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Four years, $13 million and dozens of hands: How ‘affordable housing’ gets made in America

Why is it so hard to build and maintain inexpensive housing?

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By Andrea Riquier


W. Kyle Tangney, Herb Schwat, Greysteel
The apartment building at 410 Cedar St. in Washington, D.C., is undergoing a multiyear restoration that aims to keep it affordable for its current residents and for generations to come.

Jennifer Sumler has lived in her apartment building on Cedar Street in the Takoma section of Washington, D.C., for her entire life, but the sound she heard one late November evening a few years ago was like nothing she’d ever experienced.

“All of a sudden the sky got dark and there was a ‘Wizard of Oz’ moment,” recalled Sumler, who’s 50. “Leaves started to whip up. There was this ferocious wind. Then there was this noise. It was loud and really otherworldly.”

As sirens blared, she and several neighbors gathered outside in the leafy courtyard. Through the rain, they could see the source of that horrible noise: a huge portion of the roof had been ripped off.

Click to Play

A 'Wizard of Oz' moment as the roof rips off 410 Cedar St.

A freak windstorm battered 410 Cedar Street, Washington DC, in November 2016, displacing some tenants and starting others on a journey to preserve the building as a bulwark for affordable housing in a rapidly gentrifying neighborhood.

The freak storm that night in 2016 displaced more than just the roof. Several neighbors were never to return. But for Sumler and a few others, it marked a turning point. Over the next few years, they’d make the journey from discontented renters to affordable-housing advocates, resolved to keep 410 Cedar St. accessible to people of moderate means for generations to come.

Nearly three years later, they’re not done. The financing to repair and renovate the 30-unit building has only now been agreed to and will take another year to finalize. By the time that happens, dozens of parties will have had a hand in the project: developers, community organizers, government workers, bankers, regulators, lawyers, property managers, a historical consultant, lobbyists, investors and more.

The story of 410 Cedar St. isn’t just the story of one Washington, D.C., building; it’s the story of how America creates “affordable housing” — and why it’s so incredibly hard. Anytime a project comes together, it’s thanks to a patchwork quilt of the public purse, private funding, regulatory incentives, tax quirks and even exceptional individuals like Sumler. Those involved aren’t necessarily working against gentrification as much as working toward safe, stable, affordable housing, sometimes one neighborhood, one block or one unit at a time.

“It’s great that we have all these millennials and people moving into D.C. and we’re seeing restaurants and night life pop,” said Gerry Joseph, the real-estate developer whom the Cedar Street tenants eventually hired. “But you can’t do it all at the expense of the people who’ve been here their whole lives. It’s important to try to save as many of [these older buildings] as we can. We’re not going to save them all.”

A ‘tool of equity’

Washington, D.C., a planned city from inception, is unique in many ways. In particular, it has made a strong public commitment to helping its residents access housing that’s affordable, and providing tools that support tenants.

Its mayor, Muriel Bowser, is “doing more for affordable housing than any other mayor in the country,” said Kathryn Howell, an assistant professor of urban planning at Virginia Commonwealth University. Bowser committed $100 million a year to affordable housing in her first term, which began in 2015, and has increased the budgeted amount every year since.

Some initiatives, such as city-budget dollars directed toward initiatives like the Cedar Street restoration, are Bowser’s to claim. But the Cedar Street project owes its existence to Washington’s TOPA, or Tenant Opportunity to Purchase Act, laws, which precede the mayor’s tenure. It’s this program that perhaps best illustrates the opportunity and complexity facing tenants, developers and other investors in the affordable-housing ecosystem.

Under TOPA, tenants of any building whose owner has decided to sell have the right to buy the building themselves. They can become owners in a condominium or cooperative conversion, or they can transfer their rights to someone they hire, usually a developer like Gerry Joseph, to keep the building operating in its rental format.

D.C. provides the tenants of multifamily buildings resources to organize themselves, including matching them with legal counsel, for example. As long as the tenants (or their own developer) can match the bid that the building’s owner receives on the open market, tenants are given priority.

TOPA is “one of the really unique things about D.C.’s housing landscape. It’s centered on the residents, whom they see as the city’s assets. Most affordable-housing policy looks at rentals as temporary, like [renters are] not really citizens of the city,” Howell said. In contrast, she said, TOPA “gives a lot of agency and control and power to residents.”

In D.C., these programs are increasingly tapped as the population has surged, adding 100,000 residents between 2000 and 2015, a 16% increase. During roughly that same time frame, rents have jumped anywhere from 14% for the lowest earners to 32% for the highest, while incomes have not grown for the two lowest quintiles, according to an analysis from the D.C. Fiscal Policy Institute .

In fact, the gentrification experienced in the nation’s capital in recent years has been among the most intense in the U.S. , in its case resulting in the displacement of mostly African-American residents from low-income neighborhoods, according to a recent study from the National Community Reinvestment Coalition.

“While gentrification increases the value of properties in areas that suffered from prolonged disinvestment, it also results in rising rents, home and property values,” the NCRC noted. “As these rising costs reduce the supply of affordable housing, existing residents, who are often black or Hispanic, are displaced. This prevents them from benefiting from the economic growth and greater availability of services that come with increased investment.”

Even with TOPA in place, when a D.C. landlord gets ready to sell, tenants aren’t always interested in making a bid for the property. Many would rather take a buyout and vacate.

Yet Ramon Jacobson, who leads the city’s office of the Local Initiatives Support Corp. , a national community-development organization that helps fund projects like Cedar Street, often hears D.C. residents saying they “want a piece” of the community. It was Jacobson and LISC that provided the developer Joseph and the Cedar Street tenants, led by Sumler, financing to match an open-market bid received by their landlord.

“It used to be a big concern of ours that there would be tenants who were just interested in flipping the property,” Jacobson told MarketWatch. “I think people see [D.C.] as a much more desirable place to live, and want to stay as long-term residents. This is a property in a lovely neighborhood. You could easily see that someone could buy [Cedar Street], fix it up, and it could be luxury housing, and there would be no place for the residents that had been there for 30 years. We see this as a tool of equity.”

See: A tax break to hasten gentrification? Housing market’s Opportunity Zones may miss their target

The best of the worst solutions?

LISC is the linchpin of a system so complicated that it sometimes resembles a Rube Goldberg contraption. Without all the players and all the levers, affordable housing would not be produced.

“Cities where they’ve been most successful in really moving the needle forward have some group, whether LISC, or the MacArthur Foundation in Chicago, or other local nonprofits, that are really essential to bringing a lot of people to the table and taking something difficult and figuring out how it works,” said VCU’s Howell.

Likewise, the struggle to preserve and create affordable housing has many local characteristics but a broad outline that looks pretty similar across the country. Developers cobble together funding packages from all levels of government and attract money from private sources whenever and however possible.

LISC borrows most of its money from banks that want to fulfill their obligations under the Community Reinvestment Act , a decades-old federal mandate that requires financial institutions to meet the credit needs of diverse communities.

“Make no mistake about it: Absent CRA, the partnerships that we have with banks would not be anything close to what they are now,” said Maurice Jones, president of LISC’s national organization. “It is an invaluable tool for us to get loan capital that we can deploy for projects” like Cedar Street.

LISC currently borrows from banks at interest rates averaging about 3.7% to 4%, Jones said, and, to a lesser extent, from “impact investors” and philanthropic groups at about 2%. They lend to developers like Joseph at a rate of 3% to 6%. The spread pays for LISC’s cost of doing business. (LISC also goes directly to the capital markets to raise money; it has an AA rating with a negative outlook from Standard and Poor’s.)

With the Cedar Street tenants’ blessing, Joseph and his partners used a loan from LISC to acquire the property. Joseph then applied to the city for permanent financing to pay back the acquisition loan and prep for reconstruction.

Read: The eviction crisis is starting to look a lot like the subprime mortgage crisis

In early March 2019, one agonizing month behind schedule, Joseph and the tenants learned that the city had approved their proposal for funding . The project had been allotted $5 million earmarked to low-income-housing tax credits , which are sold to investors to raise equity capital for the project.

As of this writing, Joseph is getting ready to hire a syndicator, an agent responsible for matching interested investors to developers. Those investors — usually, but not always, banks — will bid for the right to buy those tax credits, which have a 10-year life span, meaning that every year for the next decade, those investors will see their taxes reduced by $500,000.

The city also gave Cedar Street a little over $4 million of municipal funds. And several banks have already expressed interest in granting Joseph a $2.7 million mortgage.

Between finalizing construction plans, ensuring renovations conform to historic-preservation standards for the 1920s building, putting the rest of the financing into place and pulling construction permits, work won’t begin until early 2020, and is forecast to wrap up roughly a year later.

In all, it will have taken over three years and $13 million to restore 30 units of affordable housing.

Many in the industry liken the process to the messiness of democracy in general: perhaps the worst way to get anything done, except that all the other approaches are even worse.

In an interview in January, Joseph mused on the complexity of the industry: “Every time I close one of these projects I take a deep breath and say there’s got to be an easier way to do this, even though if it was easier, I probably wouldn’t make my living doing it. It’s sort of a deal with the devil — the idea that we can’t produce housing with government money only; we have to get private funds into the transaction. It’s created a whole business sector of people who work in and feed off this … accountants, lawyers, bankers, consultants … and the transactions themselves have umpteen documents. You say, if someone just wrote a check you could just build the housing a lot more quickly.”

LISC’s Jones laughed when told about Joseph’s ruminations.

“We are putting deals together where there may be 15-plus sources of capital, so I agree wholeheartedly there’s got to be a simpler way of doing it,” he said. “But the notion that the public sector is going to produce enough revenues to build all the housing that we need for everybody, the facts belie that. We’ve got to find a way to get the private and the public sector in the game.”

Paying it forward

Jennifer Sumler was born in Washington, D.C., in 1968. Her father spent many years as the chauffeur and bodyguard for the president of Howard University, and her mother sandwiched her years at home taking care of the children between stints at the Federal Reserve.

Sumler remembers riding bikes around the neighborhood and swimming in the local pool. She also remembers the Cedar Street building full of families, and how the neighbors would congregate on the wall surrounding the building’s courtyard.


Jennifer Sumler
Jennifer Sumler and brother Calvin in front of their home on Cedar Street in 1970.

“We used to all meet up after work or school and sit and talk and gossip and play a little music and catch up,” she said. “It’s one of my fondest memories. I remember the gas lines of the ’70s,” as the building sits across the street from a filling station.

Sumler has been in Takoma longer than the Metro, the sprawling transit system that spans D.C. and its Maryland and Virginia suburbs. “I remember the talk about the Metro coming and the construction. When it did open, I remember when we got off at the stop we would be the only ones. We would always laugh to ourselves getting off, ‘It’s a secret, nobody knows.’ Boy, has that changed.”


Jennifer Sumler
Jennifer Sumler in front of her home in 1981.

Sumler attended Howard University, majoring in broadcast journalism. She’s worked in television and radio news, and briefly toyed with trying to become on-air talent. But when she learned that would mean leaving Washington to work her way up in smaller news markets, she reconsidered.

After a few decades in media, Sumler wanted a new challenge. She had been volunteering as an adult-literacy tutor and “found it rewarding in ways that I had never imagined.” She went back to school and got a master’s degree in education. But life happened: Her mother became sick, and Sumler put the new career on hold to care for her.

“It’s been a lot of stress and a lot of work, and about 2½ years ago, where I thought [my mother] was stable enough [to] let me try to get my life on track, our owner decided to sell the building,” Sumler said. “That created a whole ’nother set of circumstances. Now we’ve got to organize, a third of our population is homeless, and we’re wondering about the roof.”

See: This chart shows the haves and have-nots of the housing market, and it’s getting worse

Jacobson of the local LISC is of the view that it takes a unique type of individual to execute the implausible task of organizing lower-income tenants into a quasi–real estate development partnership. “In a lot of places in our society there’s not a lot of venues for people to express themselves,” he said. “You have people who, if society were structured differently, they would be leaders in other ways.”

Sumler’s professional background likely gave her an advantage compared with the typical TOPA organizer. But in other ways, the Cedar Street tenant association faced a mightier challenge than most groups vying for TOPA funds: The building’s post-storm disrepair had discouraged many of the tenants from the get-go. Sumler found herself in a position that’s familiar to the LISC staffers but jarring to a lifelong renter with no professional experience in real estate.

“The weird thing is that you are in a position to make a decision about who gets your building,” she reflected in January. “You interview a bunch of developers who all have to come in and kiss the ring. It’s very interesting to see who’s resentful of that. TOPA is a very powerful piece of legislation, and not everyone thinks it’s a good idea that the tenants get to decide who buys the building.”

The tenants’ attorney had prepared them well, she said. “You’re making a decision based on who you think you can get along with and who respects you as tenants and who you can respect as an owner.”

The neighbors found that they had converged on a simple yet profound principle: It wasn’t enough for them to retain affordable rentals for themselves; they wanted to pay it forward, to make sure generations to come had the same options.

Related: We’re still building the wrong kind of homes for renters

“This was a very conscientious building,” Sumler said. “We didn’t want to become another property that sold out to condos and got the best offer in terms of buyouts.”

In fact, 12 current tenants did decide to accept the buyout offer of $15,000, including of all those whom the storm had displaced.

Ultimately, Joseph’s development company was “the most aligned” with the tenants’ desires, Sumler said. So far, it’s been a respectful, collaborative process, if risky. “There were other developers that could come over in 90 days and get construction started, but their commitment to affordable housing was not in line with ours. We chose the harder path. We took the chance, and, quite frankly, we’re not even sure the chance is going to pay off.”

Risks

Joseph, 65, is far from the brash wheeler-dealer that one may associate with big-city real-estate development, but he’s proven to be a genuine partner for this group of tenants striving for housing equity.


Gerry Joseph
Affordable-housing developer Gerry Joseph in a 1998 photo in Northampton, Mass.
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