May 19, 2020 - From the May, 2020 issue

Ann Sewill & Bill Witte Address COVID-19 & CA’s Housing Crisis

TPR excerpts the May 7th Los Angeles Business Council (LABC) webinar series entitled, COVID-19 & California's Housing Crisis, speakers California Community Foundation’s Vice President of Health & HousingAnn Sewill, and Related California Chairman & CEO, Bill Witte. Each offers their informed perspective on the impacts of COVID-19 and the economic downturn on affordable housing production in Los Angeles. Bill Witte says, “Don’t waste a crisis”; and Ann Sewill shares her motto, “Be like Blackstone,” in seizing the opportunities that will arise to acquire, preserve, and develop affordable housing. TPR readers may wish to watch the full panel with moderator and LABC president, Mary Leslie, LA County Supervisor Hilda Solis, and City of LA Chief Housing Officer, Amy Anderson online, here.


“My motto isn’t fight Blackstone, it’s be like Blackstone and put together a fund to help our partners take advantage of some of the opportunities that will come online to preserve and expand different kinds of affordable housing.“—Ann Sewell

Ann Sewill: The Los Angeles’ Community Foundation has been serving Los Angeles for 105 years. In “normal” times we focus our discretionary grant making in four areas: housing, health, education, and immigration. We give only in Los Angeles County; our donors give globally. And, we give, In a normal year, about $30 million from our discretionary money and our donors give about $200 million.

On March 12th, we started the COVID-19 LA County Response Fund, and so far we’ve given almost $15 million out of that and raised about $35 million. We’ve had a significant increase in need, so our philanthropic partners—including our donors and other foundations—and our corporate partners, like Wells Fargo, have really joined with us to try to address the needs that have brought to focus the inequities and underlying problems in health, housing, and family needs.

When we started this fund, we had already been talking to our community partners to find out what was needed and identified four areas right away.

In housing and homelessness, we focused on providing services to shelters and motels of Project Roomkey. We provided help to the nonprofit partners that are running them, and support to the health partners who are staffing those shelters. Most of them need some sort of nursing support or somebody to determine whether people who are living in them have actually contracted COVID, need to go to the hospital, and need to be in a congregate or non-congregate setting. We also provided grants to supportive housing providers who found themselves with newly housed people who suddenly had to shelter in place, and needed much more support in terms of groceries and on-site social supports.

In health, we provide grants regularly to the eight community clinics that are specially designated across the county to serve homeless people, and who work with hospitals, shelters, and street outreach teams. Last month helped them with PPE, patient assessments, setting up triage areas. Particularly with those connections between hospitals, shelters, and street outreach teams, we’ve put out about $3.3 million right now.

As you all know, on March 13th, Los Angeles Unified School District closed all of the schools and that meant that families and children were not only suddenly having to figure out how to get meals that had been provided by the schools—in which the schools have been an amazing partner in continuing to provide not only to their immediate students but the whole community—but students also needed some support to be able to study at home. Hundreds of thousands of LAUSD students didn't have the right kind of technology to be able to continue to take classes.

For twenty years, we have provided this small grant program to about two dozen partners that allowed them to do hardship grants. We called it the Pass It Along Fund, it was started initially by two donors. If we were St. John’s Clinic and $400 to $1,200 could really make a difference for a client, the clinic had access to a pool of funds to make a select number of those grants. For many of our donors, that’s where they wanted to put their money, into hardship grants for people who suddenly lost all their income and needed help with food, rent, medical expenses, or car expenses. One of the things we realized really quickly is that $1,200 or even $2000 isn’t going to pay the rent for more than one month for many people and that this was going to be a multi-month problem. We are working with our donors right now to raise enough money to help 1,000 families pay the rent for a six-month period. One in ten adults in LA County is not eligible for the stimulus checks or unemployment, due to either immigration status or mixed-immigration status in their household. They really have no access to any sort of income support, so focusing on those families will be part of the hardship program.

Finally, in the area of food insecurity, we have been accepting proposals on our website—through a SurveyMonkey application—, and we’ve received 92 from nonprofit groups in our four areas. But, when we read through them, the underlying issue was almost always food. Whether it’s “We need to be able get it from the food bank, and do a last-mile delivery service” or “We have tenants who have no way of going out and getting food in our supportive housing projects,” it really was about food. The food bank went from being amply supplied to having 173 percent of the demand that they’d had this time last year. We’ve put our first round of grant making into food, our donors are stepping up in a tremendous way, and we probably continue to work on that.

In addition to spending the COVID relief fund, we are now looking to what comes next. Hopefully, the Safer-at-Home orders will have flattened the curve and with safe and careful steps go back to work, but it’s going to be a long time before the economy fully recovers.

We see ourselves doing three things besides continuing our grant making. First, filling gaps especially for immigrants who are shut out of other kinds of support, whether in health clinics, housing, or rent support, that is the real unmet need. Most of the time when people come to us with a proposal, the question that our program officers and colleagues ask of ourselves is whether it’s a philanthropy-sized problem, or government-sized problem. And if it’s a government-sized problem, is it city, county, state, or federal? The answer in almost everything that is coming to us with this pandemic and economic crisis is: this is a federal government-sized problem.  

Four million unemployed people in the state of California is not a problem we can deal with in philanthropic dollars, besides pilot programs and things that demonstrate what’s possible. We need a whole lot more support from our federal partners, which is why we’re excited for, and have supported, Congresswoman Water’s $100 billion proposal for rent support. We’ve been stepping up both our grant support and our partnerships with our advocates in Sacramento and DC, focusing on rental subsidies and more community development-like funds with the CARES act.

We’re also preparing to take advantage of opportunities, both in terms of opportunities to ask—as the city’s demonstrated in throwing up these shelters—about how we take those flexibilities and apply them to the buildout of the remainder of the HHH pipeline. We have 10,000 units in the pipeline and 2,000 that are coming online quickly, but how do we really accelerate that?

The other kind of opportunity is what we saw in 2008/2009/2010. The real estate market softened dramatically, and it was not our nonprofit partners—those who wanted to preserve affordability—or mission-driven developers like Related that swept in, it was Wall Street-driven firms. My motto isn’t fight Blackstone, it’s be like Blackstone and put together a fund to help our partners take advantage of some of the opportunities that will come online to preserve and expand different kinds of affordable housing.

Bill Witte: We [Related California] have an interesting perspective in that, unlike most developers, we’re very active in 100 percent affordable housing development as well as market-rate and mixed-income housing development. We’re active throughout the state, Northern and Southern California, in both domains.

The first question that comes up for us in terms of COVID-19 is, “What has been the impact of this on your existing portfolio, particularly on affordable housing?” On the one hand, the results are perhaps better than we might have feared, but it doesn’t mean they’re good. We have data from both April and May, and what we found—first in the affordable portfolio—is that rent delinquencies are anywhere from 10 to 15 percent of the portfolio. Where we’ve seen movement is in April. There were some people paying partial rent, and the percentage of residents that are now unable to pay any rent as increased—even though the overall percentage in the portfolio of delinquencies hasn’t moved that much.

Interestingly, the percentage of delinquencies in the market-rate portfolio isn’t that different. It’s a little higher in LA than in San Francisco, and we attribute that to maybe a different job base, particularly a reliance on the entertainment industry versus just tech.

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There are no evictions, and we don’t lean in that direction anyway. Our focus is to provide, with our nonprofit partners and service providers, assistance with food and with technical assistance to apply for the funding that is available to help people get through this period. We continue to monitor that assistance very closely.

Let me talk a little bit about challenges and opportunities for particularly affordable housing in this time.

On the challenges side, the good news is largely because of efforts like in the city and county of LA to generate more housing particularly for the homeless, there’s an unprecedented amount of affordable housing projects out there looking for financing. The bad news is for the first time in memory, the competition for state tax credits and tax-exempt bonds is leaving many proposals unfunded. And since the allocations of those are from federal legislation, there’s only so much state and local government can do to move that. The concern is that a number of projects in the pipeline may either get delayed or simply be unable to proceed.

The second challenge within that is because of the COVID-19 effect on corporate balance sheets, most of the investors in tax-credit projects providing that sorely needed equity are large banks and insurance companies, and the appetite for investing in tax-credits has shrunk. We view that as a temporary phenomenon, meaning not only is it harder to compete for this financing but there may be fewer buyers of the credits. I particularly worry that that could affect larger, more complicated—and in some cases homeless—projects, which are a little more challenging for investors to underwrite in any event.

To some degree in the city of LA, for example, where market-rate developers have been required to pay in-lieu fees into an affordable housing pot, there has been a lot of delaying of market-rate projects, so there are fewer in-lieu fee dollars available—some of which may have been counted on to help some of the affordable housing projects. We’d like to see a little more coordination between local government housing agencies and the state housing agencies who are split between the governor and the treasurer. The staff running those are new to California, because the coordination among the agencies, while all well-meaning, isn’t perhaps what it might be.

What opportunities are there? Well, the saying goes Don’t waste a crisis. There have been moves at the state level and somewhat at the local level to expedite processing of housing—and certainly affordable housing—projects. Delaying the approvals of affordable housing projects affects not only access to funding, but cost. You can’t manage cost over a three-year period. We hope there can be more effort aimed at moving these projects at a faster pace. I think there has been some progress made but more needs to happen.

Construction costs, which have been at record highs and have contributed to these record prices, we expect will drop 5 to 10 percent over the next year. That will not necessarily help market-rate projects as market-rate rents will drop, but it will have a big impact on the affordable space.

Finally, a general comment: There are still efforts—and I’m not taking sides here—to focus on issues like rent control and what I would say is the regulatory side of affordable housing; the son of Proposition 10 will be on the ballot in November. Quite apart from what one’s view of this is, we are little concerned of a diffusion of focus between the regulatory side and the produce-more-housing side. They’re not incompatible of course, but we’ll be watching to make sure that people don’t diffuse their efforts, because now more than ever the need for more affordable housing—delivered more efficiently and more effectively—is greater than it’s ever been.

Mary Leslie: Should emergency housing resources be focused on preservation, acquisition or production? 

Ann Sewill: I think it’s a both-and. People right now are buying land to become affordable housing, supportive housing, or something later on. There are hundreds of trailers in rec center parking lots. We could buy nursing homes that have been de-purposed, use them temporarily, and eventually redevelop them to higher density affordable housing. We have to think about what we want to preserve and expand from a portfolio-wide basis and from a short-, medium-, and long-term basis. We had this problem before the pandemic, the pandemic is only making it worse.

Mary Leslie: Bill, can you expand on the impact of how you see rent control and inclusionary housing? How is that going to impact our ability to produce housing supply?

Bill Witte: First of all, they’re not the same thing: rent control and inclusionary housing.

Just speaking for Related and not for everyone else, there’s rent stabilization as it exists in LA and San Francisco, and there’s vacancy control. For those who believe that the supply of even market-rate housing is important, if vacancy control were to be adopted we believe it would stop financing of new market-rate and even mixed-income housing.

I think inclusionary is different if the policy is understood in the development and real estate community and it’s reasonable. We’re the largest mixed-income developer in California, so we obviously feel we can work with it. I think though that not all locations are created equal, and it works best in areas that have the strongest markets. It doesn’t necessarily work where you’re struggling to get any kind of market-rate housing at all, and it’s certainly appropriate in large, master-planned communities where property owners are getting entitlements they didn’t previously have.

I think it’s perfectly reasonable, but people just have to be smart about it.

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© 2020 The Planning Report | David Abel, Publisher, ABL, Inc.