Affordable housing is needed more than ever, and public-private collaboration will be key to reducing the shortage. Partner Insights spoke with Dave Walsh, Northeast Regional Director of Community Development Banking at JPMorgan Chase, about the importance of public and private entities working together to increase the supply of affordable housing.
Business Observer: How important are public-private collaborations in creating affordable housing?
David Walsh: They are incredibly important. This is how affordable housing is ultimately developed. It’s hard to make the numbers on affordable housing transactions work without the involvement of a government entity in some form, whether it’s providing capital, project tax exemption, or rezoning. From a public perspective, there are multiple touchpoints that can help build affordable housing, so it’s critical that the public side helps facilitate this.
Who are some of JPMorgan Chase’s crucial allies in this effort?
On the public side, we have allies at all levels: 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 needed to increase the supply of affordable housing in their state. Big cities, like New York, 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 example, the New York City Housing Authority [NYCHA] The PACT program was designed to use the rental assistance demo [RAD] program to acquire and rehabilitate certain properties in NYCHA’s portfolio. HDC works as a financial advisor to help NYCHA select qualified development partners to help them acquire and rehabilitate individual properties across the city.
Once a development partner is selected, the development team works with their financial partners to secure construction and/or permanent loans to bring the building to life.
In 2021, JPMorgan Chase completed financing for two large transactions using both construction and historic tax credit [HTC] financing on each transaction. In fact, this is a collaboration between NYCHA and the development partner, and we are the lender and investor in the transaction. Through this process, we will help provide the necessary financing for the rehabilitation of approximately 3,400 social housing units. It’s a real collaborative effort.
We also recently provided nearly $90 million in bridge financing for a project to create 181 new affordable housing units in Oakland, California. This deal took more than 15 years of working with various public and private entities and was made with capital from JPMorgan Chase’s tax-oriented investments. .
Is it mainly new housing developments or renovations, or is it both?
It’s both. The challenge, especially in urban cores, is that there are few plots of land available for new developments. As a result, we tend to see a lot of rehabilitation opportunities. But surprisingly there are also a number of new build opportunities that we see every year, so it’s really a mix.
It is important to note that demand continues to exceed supply. As a result, completely affordable new offerings within major city limits containing 100-200 units should easily garner 30,000-40,000 tenant enquiries.
Transactions in this sector are complex. Talk about some of the challenges inherent in identifying the right players and then designing and executing the actual deals.
The biggest challenge is that there is a limited amount of resources available from the public side for development projects. Funding for the tax credit is allocated based on a state population formula. Therefore, it is a highly competitive process to obtain the resources necessary to finance a transaction each year. On the side of the 4% tax credit, involving tax-exempt bond financing, there is typically a volume cap shortfall each year in large states like New York. This translates to a developer waiting months or even years for their project to move forward. This is one of the biggest challenges we see at all levels. Some of the core developers have the kind of stamina that, if told their deal will carry over into the next year, they are able to handle. But for a non-profit developer or a smaller for-profit developer, this wait can be a real challenge. As a result, we see a number of smaller developers partnering with larger developers or large contractors, who in some cases become co-developers to help mitigate risk.
How will the changing of the guard in the office of the mayor of New York affect these efforts?
Mayor Adams was a major proponent of affordable housing as Brooklyn Borough President, and he just hired two well-known housing executives. The first is its head of housing, Jessica Katz. She‘I will oversee all real estate agencies. She is fantastic. Adolfo Carrión Jr. is the new Commissioner of the Department of Housing Preservation and Development. He‘is the former borough president of the Bronx. He has a perfect command of housing policy and issues.
What does JPMorgan Chase ultimately hope to accomplish in this area?
As for moving forward, we are now in 48 states. The commitment to the communities we serve, where we live and work, has never been stronger. What is truly inspiring is that affordable housing funding is not limited to community development banking. Now we see all parts of the business involved. We’re really focused on the issue, and it’s a message from above.
See more affordable housing articles here.