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A Model Worth Copying: Joint Ownership Structures for CDCs

In an in-depth article for The Journal of Affordable Housing and Community Development Law, attorneys David Goldstein and Jason Labate offer a case study of the Joint Operating Entity NYC (JOE NYC), which LISC has supported from its inception. The JOE NYC, a consortium of CDCs that have pooled their portfolios and expertise, is a blueprint that can help CDCs in other cities and regions shore up their stability in challenging markets and gain ground against the national affordability crisis.

The intro below is from:
Changing the Paradigm: Creating Scale and Keeping Local Expertise in Nonprofit Affordable Housing Development—How to Stop Competingwith Fellow CDCs and Embrace aJoint Ownership Structure
By David A. Goldstein, Jason Labate,and Nadya Salcedo, Goldstein Hall

Over the past forty years, New York City’s nonprofit Community Development Corporations (CDCs) have rebuilt some 100,000 units of housing, helping to transform many disadvantaged communities from slums to thriving, vibrant, and safe places to live and work. However, today the pendulum has swung the other way: communities that were once plagued by blight are now facing gentrification. In the context of a bullish real estate market, the housing options for many households at the bottom of the economic ladder have worsened. While housing prices have risen, the income of many New Yorkers has declined. According to Coalition for the Homeless, homelessness in New York City has reached its highest levels since the Great Depression of the 1930s. And according to City officials, there are 700 applicants for every unit of affordable housing. With regards to housing, we are witnessing a serious market failure. Even those that can “afford” housing are severely rent burdened. Nearly one-third of all New York renters, and almost two-thirds of low-income New Yorkers, spend more than half of their incomes on housing.

New York City government has recognized the insufficient supply of affordable housing, with Mayor Bill de Blasio declaring in 2014 that we have “a crisis of affordability on our hands” and setting forth a comprehensive plan to build and preserve 200,000 affordable units over ten years to support New Yorkers with a range of incomes. Yet, even with a comprehensive plan to tackle this issue, the reality is that we are losing affordable housing every day. Regulatory restriction periods for many affordable housing projects are expiring while market pressures and opportunities are pushing these projects to go to market rate. At the same time, tax reform has lowered the federal corporate tax rate and subsequently cut the subsidy created by Low Income Housing Tax Credits (LIHTC). With more market demand and lower public subsidy, the maximization of profit motivates developers to drop the “affordable” from their housing plans. The market need for and the pressures against affordable housing have crashed head-on, leaving low-income individuals out in the cold. But we remain hopeful. We believe that by merging market realities with mission in a smart—dare we say a paradigm-shifting way—a solution can be found. We are already seeing heartening success.

A critical player to ensuring that New York City has sufficient affordable housing is the city’s nonprofit community-based development sector. The recently formed The Joint Ownership Entity New York City Corp. (JOE NYC), a joint ownership and management structure for property owned by nonprofit CDCs, leverages the mission-driven community-based knowhow of CDCs and brings it to a citywide scale. Developed after a two-yearprocess by a working group of some of New York City’s leading CDCs known as the CDC 4G Initiative, JOE NYC now serves as a vehicle to enhance the viability of CDCs to help them address the pressing need to preserve long-term affordability within existing projects, and to develop new projects and opportunities for nonprofit ownership of affordable housing. JOE NYC intends to achieve long-term affordability by improving operating margins of projects through economies of scale and other measures designed to increase the economic efficiency of projects. JOE NYC also seeks to create liquidity across its portfolio in the use of operating reserves that are currently segregated by project. JOE NYC has the balance-sheet strength required by lenders, syndicators, and governmental agencies to allow it to acquire, refinance, and recapitalize projects, without the need to joint venture with a for-profit development partner, and has the ability to act as a co-guarantor for its members on new affordable housing transactions, freeing members from the current necessity of joint venturing with for-profit development partners on new transactions. Finally, JOE NYC helps to create asset management standards for property management by which projects in the JOE NYC portfolio may be measured.

In this article, we explain how we are helping and empowering some of New York City’s leading mission-driven organizations to leverage their local expertise AND group capacity to compete in the market to create more affordable housing at greater levels of affordability, for longer, even permanent, periods of time. We will explain how this new model works, what problems this model was meant to solve, and what attributes it was required to have. We will close with some initial successes, and what might be applicable to other jurisdictions.

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