable units in these areas (including unsubsidized affordable homes), while others use incentives to promote preservation.

  • Equitable Code enforcement – Code enforcement can serve a property maintenance and data collection tool to help public agencies track properties in distress and connect property owners – especially those of smaller properties – with resources, such as property rehabilitation programs, to keep properties in good repair. To be successful in supporting preservation, code enforcement should be viewed more as a way to facilitate property maintenance rather than penalize property owners for violations.

  • SRO preservation ordinances. Single-room occupancy (SRO) hotels provide an important source of low-cost housing and are an endangered housing type. Local jurisdictions with SRO preservation ordinances provide mission aligned developers with a “first look” when SROs are up for sale. San Diego requires SRO property owners to provide replacement units that will be deed restricted if the owner plans to demolish or convert the units to another use.

  • Demolition fees and surcharges. Demolition surcharges may discourage buyers from buying properties with existing unsubsidized affordable units and demolishing these properties for higher cost uses. The City of Chicago piloted and permanently adopted a per unit demolition surcharge targeting the SMMF housing types in two gentrifying areas of the city to disincentivize demolition and redevelopment into single-family homes and high-cost condominiums. The fee does not apply to redeveloped buildings where half of the units are reserved for low-income households.

  • Condominium conversion limitations. Condominium conversion limitations provide notice, resource, or relocation assistance when a property owner seeks to convert rental units into condos. In Washington DC, more than 50 percent of a property’s tenants must vote in favor of a condo conversion and have a right to relocation assistance if they are displaced. When properties are converted to condos, 5 percent of the sales price per unit must be paid to the District.

  • Property tax incentives. Property tax incentives can provide relief for property owners and housing providers so that they can continue to provide affordable rents. Programs may require continued or new affordability in exchange for property tax savings. For example, Cook County’s Special Assessment program reduces a property’s post-rehab or construction assessed value if property owners commit to providing and/or keeping a share of units affordable at or below for 30 years. The tax incentive program provides three tiers of reduced assessment levels to adjust for market conditions in lower, moderate, and higher-cost communities.

  • Building code changes. Building code changes can help property owners conduct rehabilitation and repairs at a lower cost, resulting in cost savings and prolonging the life of major systems. These changes may include updating plumbing and electrical codes for greater efficiency, providing greater flexibility to include lower-cost construction materials, enacting less onerous requirements for light and moderate rehabilitation, and streamlining permitting processes.

  • Foreclosure prevention and assistance. Property owners of smaller properties can be more financially vulnerable to vacancies and tenant loss of income. Connecting these housing providers who are at-risk of foreclosure with existing resources such as housing counselors, rental and/or mortgage assistance, and loan modification can grant them temporary relief. In cases where property owners are in the process of foreclosure, programs that facilitate the transfer of ownership to a mission-aligned organization can prevent foreclosure properties from being sold to a market-rate purchaser at auction. California’s Foreclosure Intervention Housing Preservation Program will provide loans and grants to nonprofit organizations to purchase, rehabilitate, and preserve affordable properties at risk or in the foreclosure process.

  • Property and asset management tools. Helping owners streamline their operations, increase their capacity, and lower the amount of time and commitment where possible can facilitate long-term and stable ownership. Solutions may include pooling property management services for owners of smaller and scattered site properties, increasing access to property management tools and technology, sharing information about qualified contractors, and partnering with larger organizations to take advantage of bulk buying and cost savings.

Adequate, flexible, and targeted capital resources.

The property characteristics, affordability levels, market context, and capital needs of unsubsidized SMMF properties vary widely. There is no one single type of SMMF preservation deal and ensuring quickly accessible, flexible, and patient financing is critical to compete with well-capitalized market actors. Additionally, SMMF preservation purchasers may also require targeted financing resources to meet specific market-based challenges in lower-cost, rising, and hot markets.

Resource

What is it & how does it support preservation?

Predevelopment & acquisition funds

Predevelopment and acquisition funds are easily accessible grants or low-cost loans that enable organizations or developers to purchase a property or conduct predevelopment activities, such as studies, hire advisors, or other project start-up costs, to vet potential preservation opportunities.

Short-term or interim financing

Short-term financing supports property operations and capital improvements until permanent financing is put in place. This financing can take the form a bridge loan, intended to serve as an interim option until permanent financing is secured, or a stabilization loan, intended to support a project until it reaches sufficient cash flow.
 

Long-term permanent financing

Longer-term permanent financing is amortizing debt that will need to be repaid by the property owner. Long-term permanent financing for preservation may benefit from lower-interest rates, longer amortization periods; and lower debt coverage ratios.

Tax incentives

Tax rebates, abatements or payments in lieu of taxes (PILOT) reduce the amount of taxes owed on a property. For preservation projects, they help offset operating expenses at preserved properties. These tax incentives can increase cash flow, as well as a project’s overall financial feasibility and access to financing.

Credit enhancements

Credit enhancements refer to government-backed loans or bonds, which make a deal more attractive to a lender or investor. Credit enhancements may allow a developer to borrow or raise other funds on more favorable terms or explore a new preservation strategy.

Funding for capacity-building

Funding to build the capacity of property owners and developers to undertake preservation projects complements the availability of financial resources. Capacity-building can be funded by a local general funds, state funding, some federal housing and community development programs, and philanthropy.

Considerations for Preservation Resource Design and Implementation

Access – According to the Center for Community Investment, “it is critical that low-cost funding sources be rapidly accessible as mission-oriented buyers seeking to acquire and preserve affordable homes are often competing against cash buyers who can move swiftly and at competitive prices.”

Flexibility – Flexible resources, in the types of funding availability (loans, grants) and their terms, is another important consideration for preservation resources. For preservation deals, it may be helpful to structure repayment terms for when cash flow is available or over a longer timeframe. It may also be helpful to allow a property owner to borrow against their entire portfolio (compared with a balance sheet for one property). Lenders such as Chicago’ Community Investment Corporation and New York’s Community Preservation Corporation have pooled their capital resources in the form of lending consortiums to provide flexible resources that can address difficult to finance properties or smaller properties that may need a variety of financing sources – challenges they may not be able to address individually.

Alignment with broader housing policy goals– Local elected leaders and municipal staff can align their broader housing goals and existing resources to support preservation activities. Common actions that build this alignment include highlighting preservation activities in documents that guide resource use (e.g., federal Consolidated Plan); creating a set-aside for preservation activities in local or state housing trust funds; and adding preservation as an eligible activity for tax incentives. Key factors should include:

  • Interaction with existing policies, programs, and funding sources. Is the proposal complementary or at odds with the existing ecosystem of programs and policies?

  • Implementation considerations. Those tasked with designing programs should build in the ability for policies to adapt to unforeseen circumstances, neighborhood or local conditions, and existing capacity and networks.

Complementary relationship- and capacity-building – Organizations and small-scale developers with the capacity to undertake both large and small preservation deals is important to realize preservation goals. Many jurisdictions invest in technical assistance and capacity-building for developers, increasingly with an emphasis on BIPOC-owned firms or BIPOC-led organizations to generate opportunities for wealth creation and increased participation in development deals. Proactively building relationships with developers, including emerging or smaller ones, can serve as a starting point for capacity-building. Capacity building activities may include sponsoring in-depth real-estate analysis courses; cohort-based training on specific types of activities, such as applying for state resources for preservation; passing development knowledge through joint venture partnerships; and organizational development so smaller developers are well-positioned for financing.

Best Practices and Helpful Guidance when Developing Elements of a Strong Enabling Environment

Importance of long-term mindset. Many local governments want to maximize their limited housing dollars and make the best investments they can with them. This approach leads many local governments to assess housing deals by looking at lowest costs and smallest profit/cash flow margins. This approach—to maximize units at the expense of cash flow—can negatively affect the viability of successful preservation deals and long-term viability of project partners, especially nonprofits or small-scale developers, doing these deals.

When assessing these projects, local governments need to strike a balance between maximizing their limited housing dollars and creating the conditions to sustain preservation activities over time. For example, successful preservation deals need cash flow and long-term capital reserves to support their overall portfolio. Successful preservation efforts elevate the importance of strong, financially sustainable entities. Strong, financially sustainable entities can borrow against their current portfolio and avoid the need for predevelopment capital.

Build towards scalable models. Local governments can promote partnerships and incentivize coordination to advance efficiencies in the broader preservation ecosystem. For example, public funding for capacity building programs can prioritize joint venture partnerships to pair emerging developers with established organizations that have the necessary balance sheet, staffing, and operational efficiencies until new organizations become self-sustaining. Local governments may seek to coordinate disposition strategies when SMMF market opportunities are scarce or out of reach, including connecting developers with surplus public land/vacant properties or incentivizing CDFIs to buy and hold SMMF properties for eventual transfer. Lastly, local governments can streamline preservation processes and add predictability, such as prequalifying and underwriting developers at the organizational level to equip them more quickly with public resources.

Removing regulatory and program barriers. Existing zoning, land use, and building code regulations can undermine the existing stability of SMMF properties and prohibit property owners from investing in SMMF properties. Jurisdictions should ensure that property owners of nonconforming SMMF properties can invest in property improvements, even if it alters or expands the property footprint. Building codes should balance public safety and health with stabilizing SMMF properties and current residents by granting some flexibility to phase in, and where safe, grant exceptions to requirements that may be extremely costly, such as ADA requirements. Lastly, public programs that aid property owners in making energy efficiency, water conservation, and health upgrades should not bar or be punitive to properties that are not completely up to code.

References

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