By Flynann Janisse, Executive Director, Rainbow Housing Assistance Corporation
When the housing market collapsed in 2008, the industry as a whole saw individuals and families quickly scramble to find housing that could accommodate their new financial situations. During the height of the housing crisis, the National Low-Income Housing Coalition noted that in 2011 the lack of available rental housing supply, though expanding, produced an absolute shortage of 4.6 million affordable units (Housing Spotlight, Vol. 3 Issue 2). Yet, in the middle of a recession, funds were difficult to obtain for new construction or rehabilitation projects. Now no longer in a defined recession, the industry is ushering in a new era of development partly fueled by the significant merger and acquisition activity. Additionally, the Department of Housing and Urban Development has made programs such as RAD available to allow for greater conversions to project-based vouchers.
This is especially true in Phoenix, where Rainbow is headquartered. Removing the gold rush on foreclosed, single-family homes, many in the Phoenix market have turned to renting, as they are uncomfortable making the large investment in a home whose prices have continued to fluctuate during the recovery. With this knowledge, multifamily developers are turning to markets such as Phoenix, where the housing crisis took the largest toll. However, it is important to not just “build a box”, but fully understand the needs of the residents that it is intended to house.
In 2012, a story came out of a community, which Rainbow services in Florida, of a young family whose only source of income was tied to the father’s job. This family lost that income and was facing the threat of eviction. Rainbow helped secure not only rental assistance, but also new employment, allowing them to stay in their home. With no family in the area, a newborn, and no savings to speak of, had Rainbow not been there to intervene, the alternative would have been homelessness.
This story illustrates that without Rainbow’s involvement this community would have had several expenses related to the eviction process, negatively impacting the asset’s financial performance. Given that Rainbow was able to stabilize that family, there were subsequent savings of real dollars such as legal fees, bad debt write-offs, maintenance personnel turning the unit, marketing, and concessions. None of those line items drew down on the community’s net operating income; instead rent was collected and continues to be regularly.
With a full-time coordinator providing services, Rainbow knows that if it can save one to two residents per month (an attainable goal), that it can pay for itself in as little as one year. However, just as with any value-based product, there is a cost for providing service-enriched housing. Though possible for Rainbow to begin services at an existing community, this budgeting is best done at the financing phase. By starting with the idea of providing supportive services, developers have real cost that they can build into their budgets.
Case Study: Villas at Pasadena
Villas at Pasadena is a perfect example of how developers are leveraging unique approaches to ensure successful deals in recovering markets, thinking critically as to how to best position their communities for success at the onset of a project. In 2012, the Arizona Department of Housing announced $20 million in tax credit awards for the development of several low-income projects across the state. Included in the selected projects was an application for a rehabilitation that Rainbow assisted Arizona-based Hope Development, LLC prepare.
Last November, Hope announced the grand reopening of Villas at Pasadena, its newest affordable housing development in the Phoenix market. This $6 million redevelopment project consists of 18 rehabilitated 1- and 2-bedroom apartments as well as 16 new 3-bedroom townhomes.
With doors open, Rainbow began providing the supportive social services to which it agreed in the application phase. Ultimately, these services were part of the reason that Villas at Pasadena received tax credits from the state. The foundation of Rainbow’s success is explicitly tied to the types of programming it provides. As mentioned above, Rainbow’s goal through the provisioning of these services is to support self-sufficiency in the resident population, thus helping the asset perform better financially and, thereby ensuring that it remains as affordable housing for those who need it most.
The Villas at Pasadena service plan contained six core items to ensure success at this community. Starting with financial literacy, Rainbow implemented a program that provides comprehensive money management and financial independence building skills. Employment readiness courses are offered focusing on job searches, resume writing, interview skills, and professional attire. Residents also have access to Rainbow’s enhanced coordinated services, connecting them to emergency rent, utility, food or clothing assistance. These three pillars of Rainbow’s services help reduce turnover costs and safeguard a resident’s ability to obtain steady income, consequently having a stabilizing influence on the broader community.
Additionally there is access to onsite computer equipment for adult and youth classes directed at improving technological competency. For younger residents, a daily afterschool youth enrichment program is provided concentrating on academic achievement. Lastly, partnerships with local law enforcement entities provide a safe, stable environment n which residents want to live.
Though early in its new lease on life, Villas has already seen some initial successes as a result of this approach. Professional redevelopment combined with service amenities helped the property lease up quickly. Pairing world-class development with proven services that deliver a return on investment protects communities from volatility in any market. According to the National Housing Trust, 45 state housing agencies incentivize affordability in their Qualified Allocation Plans. A handful of these states provide significant weight to projects that are distinctive in their approach to preserving affordability. As the market continues to recover and alternative funding models are leveraged, some lenders are requiring additional safeguards outside of the standard cash-to-debt ratio in order to protect the investment. Explicitly offering a proven service-enriched housing model can set apart a proposed project, giving it a greater chance for success. A boon to funding and a financially stable asset, resident services foster a true win-win situation for all parties involved.