We asked Nancy Rase, President of Homes for America (HFA) about the new challenges for affordable housing organizations and how they can still be sustainable.
Affordable housing developers are facing greater competition for fewer resources. How is your organization affected, and how are you responding?
Maryland used to award 8-10 projects per round, and now it’s 3-4 projects. We’ve gone from developing 3-4 projects a year to 1-2 projects a year, and we’re making the appropriate adjustments. Our focus has been two fold:
- Making sure our existing portfolio is operating at optimum performance. Interest rates are low, so it’s a good time to refinance debt. And we’ve seen dramatic savings through energy retrofits that don’t require comprehensive rehab.
- Exploring different ways to finance housing. We’re finding that we can finance 15-year lease purchase projects with limited resources. There are also opportunities to purchase and develop single-family homes from builders who can’t proceed because of the current market.
With our focus on the portfolio, developers are working closely with asset managers on project refinancing and energy conserving improvements. We’ll come out of this with a more well-rounded, cross-trained staff.
What business systems have been helpful?
Our go/no-go procedures for undertaking new developments are crucial. We also revisit the decision more frequently and analyze more thoroughly. If a project might take four rounds to get funded, it doesn’t make sense for us to begin incurring costs.
What recommendations do you have for housing organizations?
- Take a hard look at the way you do business. Is it still possible to implement your business plan? Rely on your staff. This should be a bottom-up process.
- Watch the money. We run a month by month 24 month projection, and it’s not income and expenses. It’s cash in the door and cash out the door. Our board has actually asked us to project for 36 months. It’s really important right now to be sensitive to taking on continuing obligations when there’s less reliability in the cash flow stream. In our business, we have three- year lag, so if you don’t plan for the change, it really catches you when it’s too late to adjust.
- Examine organizational sustainability in Year 15 decisions. Does it make sense to recapitalize? Does it make sense to buy out the investor partner? We’re looking at that not just from a physical perspective, but also an economic perspective. In a prior year we may have bought out the investor on a project in good physical condition, but are resyndicating now to generate new revenues. Some projects that we thought we would operate in perpetuity may need to be sold to good stewards because they undermine the organization’s long-term strength.
This is a challenging period, but it’s going to get better. We’ll all grow out of this as stronger leaders with better organizations and more well-rounded staff.
Learn more about improving organizational sustainability in Building Sustainable Organizations for Affordable Housing and Community Development Impact. Visit the Enterprise website next month for more on go/no-go decisions.