Our occupancy rates are 98% and higher and we have waiting lists up to 10 years.
Two issues causing major challenges in other segments of multifamily — market volatility and over-supply — are not impacting affordable housing in the same way. The longer horizon and greater stability provide somewhat of a buffer against short-term market fluctuations.
“With public funds, there is no turning on a dime, so we’re locked in for quite a while,” says Rochelle Mills, president and CEO of Innovative Housing Opportunities, who will be among the speakers at GlobeSt’s Multifamily Fall 2023 event taking place in Los Angeles in October.
“In many ways it’s more stable. Our occupancy rates are 98% and higher and we have waiting lists up to 10 years. Renters can bounce from one place to the next. When people move into affordable housing, they tend to move in and padlock the doors – they’re not going anywhere.”
But that’s not to say there are not separate, unique challenges associated with affordable housing. As part of the Property Management Bootcamp taking place in the afternoon of October 16, Mills will be speaking on Overcoming Operational Challenges, alongside Kyle Crown, president of Los Angeles Property Management Group.
“In terms of operations, it’s all about how to keep the operational costs down [in other types of housing]. For affordable housing, there’s no turnover, so we don’t have that flip. The more difficult part is the financing ‘sandwich’ at the front end,” Mills says. “There are sometimes up to nine public and private sources of finance. Where market rate normally goes to the banker or investor and closes the deal. It’s the opposite, it’s more confusing up front.”
One of the biggest challenges, however, is the extent to which public funding for affordable housing is tied to the outcome of elections. “Being in a place of constantly trying to raise money to take care of the residents that the funding mandates, is something people don’t understand. It’s not a good business model for the affordable side for a host of reasons,” she says.
There’s not an easy remedy but Housing Opportunities is looking at how to leverage public and private funds. The group has created a Housing Innovation Fund with the aim of replacing some of the public dollars and having a more balanced population of residents with a mix of income and ability levels. “If we attract private capital in the beginning and massage how we bring in public dollars, if at all, then we can speed up the process and reduce a lot of limitations which bring in an operational hangover in the background,” Mills explains.
Such models will be discussed further at the event in October, where Mills expects interest rates and cost and availability of capital to loom large. “I will be talking about how we attract private capital with a social mindset when people are still interested in double-digit returns. A lot of entities are interested in social impact, but how do you push their desire for interest rates and a high return, when the interest rates keep going up?”, she says. “When we first started talking about social impact capital, we were talking about a 2-3% return, then we went to 7%, then we went to 7-9%, so I think people will be talking about how we provide certainty of performance when the finance market is still so volatile.”
By Courtney Fingar