Housing inventory may be in low supply throughout the country. But nowhere is the shortage worse than for extremely low-income households. Only 35 affordable rental homes are available for every 100 households, which translates to a shortage of more than 7 million affordable homes, according to the National Low Income Housing Coalition, as reported by City Labs, a mobile site devoted to understanding key issues related to urban living.
The glitch for many investors has been that the affordable housing segment appeals far less with its dilapidated stock, high crime rate, transient population living at the poverty level, and low profit margins that may be as low as 8 percent—though with some deals, they may be higher. Contrast that with the affluent multi-family market where buildings might offer swank swimming pools and gyms, communal kitchens outfitted with chef-worthy stainless-steel equipment, outdoor living spaces with fire pits and cabanas, and robust 12-to-15-percent profit margins.
Yet, what investing in affordable housing does offer besides great demand—usually evidenced by long waiting lists after units are filled—is the chance to help stabilize and improve a school district and cut transiency by providing a neighborhood with better housing for the working poor families. Proof comes from one firm now starting its third project and waiting to complete its second.
Atlanta-based TriStar, a for-profit commercial real estate company founded in 2013, follows an “education” model This model was developed by real-estate entrepreneur and author Margaret “Marjy” Stagmeier after earning her CPA degree, working in banking and real estate, and publishing a landmark book in 1994, Real Estate Asset Management Executive Strategies in Profit Making (John Wiley & Sons). To date, her firm’s approach has focused on older existing properties with at least 150 units in areas with low-performing schools. The firm renovates the property to produce a steady revenue stream rather than demolish them and construct new buildings. The reason is that it would be far costlier and require greater rent than the affordable-housing population could afford, she says.
It starts by identifying a property in need that has a nearby low-performing elementary school. The next step is to work with police and neighborhood leaders and hire security to make the area safe. Then, it contracts with a work crew to fix up the exterior structures to make them water tight and safe—perhaps, with fencing—and rehabs the apartment interiors so there is at least one bedroom per unit but preferably two or three, so the units can comfortably house families. Necessary repairs might include replacing leaky roofs and windows, removing mold, repaving a parking lot, fixing or adding lights for safety, building a playground for the children and designing a common area within the building that the community may use.
But planned investments are fiscally careful not to over-improve a building and units, so the firm can keep the monthly leasing costs to tenants to around $700 a month for a two-bedroom, far less than the $1,800 that a comparable market-rate apartment might charge.
The brick-and-mortar building is just one part of the concept. Funds from the for-profit TriStar are channeled into a nonprofit Star-C entity, a 501c(3), which focuses on educational opportunities for the area’s elementary-school students through after-school programs that will help boost their school performance. The Star-C also partners with a nearby health clinic to offer affordable services and a community garden to residents. A recent partner is Georgia Power, as part of its energy efficiency program to reduce the energy burden on low-income residents.
In its most recent project, which is nearing completion, Summerdale Commons on Atlanta’s severely blighted Southeast side, features 244 units in two separate properties. One of these dates back to 1998 and needed serious repair due to neglect. The other, a newer property, had already been renovated with hardwood floors, new cabinets and granite tops. The older ones were remodeled to the same standard. Altogether, 98 percent of units in the second newer phase are leased and 30 percent in the first older phase not yet completed are rented.
And the strong evidence of success comes from the firm’s first project, Willow Branch Apartments in Clarkson, Ga., in DeKalb County, which has 186-leased units, a thriving school and a surrounding neighborhood where Stagmeier notes, “We don’t see grown men dealing drugs any more, but now have children playing.”
But success takes work on everyone’s part, if this model is to be duplicated elsewhere, she adds. Here are five key factors:
Good contacts and a working relationship with local government officials. This way, they become long-term advocates of the for-profit and nonprofit groups. New Atlanta Mayor Keisha Lance Bottoms appointed Terri Lee to be the city’s first-ever chief Housing Officer. Together, they’ve advocated for 2,500 homes over the next 8 to 10 years, says Julie Sellers, a land use and zoning attorney with Purseley Friese Torgrimson LLP.
Patience. “It takes at least a year to do all the renovation and at least two years for the school to see some impact. This is not something that should be tackled by flippers, looking for a quick fix,” Stagmeier says.
Quality workmanship paid fairly. Stagmeier’s firm has long-term staff on board and accesses the local labor pool and pays well—$20 an hour in its Atlanta areas. “We’re putting a lot of money into a local economy,” she says.
Affordable rents. “You want tenants to stay, which pares costly turnover at the buildings. “Landlords in too many gentrifying areas raise rents that often displace the families,” she says. This also keeps children in the same school.
A detailed housekeeping checklist. This is both for tenants to follow and landlords to supervise. Top on the list is keeping units clean to eliminate the possibility of pests and getting repairs made when they arise so they don’t worsen.
And if some families do move out—as they have at Willow Branch—they’re likely to leave not because they’re unhappy or can’t afford to stay, but out of choice to buy their own homes, Stagmeier says.