Affordable housing is needed now more than ever, and public-private collaboration will be key to reducing the shortage. Partner Insights spoke with Dave Walsh, Northeast regional manager of community development banking at JPMorgan Chase, about the importance of public and private entities working together to increase the affordable housing supply.
Commercial Observer: How important are public-private collaborations in creating affordable housing?
Dave Walsh: They’re incredibly important. It’s how affordable housing is ultimately developed. It’s difficult to make the numbers work on affordable housing transactions without a government entity’s involvement in some form, whether that’s providing capital, a project tax exemption or rezoning. From a public perspective, there are multiple touchpoints that can help affordable housing development, so it’s critical for the public side to help facilitate this.
Who are some of JPMorgan Chase’s crucial allies in this effort?
On the public side, we have allies at every level: federal, state and local. Nationally, we have the Department of Housing and Urban Development. Individual states tend to have agencies solely focused on providing the resources necessary to increase the amount of affordable housing in their state. Major cities, like New York City, tend to have agencies that provide additional resources for this effort. We actually have two agencies here: the New York City Department of Housing Preservation and Development (HPD) and the New York City Housing Development Corporation (HDC).
Break down the essential role that each side — public and private — plays in the creation of affordable housing.
It’s probably best to provide an example of each party’s role in a specific transaction. For instance, the New York City Housing Authority [NYCHA] PACT program was designed to use the Rental Assistance Demonstration [RAD] program to acquire and rehabilitate select properties within NYCHA’s portfolio. The HDC is working as a financial adviser to help NYCHA select qualified development partners to assist them in acquiring and rehabilitating individual properties across the city.
Once a development partner is selected, the development team works with its financing partners to secure the construction and/or permanent loans to bring the building to life.
In 2021, JPMorgan Chase closed on the financing of two large deals using both construction and Historic Tax Credit [HTC] financing on each deal. Effectively, this is a collaboration between NYCHA and the development partner, and we’re the lender and investor on the transaction. Through this process, we’ll help provide the financing necessary to rehabilitate roughly 3,400 units of public housing. That’s a real collaborative effort.
We also recently provided almost $90 million in bridge financing for a project creating 181 new affordable housing units in Oakland, Calif. That deal took over 15 years of work with various public and private entities and was completed with equity from JPMorgan Chase tax-oriented investments.
Is this mostly about new housing development or renovations, or is it both?
It’s both. The challenge, especially in urban cores, is that there are limited parcels of land available for new development. As a result, we tend to see a lot of rehabilitation opportunities. But surprisingly, there are also a number of new construction opportunities we see every year, so it’s really a mix.
It’s important to note that demand continues to exceed supply. As a result, new all-affordable deals within major city limits containing 100 to 200 housing units should easily garner 30,000 to 40,000 tenant applications.
The deals in this sector are complex. Talk about some of the inherent challenges in identifying the right players, then conceiving and executing the actual deals.
The biggest challenge is that there’s a finite amount of resources available from the public side for development projects. Tax credit financing is allocated based on a state population formula. As a result, it’s a highly competitive process to secure the resources necessary to finance a deal each year. On the 4 percent tax credit side, involving tax-exempt bond financing, there tends to be a volume cap shortfall each year in larger states like New York. This translates to a developer waiting several months, if not years, for their project to move forward. That’s one of the biggest challenges we see across the board. Some of the major developers have the kind of staying power that, if they’re told their deal will go through the following year they are able to manage. But for either a non-profit developer or a smaller for-profit developer, that wait can be a real challenge. As a result, we are seeing a number of smaller developers partnering with larger developers or major contractors, who in some cases become co-developers to help mitigate the risk.
How will the changing of the guard in the New York mayor’s office affect these efforts?
Mayor Adams was a major supporter of affordable housing as the Brooklyn borough president, and he just hired two well-known housing executives. The first is his chief of housing, Jessica Katz. She’ll oversee all the housing agencies. She’s fantastic. Adolfo Carrión Jr. is the new commissioner of the Department of Housing Preservation and Development. He’s a former Bronx borough president. He has a strong handle on housing policy and issues.
What does JPMorgan Chase ultimately hope to accomplish in this area?
As far as moving forward, we’re now in 48 states. The commitment to the communities we serve, where we live and work, has never been stronger. What’s really inspiring is that the financing of affordable housing isn’t just limited to community development banking. Now, we’re seeing all parts of the firm involved. We are really focused on the issue, and that’s a message that comes from the top.
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