Hi all. Thank you all for joining us today for our webinar on the ownership and management of small multifamily rental properties. My name is Shazia Manji and I'm a research associate with the Terner Center for Housing Innovation at UC Berkeley. I'm going to share some key findings from our newly published reports which provides a window into small lots of family rental properties, which provides a window into small multi family rental properties in the United States including owner characterist
ics. Financial challenges and property management practices. The report was a team effort and came together with generous funding from Benny May and the input of property owners across the country. They were willing to share their experiences with us. I'm joined by a wonderful panel of expert researchers and practitioners, all of whom work in various capacities to support this part of our rental stock. And will be sharing their insights on the challenges and opportunities for preserving affordab
ility, supporting habitability and ensuring the financial viability of these properties. Just a little housekeeping before we get started. If you haven't had a chance to read our new report. We're gonna include the link to that in the chat. We will also be recording the webinar. And it will be available to view on our website. We will also be reserving some time during the event audience question and answer. If you have questions for our panelists or about the report, please share them with us b
y typing them into the Zoom. Q&A feature. So please send over your questions and we'll do our best to answer as many of those as we can during today's webinar. Alright, so let's get into it. First, a little bit of background. Our report focuses specifically on the small multi family rentals or properties with between 5 and 49 units. These properties are an important source of lower cost housing across the country. They make up 17% of our rental stock, which is 8.2 million units across 493,000 pr
operties and they tend to rent for less than units in larger multi-family properties of similar age and quality. Properties with 5 units or more or also considered commercial and are financed with different loan products than one to 4 unit rentals. Though they are recognized as an important source of affordable rental units, research on this part of the market is slim relative to smaller properties like duplexes, which are often owned by small-scale mom and pop type of landlords. And the largely
corporate owned large multi family sector. For example, there's a lot we don't know about who owns these properties and their financial motivations. We don't know why landlords in these properties charge lower rents. How do their financial motivations inform how they manage their properties including how they choose tenants and invest time and money into upkeep and repairs. Owners in these properties are also less likely to be members of national or local property owner associations, which mean
s that they are experiences and perspectives are not well represented in policy conversations. But for policy makers and practitioners who are working to stand the loss of affordable units. More information about this part of the stock can help inform strategies for preservation. So to help address some of these gaps in 2,022 we fielded a nationwide online survey of owners and managers of 5 to 49 unit rental properties. Our analysis relies on 764 survey responses and is designed to represent by
size the national the national distribution of these properties as reported by the Census Bureau's, 2,021 rental housing finance survey. The survey covered a variety of topics and asked owners about a specific property within their portfolio. Because we feel did the survey during the summer 2022 some of the information you collected reflects owner experiences during the COVID-19 pandemic Alright, so let's get into findings. One key finding from our report is that Most small multi family rentals
were owned by individuals, although they often established an LLC to hold their property. The chart on this slide shows the share properties by ownership by their ownership structure. A third of properties were held directly by one or more individuals and another 38% are owned by an LLC where the majority owner was an individual. 9% were owned by an LLC that was in turn owned by a corporate entity and another 8% were held by a corporate owner directly without the use of an LLC. Data from the ren
tal housing finance survey shows that over time this share of small multi-family properties owned by non-individuals has increased. Our analysis should suggest that this pattern is at least in part driven by an increase in individual owners establishing LCs to hold their property rather than through corporate consolidation. We also learned that owners are really a mix of professional and part time property owners. 25% of properties were owned by corporate entities or individuals who described th
emselves as full-time investors. About a third were owned by retirees and another 36 were owned by individuals who have another job full or part time outside of property investment. The majority of properties were purchased primarily for the income that they would generate or potential capital gains. Many owners also reported that their property was part of their retirement income or their longer term plans for their family's financial security. 16% of properties were purchased at least in part
with the intent to provide affordable housing in the community. We also learned that the median owner age was in the mid sixtys and that 45% of properties were being managed entirely by the the rest were being managed with the support of a management company or someone like the building superintendent. So moving on to tenant screening and selection, we know that landlords have many different options when it comes to screening tenants from seeking proof of income and employment, interviews with t
he applicant, credit and background checks and the use of third party screening tools. All right, our analysis shows that owners use a variety of and multiple methods to select tenants. However, credit checks stood out among them. Owners and about 2 thirds of properties reported running a credit check as part of the application process and when asked which method was the most important credit check was the most frequent response. And this was true across owners with small portfolios and those wi
th larger ones. While running a credit check was universally important among owners. We did also find variation in the importance of other methods by portfolio size. Personal interviews were more important among smaller owners while online screening tools were more important among those with large portfolios. This is consistent with what we know from existing research that tells us that small scale landlords. Tend to rely more on importal and subjective methods to screen tenants while large corp
orate owners tend to favor the use of third party screening tools that bring together data on an applicant's income, credit, eviction court records, etc, to rate applicants. While bias and discrimination can show up in different ways across these approaches, small landlords may be more willing to overlook a prior addiction or low credit if they have a positive interaction with the applicant. Our analysis confirms that below market rents are common in this part of the stock. We were able to asses
s this in a couple of different ways. First, we asked owners to characterize the rent levels in the property surveyed. In nearly half of properties. Owners reported that most are all of their units rent below market. Another 25% reported a mix of above and below market rate units. We also asked owners to provide the highest and lowest rents charged in the property surveyed. And we looked at those rents in relation to local conditions and also found that meeting rents were below market. When aske
d why they kept the runs below market, the most common response given, was to prevent turnover of tenants and to ensure that the tenant could continue to pay the rent consistently. In fact, when asked about the rate of rent increases for continuing tenants, about a third of properties reported that they rarely changed their rents at all. About 40% of property cited some other reason for keeping the rent low and we found that the right in response to this question most often reflected policy rest
rictions on rent increases like rent control and stabilization laws or rent freezes that were put in place during the Covid-nineteen pandemic that were in effect when the survey was administered. Some participants share that the low rents reflected the specific condition of the property like small or older units or maintenance needs. Or other substitute program regulations that apply to their units. So we know that the economic impacts of COVID-19 hit renters particularly hard, especially lower
income and black and spanic renters. Most small multi family property saw an increase in late rent payments during the pandemic and in some cases this posed lottery or severe cash flow problems for owners. In this part of the star. The chart on this slide shows the most common ways that landlords responded to unpaid rent broken down by the owners portfolio size. And you can see here that larger owners were more likely to take any of these. Actions in order to help recoup that loss of rental inco
me, whether that action was to pursue or provide some kind of support, like directing the tenant to rental assistance or offering a payment plan. Or to take some kind of legal action, like initiating eviction or collection proceedings. Overall, we found that owners in 45% of properties applied for rental assistance directly or assisted their tenants and applying for assistance. We also found that evictions were pursued in about a third of properties specifically as a response to late rent. We al
so asked owners a series of questions about finances and financial performance and found that many properties show signs of substantial problems in this area. For example, one in 5 properties had been turned out to financing at some point in the past. And as mentioned in the previous slide, COVID-19 was also a source of financial stress for many small multi family property owners. One in 4 or 25% of properties recorded no profit during the year. The year previous. 28% of properties experience mo
derate to severe cash flow problems as a result of unpaid rent during the pandemic. We also asked owners to describe the quality of their property and their approach to maintenance. And we found that most properties were in excellent or good condition. According to their owners. However, 28% of properties were reported to be in fair or poor condition with substantial improvements needed now or within the next few years. What's phoning maintenance of some kind, whether for minor issues or more su
bstantial ones, was reported in 25% of properties. Owners of properties facing. Serious cash flow problems. We're more likely to report deferring property maintenance. You were properties and those charging higher rents. We're more likely to be in better condition compared to units in older buildings or those that charge lower rents. These numbers highlight some of the core challenges with respect to both affordability and habitability and as part of stock. Small multi family properties are on a
verage older than large multi family ones. Many of them need renovation and they need capital to make these improvements. Coming out of the pandemic especially in properties with limited cash flow there's potential for housing quality issues to worsen. So just a couple of final reflections before I hand it off to our panel. Generally our analysis shows that small multi family owners operate in a sort of middle space in terms of professionalism between small multi small rental properties that are
often owned by mom. Optivo landlords and the more business oriented large multi-family sector. The results of our survey also confirm that these properties are an important source of lower cost housing. Most properties provide below market rate units due to some combination of management choices and rent stabilization laws. But at the same time in the financial challenges facing owners of these properties threatens to exacerbate. Quality concerns and limit affordability. Particularly in older b
uildings and those held by smaller owners who may be more inclined to sell when faced with steep arrears. While our research is a first step towards understanding this part of market, there's also a lot that can still be learned. For example, research looking at tenant experiences in these properties is crucial. Also additional reporting requirements for landlords could really help researchers better understand rental markets and how owners respond to local and state regulatory environments, whi
ch differ substantially between geographies. I am going to stop there. I hope you all have found this presentation useful if you're interested in exploring the full reports. You can access that at the link in the chat or by heading over to the turner center website And with that, I am going to hand this over to Dr. Phil Garboden, associate professor at the Crown Family School of Social Work, Policy and Practice at the University of Chicago who will be moderating our panel. Phil has spent the las
t 10 years engaging with landlords and property managers around issues of investment, management, screening, and other topics. He's currently pulling this research together in a book co-authored by Eva Rosen and titled American Landlord. Wonderful. Thank you for the introduction. And for the fascinating report and, and presentation, as you mentioned, this is a sector in the, in the landlording world that gets Very little scrutiny and very little data collected on it. So it was fascinating to fil
l in those gaps. I wanna, before I introduce the panel, remind folks that if you have questions that you'd like me to answer, sorry, to ask of the panelists, please put them in the queue and A, we have some time budgeted at the end specifically for for audience questions. So we've assembled a panel of folks with really exciting range of expertise on this topic. And next up I'll be giving you 2 person a chance to introduce themselves and their work. But broadly speak briefly, we have Nat Decker,
who's the lead research economist at Fannie Mae, he's a Terner Center affiliate, and you may have noticed a co-author on the report. We have Ruby Bolaria Shifrin. She's director of community at the Chan Zuckerberg Initiative and she's going to be talking about a really interesting pilot that they've introduced to help stabilize this kind of stock. And we have Priya Jayachandran, who is the CEO of the National Housing Trust. And a Terner Labs board member. So before we get into specific questions
, it would be great if we could go around the room and just introduce. Yourself and your work and I'll start with Nat. You wouldn't mind giving a few minutes on. We are Sure, thank you. Thank you, Phil. Yeah, my name is Nat Decker. I'm a research economist here at Fannie Mae prior to that I was a postdoc. At the turner center, browsing innovation, and the As as Phil mentioned, I'm a co-author on the report. This was sponsored by Fannie Mae, for a number of reasons. Fannie Mae is very active in t
his part of the market, acquiring loans, by small multi-family properties, both because it is, you know, part of the the mission, both, you know, sort of mission wise and business wise for Fannie Mae and also because there is a statutory obligation for, both standing and Freddie to acquire a, to have a certain percentage of the loans that they acquired during the course of the year be backed by what are called affordable small multi-family. So these are properties that have rins below. That are
affordable to low income families and have between 5 and 50 units to them. And so because of that. There's a lot of, you know, interest here about what, you know, what more can we do to support this part of the stock. And it's a challenge to figure out what that is because as I already mentioned, this is a hard part of the market to, get insights into the larger multifamily properties tend to be held by owners who are, you know, very, very large themselves, easy to identify, you see to talk to t
he people in charge. And they're, you know, there really aren't that many very large apartment operators out there, whereas when you look at small part of the stock ownership is much more fragmented and there are thousands and thousands owners there and you know it's not a matter of talking to you know the large trade association for apartment owners either because their small owners are frequently not members of them. And so that's that's a big part of the reason that we chose to do a survey he
re. And a big part of the reason that we're really excited to be able to, you know, share these findings a little more broadly because we're certainly not the people who. Are interested in this part of the stock. And it you know it also provides us with a means to you know get it our mission to by specifically focusing on the naturally occurring affordability that you more often see in this part of the stock as opposed to you know larger and new construction properties. So, you know, very intere
sted to know, very happy that the report is out there and really interested to talk about it more. Wonderful, thank you. And that, Our next, Priya, would you like to introduce yourself? Thanks, Phil. I'm Priya Jayachandran. I lead and really 40 year old nonprofit National Housing Trust despite our national name were both national and local and we work largely on affordable housing preservation. We work through 5 levers, so to speak, policy advocacy and innovation, real estate, development and ow
nership, lending through a CDFI platform. Resident services and energy solutions. Largely community and rooftop solar for the benefit of affordable housing residents. Historically for most of that 40 years we've tended to focus on larger multi-family buildings and developments. That's most of what we own tends to be above, 50 unit buildings. It's most of the development we support with our financing and it's a lot of our policy work. But about 5 years ago we started to think more actively about
small buildings really compelled by the data. That small buildings those Shazia talked about those 5 to 49 units represent over 50% of the on the affordable housing stock writ large. And that it was a space that doesn't often get talked about and candidly our own real estate development and asset management colleagues really struggle with that stock and thinking about how could we become more supportive and think about some of the obstacles that prevent us from getting involved and how could we
be part of those solutions. So we've done a couple things including partner with a couple other organizations here in DC to launch a run a small buildings initiative really looking at small building preservation in the district. And one of the big takeaways that I've learned is that really local dynamics at play and that solutions in one market may be different than solutions in another. Here in DC, our dynamic is that we're a gentrifying city gentrifying neighborhoods and a lot of this stock is
vulnerable to. People wanting to come in and buy it up potentially demolish it and develop greater density on those buildings. You may have some of those mom and pop owners that Shazia and the research talks about they they don't have restrictions they don't want restrictions and to a certain degree. Gentrification may be a good thing from them from an estate planning perspective. They stand to benefit. The challenge is from an affordable housing preservation, which from a wealth creation, it m
ay be a good thing. We're more, we're focused, our primary mission is affordable housing preservation and so how do we keep that housing affordable and you can come back to that, Phil, the Q&A, but I think that that's what we've been grappling with. And I'd say it is one of the thornier challenges in the affordable housing sector. And because of the size and particularly in gentrifying markets because of price points and a lot of competing social priorities including wealth creation and affordab
ility which in certain instances are at odds. Wonderful. Thank you. And, I follow up questions, but before, that let's, let's move on to Ruby and hear about, the Chancellor. Berg and the ships work in this area. Yeah, hi, so, Ruby, and I head up the community team here at CZI, which focuses on housing affordability, which focuses on housing affordability, economic mobility, and inclusion and some kind of place based local work. So our work in this space, you know, our focus on housing affordabil
ity has been really about supporting the 3 Ps of production preservation and protection and frankly most of the work has actually been on the production and protection side and it was really COVID that drove us more to think deeply about preservation. We saw how the lack of rental payments put pressure on these mom-and-pop owners, particularly those with a mortgage to sell to larger investors in private equity who would move the building up market or convert to condos. These buildings are the ki
nd of value add, right? NOAH properties. So the the most at risk to this inflow of opportunistic capital seeking to acquire these distressed assets and so in this in that type of setting, similar to what Priya was talking about, there could be an upside to gentrification, but a lot of times these owners that are selling don't know exactly even how to price these buildings and so they might not actually be maximizing their benefit in this too. In addition, you know, the loss of that property to a
kind of private equity or large corporate investor oftentimes results in the displacement of those current tenants. And so we have this situation where we saw that both renters and small property owners would slide down the socioeconomic ladder together potentially. And it was also painfully clear that there wasn't enough resources or capacity to pursue a full acquisition strategy, right? Meaning, you know, acquiring properties for nonprofit ownership. So we wanted something that could meet the
moment more quickly with fewer resources and still lead to better outcomes for tenants and owners. We wanted to specifically focus on small multifamily owners, urban institute actually during this time at put together this working group. So a lot of the research that we had was kind of coming out of that. Now with this Terner Center report, I think a lot of those same sentiments and learnings are echoed actually and and kind of given more validity, which is great. But we were looking specifical
ly at under 20 unit buildings owners that owned fewer than 20 units because it was seemed that that was also the concentration of BYPOC locally based owners. So if we want to talk about wealth generation and keeping it in the community, that was also kind of a key component for us. So in April of 2,021 we partnered with CRCD a local nonprofit and Enterprise Community Partners to launch this Los Angeles rental owner collaborative. At LA rose to the top for a few reasons. One is we wanted a place
that was either experiencing gentrification or at, you know, that was imminent gentrification was kind of happening. We wanted a place that had an already existing CDO capacity. So that we can kind of hit the ground running and have that trust built to in a way. And we wanted a place where there was already, other fund or support so that we wouldn't do this alone. So we actually were able to work with 6 other funders in the LA area. Additionally, we developed a parcel tool to kind of look at all
of this stuff and LA rose to the top. I mean, about 80 talk about in California in general where you have zony restrictions that make it really hard to build anything above 5 unit buildings a lot of times most of our stock kind of falls in that arena and in Los Angeles County about 80% of the multi-family housing stock falls under the NOAH category. And is this affordable housing stock. So it felt also like this is the largest, this is the number one way low income people get housed. It's not s
ubsidized housing, right? It's this housing stock. So we and also the other thing for folks that don't know South LA very well. It's an area that was previously black dominated. Now it's let the no dominated area but a lot of the buildings actually are the ownership, especially the local ownership is still black owned. And so we wanted to support local black ownership and the existing Latino population there and we consider that kind of a big win, which I can get into later some of the things th
at came out of that but just one last thing is I'll say that we kind of phase this into 3 phases. Phase one was about stabilizing owners in their tenants, their rental arrears, technical supports of an ambassador program to help navigate through government relief and rental services. And then we're also building, wanted to build an owner collaborative. So the number one reason that we saw these small owners were selling was due to deferred maintenance issues and property management. And they're
also not benefiting from the economies of scale that institutional larger landlords have. So how do we use almost like a bid like a business improvement district model for these small owners to come together and unlock. Those economies of scale, whether that's through shared contracting services, pulled insurance, property management, you know, among others. And all the while while kind of minimizing harm on the tenants, I think one of the critiques you could definitely say with this program is
that it was very much an owner-focused program. Most of these buildings either deep restriction or similar to what the findings were in the report, the owners knew that they were selling below market, were fine with it. They just wanted to make sure that they could cover their expenses and make theirs. And then they were fine with giving back to their own community. 63% of the owners we worked with lived in South LA. So these are folks also who are deeply kind of rooted in their community. And s
o it's interesting to see some of the findings in the report too of like the motivations, cause I think that's also reflected in the report too of like the motivations, because I think that's also reflected in folks knowing kind of making that. Trade off consciously, which would be unheard of for a large corporate owner, right? Like you're not maximizing profits and squeezing everything in Canada these times. So I think there's something there to kind of think more deeply on. It still is hard an
d there's a lot of challenges that we can get into but I think one of the things that's been interesting in this is how do we how do we create some solidarity here think about not all landlords are evil, while also recognizing not all small landlords are great either. So, but it's, you know, it's a mixed bag, but, There's just more. There's just so much undiscovered in this. Us slice of the market. I think that we're kind of starting to dig into more. Terrific. Terrific. Lots of, I think, throug
h threads through everything that was said. Start out with a question for Nat and you know as you heard from both Priya and Ruby. One of the main challenges this stock is financial vulnerability. And I know when you Ready to report like this, a lot of sort of really interesting data gets left on the cutting room floor. So I'm curious to hear a bit more about the financial health of the properties, that you surveyed and I think with the caveat of course it's self-reported data and particularly ab
out the sources of financial stress that the owners were were expressing to. Yeah, so that, that was a big part of what, you know, Fannie Mae was interested, in here. And we found something that is similar to what's been noticed in prior studies. This. There was a major study done back in the the ninetys and one of the big findings from that was that a lot of the smaller multi-family properties did not you know have a have a profit at all they didn't have any Substantial, it's called net operati
ng income, which is the amount of income that is left over after you've paid for all of your operating expenses like janitorial service, you know, any replacements to. Building systems, you know, property maintenance, you know, insurance and that sort of thing. And we found something, we found that in many cases that, that is still the case here. You have about 25% of properties in this size category that either you know effectively break even you know have you know little to know net operating
income or actually are being run at a loss. So there's a negative operating there and that among other things that means that the property is basically unfincible in a conventional way. It cannot it doesn't have any money left over to support any debt. And that's a big problem if the building is aging and needs substantial capital improvements. Usually that's done in the form of getting a mortgage, you do. Big upgrades to the building structural things improving the HVAC systems and other buildi
ng systems doing energy efficiency improvements and all of that sort of thing. So that's why it's important to have a profit. Or, you know, a building. In terms of why. A lot of these buildings were not profitable. It was a range of reasons and it's difficult a lot of times to discern the role of, you know, like, good management and good operations. And, you know, separate that out from, you know, market conditions. So it's hard to say, you know, if you're looking at the rent revenue. Per proper
ty and it's just not big enough is that Is that because the, you know, the owner is setting rents lower than they should be? That's good for the tenant, but that may not be good for the long-term financial health of the building or is it because they're setting rents at you know what you know the demand is in that particular neighborhood? It's sometimes hard to discern those sorts of things. Another issue when we, you know, dealt a little bit more deeply into what's going on here. Or, you know,
relatively high per unit. Operating expenses. One of the things that really stood out to us was that there were there was a pretty strong correlation. In the. Level of management theme. So this is the amount of money that the owner pays to a management company or that they pay to on site management. That that that level of expense was very strongly correlated with whether the building was unprofitable or, you know, did not turn a profit. And some of those fees sometimes amounted to, you know, 15
% or more of those fees sometimes amounted to, you know, 15% or more of rental income, amounted to, you know, 15% or more of rental income. That's relatively high in the context of of multi-family housing. The another thing which, which, you know, was, you know, I'm surprising here is that the buildings that house mostly low-income tenants were you know much more likely to be unprofitable than those that that have most higher income tenants. It shows that, you know, that while there is a lot of
naturally occurring affordable housing here. As you know, Brian Ruby have mentioned already that doesn't mean that it is you know, that this is necessarily financially stable or that it is, you know, you know, profitable or anything like that to be managing properties in this way. It's it's a challenge in many cases and it's a challenge that you know maybe there's some room for improvement here you know by improving operations reducing the level of vacancy which we also found in some properties
were you know, you know, disturbingly high, you know, again, 15% or more in some cases. But you know, there are fundamental facts. There are fundamental, you know, issues with the running these properties at the income level that they're at. That you know make it make it tricky in the you know tricky at least from a conventional financing perspective. That's terrific. And yeah, I very much appreciated the point that everyone's a good manager and a, you know, high-end, hot housing market, right?
It's much easier to. Much easier to manage certain properties than others. So turning to this from this vulnerability to, something Priya mentioned in her. Introduction. You talked about this issue of owners facing gentrification pressure. And there seems like there's real issues for you as a mission driven entity when you're competing not just with you know a bad and deterioration but with developers who are looking to capture pretty significant financial windfall in a market like DC and I imag
ine many cities in California as well. So I'm curious about what strategies You use, both to identify the owners that it's worthwhile to make a pitch to, and then how you sort of convince folks to you know, pursue this strategy and preservation, rather than, you know, demolition and putting up a, you know, new, luxury building. Yeah, first I realized I forgot to wave my turn or flag. I am the, board member, a proud board member of Terner Labs, which is the parallel nonprofit to the Terner Center
. But to your question, let me also say at the outset we are really at the beginning of this work. I don't want to say at the outset, we are really at the beginning of this work. I don't want to misrepresent. I think we are the the motivation for the initiative and our partnership with 2 other groups was that between 22,006 and 2,017 DC lost 18,300 small. Unsubsidized units. It's roughly 5% of the stock. Probably not permanently lost because as we were talking about maybe replaced but what's los
t is that affordable housing opportunity because rarely is it replaced with affordable housing. It's often up marketed. And so and goes without saying, we're about affordable housing preservation, but small units tend to be less expensive. To preserve, obviously the new construction and the environmental impact of of preserving. Yeah, to your question, how do you do it in a market with rising prices? DC gets a lot of attention and credit for our TOPA law, the tenant opportunity to purchase Act a
nd we have a parallel law, DOPA, the district opportunity to purchase Act and those are really powerful tools and on our advocacy side. We support other jurisdictions adopting them, but what many people don't understand is that you still have to match the market price for that building. So what triggers TOPA or DOPA is a market rate bid on a building. So it opens the door to preservation. Because the tenants are the city can has the option to match that bid. But if it was a high bid in the first
place, then you have to come up with the resources to match that bid. I'll give an example, of one, what I think is a success story, but also I think underscores some of the challenges in the timeline involved. And because those prices tend to be high, even for smaller buildings, Folks, I'm using Topo will often partner with, another developer, often nonprofits, but sometimes for profits and assign their TOPA rights. And those those partners like us, we partnered with 12 tenant associations wil
l often use the low income housing tax credit. To preserve that building. I imagine people, some people will roll their eyes and I thought this was about unsubsidized housing. The challenge is that it's hard to come up with that purchase price and particularly fund repairs that may be needed and the low-income housing tax credit can allow you to do it. The residents don't necessarily become owners, but they are guaranteed that the housing remains a portable. That said, one of our first partnersh
ips with using Topen residents was in 2,002 a community on Carmeladian Manor in Washington DC and for those familiar with why tech and all of its nuances there's the Rover in LIHTC, which is the right of first refusal at the end of the 15 year compliance period. And back in 2,002 we granted that row for to the residents. Fast forward, 15 plus years, now 2024, that communities is out of it's initial compliance and the residents are in fact purchasing the building from us. And we are remaining in
as a fee developer, they're recapitalizing it again because it needs work 20 years later, but they're now becoming owners. And why I think that's a illustrative is it's a long game. That was 2,002 and it's 2022 and we are creating wealth for them. We are preserving it. Did they become wealth for them? We are preserving it. Did they become owners, those first? 15 to 20 years? No. Was it hard and did it take a long time? Yes. And I say that because I do think that that there are no quick solutions
, particularly with this stock. And I think sometimes in this moment of our housing crisis and a focus on wealth creation and racial equity that people are looking for fast solutions and you know I'm all for them if we can find them I haven't found any and I do think that Meridian Manor is an example of that it was preservation. It was wealth creation. And it took 22 years. Yes, I think the idea that something could happen in this particular sector of the stock. Yeah, overnight is certainly a ch
allenge. So you, you mentioned wealth creation and so I wanted to turn to Ruby's project. And I think the thing that was really interesting is how you make this explicit goal of keeping rental income, housing well within the communities that you're focused, right? We so often think of landlording, as an extractive practice, right, that takes rents from Black and Latinx communities and transitions them into higher income White spaces. So I'm wondering just to hear more of your thoughts and how su
ccessful you feel the project was at that double goal of keeping rent reasonable but also doing so in a way that allows for wealth creation in communities that have been deprived of opportunities for all creation for so long. Yeah, for sure. So, the pilot worked with 52 owners representing about just under 200 units. 70% of the owners state that stated that LROC Help keep their tenants housed and 50%. Said that it helped them not sell their properties. None of them wanted to sell their propertie
s initially. 2 properties were sold, and the owners did notify the CDO partner before selling. So part of this too is potentially is this kind of like a bridge for when those opportunities do arise that we can keep those units of affordable. 92% of the owners are BIPOC, 56% are female. I was actually surprised. How many female owned buildings there were. 65% identified as Black, 20% as Latino. And as I was a mentioning before, 63% said they currently live in Los in South Los Angeles. And so one
of the things I think that we're really proud of is that we were able to reach those hard to reach owners and their tenants, right? These are the folks that traditionally don't get access to the benefits that are coming in. Like I think about also PPP loans and like you know all of this stuff where you hear of all these great government services that are coming in but you have to have it feels like an army of lawyers to be able to get it. And to understand how to you know, fill out a million dif
ferent forms and resources. Like one example going back to what Neat was talking about. You know, we're working on how do we lower things like operating costs and and other ways to maximize their revenue on this building without necessarily jacking up rents. And one of the things that we have is the welfare tax exemption, which does work for the majority of these buildings because they're rented up, 80% or below, am I. However, Figuring that out there's a lot of requirements. There's a lot of ad
min so we haven't really seen that many folks, so we haven't really seen that many folks utilize it but this is a way where kind of public private partnerships I think could have a lot of admin. So we haven't really seen that many folks utilize it. But this is a way where kind of public private partnerships I think could have a much bigger role in stabilizing this housing stock. Another example is that we worked, we tried to work with the city of LA and DWP to access their energy retrofit dollar
s. So there's actually a lot of pots of government dollars to help with deferred maintenance and to bring these buildings up to either code or even more so thinking about the energy retrofitting right that we need to happen especially now I'm hopeful with things like the IRA that passed. What other opportunities are there? It ended up not working for a couple reasons. One is that they wanted to focus on larger buildings. Which probably makes sense from a scale point of view but is there an oppor
tunity also to help with smaller buildings is kind of a question. And there was a lot of paperwork and a lot of challenges that these owners needed some hand holding on which we were willing to provide but it was still ended up being a very onerous thing. So even if we were able to make that work here, how do you scale something like that? How do you replicate that? And so I think thinking about the role of an ambassador, a QP, something like that is is a good interim. I mean, obviously a long-t
erm resolution is to to stop focusing so much on fraud and maybe focus more on getting benefits and the outcome out there. That was one of the driving factors that we had is let's make this as low of low barriers possible right to access these benefits. And I think that worked out well also in terms of trust building where a lot of these owners did were fearful and did not have a lot of trust in either government services or anyone trying to help them out. And I think that now, you know, over th
e course of 2, 3 years, we've been able to build a lot of that trust and they're they're valuing participating collectively and figuring out you know how do we create our own fund you know where we have a revolving fund where they they can tap into for things like repairs or emergency rental assistance for their tenants. And how do we get that to be a little bit more self-sustaining? Additionally, how do we advocate? The owners are talking about how they advocate for themselves because the apart
ment association and the existing lobbies do not represent their best interests. And oftentimes they're not aligned with them, but there's nobody else. And so how do we think about the role of these smaller owners who frankly a lot of them did see themselves as housing providers and kind of part of that community. And so it was actually really interesting. We did a bunch of focus groups. And we did them and we mixed them in a lot of different ways and it was interesting that most of the BIPOC fo
cus groups felt much more akin and a kinship to their community and offering being a housing provider and not seeing their building. Only as a source of income. So I think there's also something there and like the idea of communities helping each other in the absence of other help, basically. So that, type of entrepreneurial nature is helpful, but it also kind of gets me all fired up that like a lot of the government programs and services that we have that are meant to help these folks. Rarely r
each them. So how do we bridge that gap? And I think there is there is opportunity and learnings that we've had on how to do that. That's it. Thank you. That's fascinating. We think a lot, at least. Here in the social work school, we think a lot about administrative burden and the hoops that we make low income folks jump through to get benefits and it's sort of always based on this you know specter of potential fraud that must be avoided any cost. But when we talk about supply side support progr
ams, whether it's the logarithmic tax credit or these types of local programs, we create enormous barriers there as well which means certain types of landlords can access them and certain type of landlords simply don't have the capacity to do that, which strives investment patterns and preservation patterns across. As any point. I wanted to shift now to a few questions from the audience. One of the questions that came up and I think, that would be great for you if you could answer this. Start of
f answering this but I'd love to hear from Priya and Ruby as well as they were talking a lot about preservation today, but there seems to be something special about buildings of this size. That makes them a very powerful source of unsubsidized affordable housing. I mean, I know the literature is not. Finalized in this but they seem to sort of hold their hold affordability for longer less vulnerable to redevelopment. You know, that then you would see the large multifamily sector and of course sin
gle family homes you know have this fluidity into an out of home ownership that can occur, to make gentrification fairly easy. So they see something special about buildings this size and I'm so I'm wondering if from the survey research or your work at Danny May, what's being thought of in terms of producing more, you know, mid-size, small multi-family rental housing in the country. Yeah, it's it's a really good question. One of the one the other motivating. Facts here was that over time there ha
s been you know it's hard it's hard to measure for data reasons that we we can get into it appears as though. The construction of multi-family properties has tended more and more towards larger multi-family properties over the past many decades really and so you find when you look at you know the look at the nation's housing stock now that you know is as we mentioned before this part of the stock looks older and it's because it hasn't been added to as much over the past years. I think that there
are, you know, various. You know, explanations for why that that has occurred. And probably they're financed in a different way that the construction industry is, you know, somewhat different now than it is in the past. From, perspective, it's a little tricky because we don't, we don't do construction financing. We only purchase loans that are on properties that are it's referred to as stabilized. I mean the properties in place and most of the tenants are in place too. So we don't have that man
y levers unfortunately that we can pull that deal with generation. However, you know, because we do. You know buy loans on by permanent loans we can provide a you know a take out to a construction there and that's that's something that you know that you know that we that we had in mind when we were looking at. Looking at the, looking at the study and looking at the results too. You know, it's I'm not I wish that I had a great answer to this one because I do think that it is you know that it's im
portant to think about generation in addition to preservation. But, you know, I'm not really sure what, you know, what, you know, we can do or we can do or really what the broader market can do to, you know, what the broader market can do to, you know, advance generation in this part of the stock. One of the one of the things that I do think is promising here is the increased detention that's been that's been attracted to what's, you know, it's all referred to as missing middle types of properti
es and so you know these are defined in different ways but the idea is that in a lot of infill sites you can, you know, build properties that are not high rises but are the mid rise properties that you know have the sort of characteristics that you know we've been talking about. And those can be facilitated through various zoning reforms, usually at the local level, but sometimes at the at the state level. And there are some, there's some places where you have seen, you know, substantial generat
ion of that kind of property. Through those kinds of. Hello, language reform methods. But, you know, again, that's not something that Fannie Mae has as much to write control over. Yes, thank you so much for that. And yeah, I think, you know, in jurisdictions where large multifamily might be a nonstarter politically, often times. Yep, small all day family, if that's the amount of density you, you could get through then, yup, as of not only more housing, but also in this particular sub sector that
, seems to be so. Valuable. So depending how long your answers are, this may or not be a concluding question. But starting with Ruby and Priya, you know, you have pilots in Los Angeles. And work done in in DC. I think the question that we're seeing a lot in the QA is, you know, if you're Well, I should purpose this by saying in both of you described local policies that bear, whether it's Topa or other systems that may or not have been attended. As a tool to make this type of preservation happen,
but that you're unable to leverage for that. So I'm curious as you think about scaling your work outside the district outside of the LA pilot what Yeah, what are the sort of key asks that folks on this call should be making a policymakers to facilitate the kinds of interventions that you've been you've been doing. So I don't know who wants to start preya or Ruby, but. Let's hear from all 3 of you. I can go real quick, so I'm sure, will have more on this, but, so I think that, Well, one thing is
, and this is kind of echoing what P was saying around, there's no silver bullet and also to think more comprehensively. So one of the biggest I think challenges with the TOPA/COPA stuff that we've been facing in California is that it's not paired with any kind of financing and it is really difficult to think about how you're going to finance, you know, the acquisition of a building, especially when you're dealing with folks that maybe have less experience. One of the things that we have is the
partnership with the base future, which is a barrier, which is a Fund for the Bay's Future, which is a very, which is a fund for the Bay Area, it's gap financing fund. And so when we actually have issued some loans on using TOPA/COPA for building acquisitions. And they were snowflakes, you know, like each one is very hard to do, they're customized because we're still figuring out it out, right? There's some R&D space that's needed. And if we think about it more as R&D space and some test money.
Right. And then figure it out and then it can get scaled by government and other actors. Great. But it's the solutions are coming to piecemeal with like one policy and a engineer that's not thinking about the other impacts or things that need to change. Whether it's on the financing side or other regulations that's related to it, that would make things a lot easier. And I think another thing too that we discovered on that on the LROC piece. That would be interesting to think about that's a littl
e less it's really just a policy but just the digital divide so avail was our tech partner on this avails done a lot of work kind of supporting government and research agencies thinking about this sector of DIY landlords. And, they you know the majority of the owners that we worked with just didn't use that avail. Avail a free property management service that they could use, to help do a lot of different things, including 10 applications, sourcing folks, you know, dealing with stuff online. And,
there was folks that just didn't see the value in it. Didn't really understand how to use it, needed some help. And that I think is an unfortunate. Thing where it's like, well, one is. On the plus side, avail actually use this and up as an opportunity to think about how they could build tools that work better for people. And so it helped them embed equity in a different way, which I think is really great. It also exposed what we saw a lot during COVID right around this digital divide and it doe
sn't serve us to keep that there and to work around people's lack of ability to navigate digitally, right? So how are we also training people up and understanding how to navigate these resources. Are there better ways that we can be communicating information like texting folks, right? What are some easier ways to get information out there? Because publishing something in a bulletin in a newspaper just like is not the way to do it anymore, right? So I think there's something there's there's more
around that that would be interesting to dive into. Yeah, I'll be I'll start with the easy and end with the hard. I think, you know, a couple steps that we think could be helpful are shared asset management and property management platform. Bigger, even small to medium size owners like us is the asset management and property management of. Small multi-family. There are some emerging models out there like joe.nyc. And I think that that's a real opportunity. I'd say dedicated funding streams for s
mall building streams for small buildings. San Francisco has the San Francisco small building. San Francisco has the San Francisco small building. San Francisco has the San Francisco Small Sites program. So that's the easy. The harder is I think that the problem that Nat identified, I would argue, is part of a bigger problem, and that is that as a country and as a developer. We're, no, almost no one is developing for unsubsidized new affordable housing today. Everything that is developed on the
single family side or on the multi-family side, even if it's small, is for the luxury market. So I'm not going to argue that there isn't small new development in DC. I see these infill buildings, but they're not targeting people who are can't afford high rents. And I'd say that that's a systemic problem. We see that on our, you know, people being on, dependent on live tech is kind of like being dependent on crack. But like you wanna get off of it, but for us, there's not really an alternative be
cause there's no funding stream and I think that the fallacy that we all tell ourselves is that you can do this without subsidy. And I do think that that's the answer that's missing is that you and that's the best use of public policy I would argue is to identify a market externality and to solve it. It's not all about you know just these market rate funds have to come out. I do think that you're going to have to think about subsidy programs beyond the low-income housing tax credit that Try and
create and preserve more of this small stock that's a different tool than the lie tech and that is trying to create and preserve more of that. And I think we have to stop apologizing for that and just banding together and say that's that's what it's needed. Thank you. And at the risk of going a few minutes over and that I'd love to hear your policy thought here. I mean, I think, yeah, I mean, looking. Looking back through the data, especially the production data, you see time periods where you g
et, you know, a big boost in the, in multi-family stock. There's actually a big boost going on now. It's mostly, you know, exactly as Priya was talking about, large and, you know, higher end. But you also saw a large increase in production. When there were, you know, they weren't the sort of subsidies that we used to now, but in the seventys and eightys where you have accelerated depreciation and you know it paid more to the build even smaller. Multi-family properties and you didn't necessarily
have to get the premium rents on those for you to make financial sense. To build those. So I, you know, I am, I, you know, I'm not speaking for any man here, obviously, but if there is an interest in the generation of moderate cost decent quality. Housing of the kind where, you know, this, this report is talking about even though it's the older part of the self if you're interested in generating that, you know, it's that's that's one you know sort of proven method by which you know this nation h
as Wonderful. Well, we are out of time, but thank you to all your panelists. I have about 37 more questions that we didn't get to. But I think that's indicative of how exciting the report and this conversation has been. So for those in the audience, I know, this presentation will be posted on the Terner Center website and as well as already is the the full report. And not not in, wrote. So, look forward to that and I'm sure this conversation in many other places going forward.
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