Public Housing Authorities Offer Resources, Opportunities for New Housing Deals
By Caitlin Jones & A. J. Johnson
6 min read
Tax Credit Advisor August, 2006: Public housing authorities can be a potential source of new housing deals for private developers.
Already in the business of affordable housing, PHAs can also bring to the table funding sources, land, relationships, and other advantages to facilitate new projects, including those using housing tax credits, according to officials interviewed by the Tax Credit Advisor.
These new opportunities are reflective of the changing world of PHAs, from traditional owner-operators of apartments for the poorest and administrators of Section 8 rent subsidies, to more entrepreneurial players.
As the result of deep cuts in the federal funding they receive, from changes in programs (e.g, HOPE VI) that have encouraged them to form public-private partnerships and “think outside the box,” and from changes in policy and philosophy about the role of PHAs and how they can best serve local housing needs, an evolution has taken place among the nation’s more than 3,000 public housing authorities.
As a result, many have redeveloped public housing properties into mixed-income communities, and supplemented their public housing stock with additional non-public housing units. And many PHAs that have not done so are exploring this direction.
Developer Robert Greer, of Michaels Development Co., has partnered with PHAs to develop 17 HOPE VI projects. He is also developing non-HOPE VI affordable rental projects for PHAs as well. One is a new 82-unit seniors housing complex in Jersey City, N.J., that used LIHTCs, public housing dollars, and other funding sources.
Smaller, Mid-Sized Authorities
Syndicator Bernie Husser, of MMA Financial, LLC, Boston, Mass., suggests smaller- and mid-sized PHAs may be ripe for private developers to partner with on housing deals, since these often may lack the in-house capacity and track record to develop themselves.
Like their larger brethren, these PHAs get the same kinds of annual public housing dollars from the U.S. Department of Housing and Urban Development. These, together with other resources, may be able to be directed for new affordable rental housing development.
The two major current funding sources for PHAs are public housing capital funds and operating assistance. While these dollars are restricted to units that serve public housing-eligible households, units may be able to both provide housing for public housing residents and simultaneously qualify for the low-income housing tax credit. In addition to units designated for public housing residents, projects may also have other units that are just tax credit units, or even market-rate units. When capital funds are provided, they generally are used as soft debt.
Husser said what many PHAs have been doing for mixed-finance housing deals is to borrow against their future stream of annual capital funds from HUD, either by floating tax-exempt bonds or by getting a long-term bank loan, and essentially passing the dollars through to the project partnership. Such projects can get 4 percent tax credits, if the bonds are used, or 9 percent credits, if there is a bank loan.
Husser said MMA Financial to date has syndicated more than 70 partnerships involving PHAs and private developers, using all kinds of structures for a wide range of housing projects. Some have consisted of 100 percent public housing units, some a mix of public housing and tax credit units, etc.
Other Resources, Advantages
In addition to capital and operating funds, PHAs have other resources they can offer for a housing deal. Housing authorities have housing choice (Section 8) vouchers, a portion of which they may project-base. PHAs may own or control parcels of land suitable for a new affordable housing project, or older buildings that might be rehabilitated, using housing credits and other resources.
Housing authorities “have control of various land sites that can be attractive,” says CPA John Mackey, of the Reznick Group, Bethesda, Md. “They have redevelopment needs. They have certain soft debt that can be attractive…They also, in many locations, have better access to soft debt that the city controls.”
Housing authorities often also have close ties with local, state, and sometimes even federal politicians that can open doors of opportunity for a housing project in which the PHA is involved.
Says Carl Greene, executive director of the Philadelphia Housing Authority, “We can get some money from the city when we need it, some money from the state when we need it, and help from our senators and congressmen in Washington when we have issues there, too.” Greene’s agency, which now develops its own projects, is nearing completion of a five-year, $1.2 billion housing construction program, one that has made heavy use of LIHTCs, and has a successor, five-year $600 million campaign slated.
Husser said a PHA’s participation in a project may also qualify the project for relief from sales taxes on construction materials, depending on the state, or local real estate tax abatement. Also, if the housing authority uses a nonprofit subsidiary for a project, it may be able to seek housing credits from the state’s 10 percent nonprofit set-aside. Husser also said some states, like Florida and Washington, have set-asides of part of their annual credit authority for projects by PHAs.
Greene noted his housing authority is also better able to manage local zoning, permitting, and licensing processes, and relations with the local community.
The role played by a private developer in doing a project with a PHA can vary, Husser said. This can range from the PHA acting as general partner and a private firm building the project for a fee, to a private developer developing the project and the PHA adopting a less active role, to other variations. Husser said MMA has seen all kinds of structures.
Working with a PHA can pose some special challenges to developers interested in partnering with them. Mackey said the biggest is the procurement process, noting PHAs before undertaking a project must normally prepare and issue a Request for Proposal to solicit proposals from multiple developers. To mitigate this, he suggested that a developer who approaches a PHA with an idea for a project discuss it with the authority and work closely with it so that the RFP – if one is issued – is written so narrowly that the developer is likely to be selected for the project. He noted a housing authority also may have greater flexibility regarding the procurement process if it utilizes a nonprofit subsidiary for a project. “You want to have that conversation early and figure out how to address that [procurement] issue,” Mackey said.
Greene advised developers to examine a housing authority to determine its strengths and weaknesses and then talking to the executive director to gauge their interest in developing or partnering with a private developer. He estimated PHAs will have to put out an RFP for a project 99 percent of the time, but added that this may not be necessary if a developer just wants to purchase or lease a piece of land from a PHA. “Every situation and every real estate transaction takes on unique characteristics,” he said.
