By Adam Harrington
Special to Inside
Mixed-income housing developments that combine market-rate condomainiums with affordable and public housing are popping up across the city. To many civic-minded citizens, these developments represent a move to revitalize poverty-stricken neighborhoods across the city, but to real estate developers, they represent a questionable investment. City and state officials tried to build the case for investing in affordable housing at a forum May 23 at the Park Hyatt Hotel, 800 N. Michigan Ave.
As the notorious high-rise housing projects meet the wrecking ball across the city, the U.S. Department of Housing and Urban Development (HUD) is pressuring the Chicago Department of Housing and the Chicago Housing
Authority to find developers and move quickly on new projects, said CHA Managing Director of Development Bill Little.
“The key for this year is to get mixed-income deals closed on former CHA sites,” Little said. “We’ll have to break ground on CHA-owned property this year.”
Last February, the state enacted a 50 percent tax credit on all property donated to affordable housing projects. Due to the prohibitive costs of purchasing land and the tax burdens on real estate developers, the city and state are presenting this tax credit as a means to make affordable housing investments more attractive.
“Implicit in any decision-making process on tax credits should be the idea that it has to be a marketable project,” said David Saltzman, Deputy Commissioner of the Chicago Department of Housing. “We want the project to be in a viable market where people are interested in living. We’re not interested in promoting development in a seriously disinvested area that has no broader plan.”
While real estate developers were pleased with the proposal to lighten the tax burden, many took issue with the state plan, since it requires a land donation and an upfront payment, and only provides a 50 percent credit.
“The investment community is really looking at it as an investment, not a donation,” said real estate developer Bruce Schiff, “and 50 cents on the dollar? That’s not enough.”
Investors also said that due to the high vacancy rate in public and affordable housing developments, hedging bets on the new projects may be dangerous to their bottom line.
“The investor is in this for 15 years,” said Bank One real estate investor Pat Nash. “We care very much about the level of improvement, and we don’t have the ability as an investor to re-size the debt if there is an elongated time of little rental.”
Investors said that unless the tax credit were implemented over a period of time rather than all at once when development began, it would be a failure from a business perspective.
“The concept of putting all the equity upfront is terribly
misguided,” said David Kunhardt of San Francisco-based AEGON investment corporation. “The requirement to have all the investors’ money upfront takes away all the work the investors have done.”
While most developers presented themselves as strictly profit-minded, some say they are looking for a middle ground between philanthropic investment and shareholder profits. Chicago-based LaSalle Bank, which has signed on with the city’s Community Reinvestment Act (CRA), has a “double bottom line” policy in mind when investing in affordable housing, said LaSalle representative Torrence Moore.
“We [invest] solely for the CRA, but at the same time, we’re trying to make a buck for the bank,” Moore said. “Because our branch network is here in the Chicago area, we do it [only] here in the Chicago area.”
Still, Moore said that due to the likelihood of low returns, the tax credit proposal is less appealing than other programs LaSalle has initiated with the CHA in the past.
“In terms of the CHA redevelopment plan, we invested in a one-year program with a mixed income approach,” he said. “From a CRA perspective, we really like these deals. From a return perspective, it’s a little higher than we’re talking about on the tax credit deals. If we could do those [deals] all day every day, we would.”
Public and affordable housing residents have voiced opposition to the new development plans, saying that profit-minded developers will likely favor market-rate housing over affordable housing and start a wave of gentrification. Although no developers addressed the issue, Saltzman said the narrowing of the market was a concern.
“We can’t have rents that are too high,” Saltzman said. “You have your 60 percent on top, and you have what a person can afford on the lower limit. The danger is squeezing the band so narrowly that you have a limited market.”
No residents or housing advocates were invited to the forum.
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