Real Estate Weekly
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REITs and affordable housing a public-private marriage of convenience

By Nicolas P. Retsinas, Chairman, Community Development Trust

Capital markets have entered a marriage of convenience arranged by Uncle Sam.

The new couple binds Real Estate Investment Trusts (REITs) to affordable housing — on the one hand, an unlikely alliance, on the other, one that benefits both private and public interests.

In fact, anyone who believes America’s neighborhoods should be affordable for working families should cheer this coupling.

The need for affordable housing is clear.  Millions of low-income renters live in unaffordable or structurally deficient housing. One in two renter-households pays over 30 percent of its income for rent; one in four pays over 50 percent.

Those households struggle to pay for food, clothing, healthcare, and transportation.

The federal government is not likely to increase its subsidies in light of an escalating budget deficit.

The last substantial housing production program — the Low Income Housing Tax Credit (LIHTC) program — was initiated in 1986. We have not added substantial dollars since the Clinton Administration.

So the country’s affordable housing crisis continues to escalate, and public funding to solve the problem is stagnant.

Yet there is hope from an unlikely source: the private sector.

The Community Reinvestment Act has motivated banks to make loans and investments that benefit low-income communities, specifically the communities where the banks make their homes (and their profits).

Federal tax incentives make investing in affordable housing an opportunity for safe risk-adjusted returns. The nom-du-jour is “mission” investing, but these investments do turn a profit.

At the same time, developers are willing to build and rehabilitate affordable housing, but many lack sufficient capital to make a major contribution to the inventory and address the dire shortage.

REITs have been around since President Eisenhower signed the Real Estate Investment Trust Act in 1960, but only relatively recently have REITs been used for affordable housing projects.

As Chair of the first affordable housing REIT, the Community Development Trust, I’ve seen the potential of this public-private marriage.

To date, the 15 year-old CDT has marshaled $1 billion to build or rehab 35,000 homes at affordable rents.

Several of these projects were part of the U.S. Department of Housing and Urban Development’s Rental Assistance Demonstration program, which opened up public housing to new avenues of private funding. Public housing developments that have fallen into disrepair or financial trouble can now seek private funding for rehabilitation and refinancing.

The goal: to make these developments structurally and financially secure for the long term.

The demand for the program is high; indeed, the government raised the cap on units to be refinanced — a testament to how sorely affordable housing is needed.

This program opens yet another property category to financing by CDT and other privately owned institutions seeking to invest in affordable housing.

Affordable housing REITs are a bridge to the capital desperately needed to house low-income Americans.

History (and politics) tells us that government subsidies alone will not solve the dearth of affordable housing. Private developers and private capital are needed.

REITs harness the engine of America’s private enterprise, which has driven the construction of market-rate apartment and office buildings, to spur low-income housing as well.

Sometimes arranged marriages work.

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