Affordable housing a boon for social investors

Affordable housing purchased by social investors allows low-income earners to find community-oriented housing from Marin County, Calif., to New York City.

Leave it to a housing market flat on its back to encourage strange bedfellows. Affordable housing advocates and upscale California communities? Educators and inner-city neighborhoods?

It’s all part of a silver lining emerging from America’s worst housing downturn since the Great Depression. Foreclosure may be throwing millions of homeowners out of their homes, but some socially responsible investors are trying to tap the housing crisis to better their communities.

“There’s been quite a bit of interest in the last six months to a year simply because the pricing has adjusted,” says Edward A. Mermelstein, who runs a corporate and real estate law firm in New York as well as a development company trying to place public schools in foreclosed commercial property.
“Projects that didn’t make sense before do now, and there’s a lot of governmental interest in pushing this forward.”

Affordable housing in a place like Marin County, Calif., north of San Francisco, is almost an oxymoron. The median home sale price is about $679,000 – and that’s after the housing crash. Teachers, waiters, and receptionists typically can’t afford to live in the county where they work. But $679,000 represents a rare opportunity for Thomas Peters, head of the Marin Community Foundation (MCF). The $1 billion foundation had been active in affordable rentals, among other charitable activities. The plunge in real estate prices offers a chance to break into ownership.

“We’re looking to make lemonade out of lemons,” says Mr. Peters. “We’ve been used to steadily appreciating home values; the dramatic falloff in price has been 50, 60, 70 percent.”

MCF has just embarked on a $10 million, five-year plan in partnership with local nonprofits to buy and rehab homes to sell to low- and moderate-income families. The nonprofit developer retains first right of repurchase on a set of terms that allows the house to remain affordable in years to come.

That’s a win-win, in Peters’s view. Neighborhoods in danger of the blight associated with vacant, foreclosed houses are tidy once more. Buyers usually priced out of the market can gain a foothold. “Developing affordable housing [was] usually met with resistance,” he adds. “Boy, has that changed. When you have vacant homes nestled into a nice community, the neighborhood receptivity is markedly higher than it would have been a year ago.”

Teachers don’t typically flock to teach in inner-city schools. But at five Learning Links Centers in Los Angeles and two in Dallas, educators are not only eager to teach in the troubled neighborhoods, they’re on a waiting list to live there. Learning Links, based in Los Angeles, buys apartment buildings in low- to moderate-income neighborhoods and puts a learning resource center in each to help kids with their schoolwork. Teachers who live in the building get a break on their rent if they tutor children in the center.

“If anything, the downturn has helped us to see more opportunities out there,” says George Pino, chief operating officer of Learning Links. “There are more assets we’ve been looking at as well as better prices.”

There is a downside to the drop in housing prices, even for socially responsible companies. A market-invested foundation like MCF took a hit when the stock market tumbled and is doing more with less. Similarly, when Learning Links went asking for money late last year, its investors demurred. Loans are difficult, too, because banks remain conservative with underwriting. Some Learning Links residents who lost jobs needed to vacate their apartments.

But Mr. Pino is optimistic.

“Going forward though, it looks like things will loosen up,” he says. Learning Links is already looking at real estate prospects in New York City, hoping to capitalize on lower prices there, and eventually in Chicago and Miami.

In Columbus, Ohio, the drop in the housing market has forged an innovative partnership between an
affordable housing nonprofit and a local bank.

“The foreclosure crisis hit our area dramatically,” says Amy Klaben, president and CEO of the Columbus Housing Partnership (CHP). “Last year, 2008, we saw 1,600 people in default in their loans, many in foreclosure, an increase from 1,000 the year before. This year, we’ll see potentially more.”

So a regional lender, Huntington Bank, approached CHP about creating a partnership to encourage homeownership. The result: the Huntington Homeownership Alliance, a three-year, $10 million effort that funds home buyer education workshops, online virtual foreclosure counseling, and loan products designed to help families buy houses from CHP’s inventory of affordable homes.

Even as prices have dropped, the need for home buyer education is still vital.

“Financial education is a critical factor in helping families make wise choices as they look to buy and maintain their homes,” writes Maureen Brown, a spokeswoman for Huntington Bank, in an e-mail. “Huntington knows that homeownership strengthens families, communities and our economy. We believe that by working with CHP, we will help to stabilize neighborhoods as well as provide counseling to homeowners.”

Despite this burst of activity in socially responsible real estate, the biggest challenge may be sustainability. Speculators are a problem, driving the cost of properties back up and leaving homes without individuals or families inside to rebuild a community. In addition, the need is still great. Though groups like CHP can now buy five homes for a relative bargain, if there are still 15 more vacant houses on the street, “you aren’t making a market impact,” Ms. Klaben says.

As the economy recovers and real estate values rebound, this moment of opportunity may disappear.

“Unfortunately, any time property values [skyrocket] ... the first project to suffer will be related to affordable housing, because you cannot compete with the for-profit developer,” says Mr. Mermelstein, who is still in negotiations with local New York officials to secure commercial buildings for schools. Such projects are “something that should be pushed forward while the opportunity exists.”