The preservation of unsubsidized affordable SMMF properties can be a powerful method for addressing our nation’s housing affordability crisis, spurring investment in neighborhoods and strengthening local economies. A variety of strategies can increase the success of these projects, including:
PORTFOLIO-BASED APPROACHES FOR ECONOMIES OF SCALE – Pursuing the preservation of multiple unsubsidized affordable SMMF properties at the same time (particularly multiple properties that are located near one another) can help you achieve greater economies of scale, increasing your access to financial products, improving the feasibility of various rehabilitation components, and expanding efficient options for your property management operations.
STRATEGIC ACQUISITION – Choices made during property identification and acquisition have far-reaching effects on other stages of the preservation process and the project’s long-term viability. Calibrating your property choices to the surrounding market conditions is critical. Key considerations include whether the property can be acquired off-market; it is in a neighborhood where you already work; it does not need major repairs; and it does not require tenant relocation.
FINANCING RIGHT-SIZED TO MARKET CONDITIONS AND PROPERTY NEEDS – To right-size financing, you will need to assess if subsidy is appropriate and available and if so, how much subsidy is needed to cover the property’s capital needs while keeping rents affordable to tenants. From there, it is critical that your financing terms are tailored to your anticipated cash flow, accounting for projected market conditions and property needs. For instance, in markets that have experienced disinvestment, shorter loan periods may be beneficial because you can refinance again more quickly. Meanwhile, in markets experiencing price increases, longer amortization periods may allow you to maintain lower rents, by providing more time to recoup costs before paying back debts.
REDUCING TRANSACTION COSTS – While the project may be smaller, transaction costs are not smaller for SMMF properties. But they can be reduced through more efficient processes that reduce time and administrative burdens, such as increasing the amount and reducing the frequency of draws during construction. Strong relationships, particularly with your lender, and transparent communication systems (e.g., accounting software, project management plans) are key to reducing these costs, especially if you or members of your project team have not completed an SMMF preservation project before.
FOCUS ON MATERIALS THAT WEAR WELL OVER THE PROPERTY’S LIFECYCLE – It will be cheaper to invest once in materials that can withstand the test of time, rather than replace materials repeatedly. Identify opportunities to negotiate lower costs on quality building materials that will have longer life spans. These opportunities may include purchasing materials that will reduce energy consumption or improve resilience to natural disasters, since these can also lower operating costs.
More examples of successful SMMF preservation, along with more systems designed to support these types of projects are needed to increase the scale of these efforts across the United States. The first step is increased attention to this important segment of our affordable housing supply, followed by a commitment to its affordability. We hope you will join us in taking up this challenge to tip the scale in favor of preserving small and medium multifamily properties.