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Tikkun Olam One Apartment at a Time: A New Funding Model for Affordable Housing

Tikkun Olam One Apartment at a Time: A New Funding Model for Affordable Housing by Eddie Lorin, published in Jewish Philantropy: I have been in the “workforce/affordable” housing business for many years by taking blight and making light. Having lost my father at 10 months old and my mother at 17 years of age, I struggled to make ends meet and have never forgotten the humiliation and fear that being poor grates on your psyche. For my entire real estate career, I have remained committed to the right of each of our fellow citizens to a clean, safe and affordable place to live, to treat all who dwell under our roofs with respect and dignity so they can stay, pay and refer their friends. This is the ultimate impact investment above all others in my opinion. It’s hard to educate a child when they are sleeping on the streets, hard to support solar when these folks are only exposed to the sun, hard to worry about clean water or low flush toilets when a family has neither a toilet nor water. Out of the Great Recession I have seen how rents have dramatically risen and the result on hard working folks finding it next to impossible to afford the basics. We need to keep units affordable before they become out of reach as we have seen in major cities across the country like San Francisco and New York.

According to the National Coalition for Affordable Housing there is a 7.2 million unit shortage of affordable housing in the United States and growing as we only build about 50,000 units per year and lose to attrition over 150,000 units per year as affordability covenants expire.

Traditional methods using housing credits, rent controls and other government sector solutions are great but not enough by themselves. The issue is definitely a basic supply and demand issue where we need to build as many units as we can but also at the same time we need to stabilize the existing affordable units before they get gentrified and rents rise there as well. I believe that we, as Jewish foundation stakeholders, can join forces together to use program-related investments (PRIs), grants and mission-related investments (MRIs) in public-private partnerships to make a difference with a great new solution.

How can we do it?

Our HAPI foundation, in conjunction with another Jewish funder, the KBVF Foundation of Malibu, CA, just purchased the first pilot program with the City of Los Angeles to provide supportive housing to affordable residents. This Koreatown 1920’s building is 50 units comprised of studio and one-bedrooms and what we call NOAH (Naturally Occurring Affordable Housing), which, simply put, is taking older, neglected apartment buildings and deeming them affordable for 55 years. This makes a lot of sense for two reasons: 1) it is a purchase at 40% of replacement cost; and 2) it avoids the issues of “NIMBY” (Not In My Backyard) because the building already exists and neighbors can’t stop us from doing it. This approach may seem obvious, but of course some of the best solutions are common sense rather than something sexy, shiny and new.

How did this public-private partnership come together? Our two foundations provided a 2% interest Program Related Investment in the amount of $3.2 million to a bridge loan of $7.2 mm in order to purchase the asset. Our $3.2 mm of PRI loans will be refinanced out down to as little as $500K with new financing from the state of California and “soft money” loans from the State of California and the City of Los Angeles. As a “quid pro quo” for providing all the units as affordable at various levels of Area Median Income, we expect a property tax abatement from the County Assessor to help offset this reduction in market rents.

In addition, the current affordable rents are in most instances not quite high enough to make these older rehab deals work. An additional solution we have come up with is a “supplemental voucher” program which would be in the form of a grant (as opposed to a PRI). As little as $150 per month in rent per affordable unit can often be what is needed to bridge the gap to break even and after 3 or 4 years the affordable rents will catch up to the rents needed on such NOAH investments.

This is a prime example of how collaboration is the only way to solve these challenges, and we at the HAPI Foundation are doing our part by proving a model for others to follow.

Please join and collaborate with us and we can help repair the world (Tikkun Olam) one apartment at a time. We have taken the hardest step in proving the model – now it is time for everyone else to jump in too! I am looking to form the first “PRI Affordable Housing Fund” and invite you to email me to join us as we make history at elorin@strategicrh.com.

Article originally published in Jewish Philanthropy.

 

Impact at USC’s Price School of Social Innovation Annual Summit

USC’s Price School of Social Innovation’s Annual Summit Sponsored by Eddie and Jane Lorin https://www.uscsocialinnovationsummit.com

Eddie and Jane Lorin sponsored USC’s Price School of Social Innovation’s Annual Summit held Friday, April 27, 2018. Over 150 people in attendance included city agencies and key stakeholders in Los Angeles  covering non-profits providing services, Foundations, Donors, Developers and Educators. The agenda included panels titled “Housing the Workforce,” “Innovations to Increase the Affordable Housing Stock” and “Innovations to House the Homeless.”

The attendees broke into 15 groups in a workshop format to brainstorm solutions given 3 case studies. The format of the summit promoted great collaboration and a positive experience was enjoyed by all.

At the all day event, Lorin announced the first “NOAH” project (Naturally Occurring Affordable Housing) in conjunction with the City of Los Angeles which will take an existing 1920s apartment building in the East Hollywood district of Los Angeles and deem 50% of the property affordable in exchange for a property tax abatement.

These affordable units are anticipated to be reserved for supportive housing for the homeless with services and social work provided by the 20 year old non profit People Concern http://www.thepeopleconcern.org,  Health and Wellness programming on site at the property will be provided by the non-profit HAPI (Healthy Apartment Property Initiative founded in 2013 by the Lorins) which focuses on food insecurity and education https://www.hapiapts.org.

NOAH is an innovative concept Lorin proposed to the Los Angeles Housing + Community Investment Department (HCIDLA) in 2016 in order to pilot a Public/Private Impact Investment to provide another unique solution to the housing crisis.

By purchasing existing assets and deeming them affordable, the NIMBY (not in my backyard) deterrent to new development is eliminated along with the purchase of existing older properties costs as low as 40% of the replacement cost to build new. Lorin says he is pleased to be the first to launch this concept because “it just makes common sense.” Housing can be relatively immediate versus the 3 years it takes to build new.

 

Jane and Eddie Lorin are relentless in their pursuit to create new innovations to solve the housing crisis like NOAH. They have also sponsored the “Jane and Eddie Lorin Fellowship for innovative low income housing solutions” at USC’s Price School. The Fellowship will promote a competition for the most creative and inventive ideas for affordable housing.

Impact Housing REIT, LLC.
$1,000
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A reservation is not an investment. A reservation is non-binding and you will need to confirm your reservation when Impact Housing REIT, LLC offering is live to invest. By making a reservation, you are requesting an allocation in Impact Housing REIT's upcoming offering. A copy of the Preliminary Offering Circular may be obtained here. A reservation is non-binding and you may change the amount at any time. Reservations may be accepted in whole, or in part, or not at all by Impact Housing REIT. If granted, you will be asked to confirm your investment once Impact Housing REIT's offering has been qualified by applicable authorities and the fundraise has officially begun.


Disclaimer
Impact Housing REIT, LLC will invest in multifamily properties, income-producing real estate, a market that may produce returns that are different than the returns an investor could expect from other markets, including the stock market. Before our Sponsor receives anything, investors are entitled to a 7% annual return on their investment. Note: There is no guaranty that investors will receive any return on their investment, or get their capital back. In the last 5 years, the Sponsor has completed 28 projects (totaling 40 multifamily properties) which have achieved an average annual cash on cash return of 8.55% and an average project IRR of 24.74%. For more information about the Sponsor’s track record, see the Offering Circular, here. However, Impact Housing REIT, LLC is itself a newly formed company with no historical data of returns, and there is no assurance that it will achieve comparable success. The results that the Sponsor has achieved in the past do not guaranty that it will achieve similar results in the future. Like any investment, there is the potential to lose some or all of your investment. The ability to make distributions will depend on the availability of cash flow each quarter. There is no guarantee that we will be able to make a distribution in any given quarter. For a list of the most significant risks, click here.
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Under Contract: Maryland
* Highrise with spectacular views
* Twelve Floors, 143 Units
* Built in 1969
* Strong 96% Occupancy
* Naturally Occurring Affordable Housing
* RUBS / Water Conservation Potential
* Purchase Price: $7m to $8m
*Note that this property may or may not ultimately close escrow subject to due diligence and other various factors. Impact Housing REIT cannot guarantee that this specific property will end up being one of the multiple assets owned by the fund.
Target: Colorado Springs
* Mountain views
* Near commercial district
* 64 Units
* Built in 1967
* New roofs recently installed
* Units currently renting below market
* Purchase Price: $5m to $6m
*Note that this property may or may not ultimately close escrow subject to due diligence and other various factors. Impact Housing REIT cannot guarantee that this specific property will end up being one of the multiple assets owned by the fund.
Target: Mesquite, Texas
* Strong submarket: 96% Occupancy
* Located in suburb just outside of Dallas
* Multifamily, 190 Units
* Built in 1959 -1972
* New roofs recently installed
* Renting at 25% - 50% below market
* Purchase Price: $8m to $9m
*Note that this property may or may not ultimately close escrow subject to due diligence and other various factors. Impact Housing REIT cannot guarantee that this specific property will end up being one of the multiple assets owned by the fund.
Disclaimer
Impact Housing REIT investments are expected to be spread throughout the United States. The Manager expects Impact Housing REIT’s investment portfolio to consist of direct equity interests in individual properties. The Manager will generally target equity investments ranging from approximately $3 million to $10 million. Note that these properties may or may not ultimately close escrow subject to due diligence and other various factors. Impact Housing REIT cannot guarantee that these specific properties will end up being one of the multiple assets owned by the fund or that investors will receive any return on their investment, or get their capital back. In the last 5 years, the Sponsor has completed 28 projects (totaling 40 multifamily properties) which have achieved an average annual cash on cash return of 8.55% and an average project IRR of 24.74%. Past performance cannot guaranty future results. For information on our Sponsor’s track record, see the Offering Circular, here.