One of the biggest problems facing low-income families in the U.S. today is a lack of affordable housing.
According to a recent report by the Joint Center for Housing Studies at Harvard, more than 7 million low-income households now spend more than half of their income for rent, which leaves little money for anything else. And the situation is expected to get worse.
Now, a coalition of nonprofit groups is trying to turn things around with a new, more business-like approach to buying real estate. They hope to preserve housing units that low- and moderate-income families can afford.
Christopher LoPiano is senior vice president for real estate at Community Preservation and Development Corp., a nonprofit that develops, owns and operates affordable housing in the Washington, D.C., area and Virginia.
LoPiano says it was frustrating when his group made offers to buy eight properties in Virginia over the past few years and got the same answer every time.
" 'No, thank you.' That's what kept happening to us," he says. " 'No thank you.' "
It wasn't the price. LoPiano says his group was competitive with other buyers when it came to price.
"What we're not competitive on is closing quickly," he says, "because we're dependent upon public financing, and public financing just takes longer."
LoPiano says such real estate deals often involve government bond issues and housing tax breaks, which can take months, even a year, to be approved.
"And sellers in today's market are not willing to wait that," he says.
So LoPiano's group and a coalition of other housing nonprofits, called the Housing Partnership Network, decided it was time to get creative — to do what private investors have done for decades. They became the first nonprofits to form what's called a real estate investment trust, or REIT. It allows investors to pool their funds to buy property and collect dividends — and involves no public financing.
The nonprofit groups figured they could offer potential investors a modest return on their money — about 5 to 7 percent. It's less than what they'd get from a private-sector REIT, but the groups also appealed to investors' desire to preserve affordable housing. And they got several big ones — Prudential, Morgan Stanley, Citibank and the Ford and MacArthur foundations — to chip in an initial $100 million.
LoPiano says the nonprofits' new REIT has been a "game changer."
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