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NHP Foundation
Community center under construction at Walnut Square in New Orleans.
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NHP Foundation
New residences under construction at Walnut Square.
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Ghebre Selassie Mehreteab, Co-Chairman and Chief Executive Officer, The NHP Foundation
America's affordable housing crisis has been most visible in the aftermath of hurricanes Katrina and Rita. The storms drastically affected the housing stock in the Gulf Coast region, resulting in the displacement of hundreds of thousands of people without adequate and secure housing.
With so many homes ruined by the storms, the demand for affordable housing has increased exponentially. In the New Orleans metropolitan area alone, 89,444 affordable homes and apartments suffered major or severe damage from Katrina and Rita. Of that number, only 22,806 homes and apartments are in the rebuilding pipeline.
The NHP Foundation (NHPF) became immediately involved in the recovery because Hurricane Katrina destroyed or severely damaged nearly 900 units of the organization's housing stock in New Orleans. As the demand for affordable housing in the Gulf Coast region became apparent, NHPF decided to add to its affordable housing inventory in the region in keeping with its mission, which is to provide quality, affordable, rental housing and resident services for low- and moderate-income families.
Who We Are
In 1989, the National Housing Partnership -- a congressionally chartered corporation -- created the foundation. NHPF is a national nonprofit with the rigorous financial discipline of a real estate company and the mission of a charitable organization. NHPF leveraged $6 million in initial contributions from 24 major corporations, including six banks, into more than 9,000 affordable rental housing units primarily throughout the East and the Gulf Coast states.
Integral to the provision of housing is NHPF's Operation Pathways, which offers programs to empower residents and surrounding communities by providing skills necessary to break the cycle of poverty through community building, child enrichment, and adult education.
Since 1994, NHPF has acquired and preserved 46 properties in 14 states. Today, NHPF spans 23 communities in 11 states with 28 properties, serving more than 25,000 residents in nearly 6,000 units. Prior to hurricanes Katrina and Rita, this inventory included nearly 900 units of affordable rental housing in four developments in New Orleans. Over the next three years, NHPF plans to acquire, rehabilitate, and develop an additional 9,000 housing units, of which one-third will be in the Gulf Coast region.
NHPF's Response to a Changing Environment Post-Katrina
The storms severely damaged all three properties NHPF owned prior to Katrina. Walnut Square (209 units) needed reconstruction. Forest Park (284 units) and Tanglewood I and II (384 units) needed significant renovation. Organizing the financing to cover these large-scale construction projects was complicated.
In a cruel coincidence, the period since the hurricanes saw a dramatic decline in the prices offered for low-income housing tax credits (LIHTC), a principal source of funding for affordable housing development. While LIHTC developers might have raised 95 cents to one dollar per credit in early 2007, by early 2008 they were typically able to raise only 80 to 85 cents per credit.
Declining equity from tax credits would require developers to either find some way to cut project costs or to raise additional financing. Both of these remedies are difficult in the current economic climate for affordable housing developments, which are typically already on very tight budgets.
Material changes to a project, such as reducing the number of housing units produced to reduce costs, would generally require the developer to submit an amended application to the credit-allocating agency. Thus, the developer would run the risk that its project would no longer be competitive and could lose its credits. This conundrum has led to some projects being shelved, as developers were unable to cover the gap left by the weakened LIHTC market.
NHPF has been able to adapt to this challenging market environment through its strong reputation as a national affordable housing developer and manager and its deep network of financial partners in the public, private, and philanthropic sector.
NHPF bridged the financing gap to replace its existing New Orleans affordable housing stock through philanthropic grants from The Ford Foundation, The John D. and Catherine T. MacArthur Foundation, Bush-Clinton Katrina Fund, Louisiana Disaster Recovery Foundation, Qatar Katrina Fund, and others. And residents have be-gun to move back into the Gulf Coast properties. In the future, NHPF plans to create 3,000 affordable units in the Gulf Coast area at a total cost of $300 million.
The 2005 Gulf Opportunity Zone Act defines the entire three GO Zones for Katrina, Rita, and Wilma as difficult development areas (DDA) for the purposes of the LIHTC program (see sidebar). This definition increases the amount on which tax credits are calculated to 130 percent of new construction or rehabilitation expenditures. Outside of DDAs, tax credits are calculated on 100 percent of these expenditures.
This tax-credit provision temporarily adds to the value of LIHTC used to create or replace affordable rental housing throughout these GO Zones. Before 2006, Louisiana and the affected areas of Mississippi did not contain DDAs. The expiration of this provision at the end of 2010 may reduce the areas in the Gulf Coast likely to receive LIHTC investments because, at best, only some small subset of the GO Zones will likely remain defined as DDAs.
Rebuilding After the Storm: Walnut Square
One of NHPF's most ambitious post-hurricane projects is the redevelopment of the 11-acre Walnut Square in New Orleans East. NHPF is working to revitalize Walnut Square and convert it to a mixed-use development that will serve as a social hub for the surrounding community. In addition to constructing 209 mixed-income housing units and an acre of commercial space, the $37.8 million rebuilding project will provide this neighborhood with a playground, surface parking, laundry facilities, a community center, and more.
The total development cost was obtained from a combination of public and private sources, as well as grants from philanthropic entities. These financial partners include Louisiana, Bank of America, Capital One, The Ford Foundation, NeighborWorks America, and the Bush-Clinton Katrina Fund. The property is scheduled to be completed in December 2008.
NHPF's post-hurricane rebuilding extends beyond properties in New Orleans. NHPF also plans to purchase 1,115 affordable units in Baton Rouge and Lake Charles to prevent those units from being converted to market rate. These rental units will be used to maintain affordable housing to help meet the demand created by the thousands of relocated families.
The acquisition and rehabilitation will be financed using 501(c)(3) bonds, which will require these units to remain affordable in the long term. Seventy-five percent of the units must be rented to families earning below 80 percent of the area median income, and 20 percent of the units must be rented to families earning below 50 per-cent of the area median income.
In addition to 501(c)(3) bonds, NHPF will employ LIHTC, traditional loans, philanthropic support from corporations and foundations, as well as program-related investments. NHPF plans to increase its portfolio significantly over the next few years and has several projects in progress.
Making Progress
NHPF's work in the Gulf Coast region has allowed residents not only to obtain affordable and safe housing but to begin to rebuild their lives and their communities. These efforts required the support of banks and other financial partners. NHPF sees appropriately priced equity and below-market rate predevelopment loans for projects in the Gulf Coast region as major areas that banks can best contribute to the needs for affordable multifamily housing.
It is important for banks and other investors to be patient partners, because arranging the financing for affordable housing projects is a complicated and time-intensive process in the best of conditions.
In return, NHPF, through its strong construction and property management history, offers its investors financial return and enhanced community relations by participating in projects that may also receive positive Community Reinvestment Act consideration and the satisfaction of assisting in the recovery of the Gulf Coast.
For more information, e-mail Ghebre Selassie Mehreteab, The NHP Foundation.
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