Partners (Spring 2000)

National Housing Development Corporation

A New Non-Profit Focused on Preserving
Affordable Housing

By Kathy Kenny and John Trauth

In spite of the robust American economy, the need for affordable housing continues to grow. Today, this nation provides affordable housing for only one-fourth of those who need it. As a country, we are not building enough affordable housing to keep up with huge demand. Many experts have recognized this problem, including the National Housing Conference, which is calling for the creation of a bold new affordable housing production program. At the same time, the stock of existing affordable rental housing is diminishing through neglect, deterioration and, most importantly, the pending expiration of federal subsidies.

Beginning in the 1970s, the federal government entered into contracts with private owners to create affordable housing projects in return for a long term (25-30 year) commitment from the government to provide monthly rent subsidies for the tenants. The “Section 8” program, administered by the Department of Housing and Urban Development is the primary vehicle for these subsidy dollars. The US Department of Agriculture’s “Section 515” program has also built affordable rental housing in rural areas. While these subsidies are not expiring, some owners are interested in selling their properties to local nonprofits.

Now, throughout the nation, a large percentage of these government rent subsidy contracts are expiring without the expectation of renewal. Over the next three years, the largest transfer of affordable real estate assets in history will take place, exposing upwards of 800,000 affordable apartments, now regulated and subsidized by HUD, to market-rate conversion. Unless a large-scale intervention takes place, these precious resources will be lost, as owners divest and profit-motivated investors move in.

The National Housing Development Corporation (NHDC) has been created to respond to this need. It is the first national intermediary of this type to emerge from the West Coast, growing out of an award-winning housing preservation program operated by the non-profit Southern California Housing Development Corporation (SoCal Housing).

NHDC’s mission is to improve the quality of life for lower income families through acquisition and preservation of our nation’s affordable housing stock. It will partner with other not-for profit preservation efforts. It will compete aggressively with the private sector to purchase large portfolios of these properties, restructure them financially, and sell them at cost to local non-profits. Under nonprofit ownership, affordability can be maintained in perpetuity. NHDC’s goal is to help preserve a significant portion of the nation’s “at risk” properties, with an initial target of acquiring 60,000 units in three years.

Congress has recognized the need and endorsed the NHDC model. Two million dollars has been earmarked in the 1999-2000 budget for NHDC’s initial seed capital. In addition, a national foundation has approved a seed grant for the first two years of operation.

NHDC’s United National Preservation Trust

NHDC’s program, also called the United National Preservation Trust, will negotiate directly with portfolio owners for properties anywhere in the country. It is designed as a large-scale acquisition/warehouse facility which will purchase larger portfolios of “at risk” affordable housing properties, concentrating on those which are beyond the reach of local non-profits, either for financial or geographic reasons. NHDC will then reposition and stabilize the properties and finally disaggregage and sell off individual properties at cost to qualified local non-profit organizations.

NHDC’s holding period (estimated between 12 to 36 months) will enable the local non-profits to assemble the necessary resources (tax credits, HOME funds, and local subsidies) to purchase the properties and prepare to assume property management functions. NHDC will retain a limited asset management oversight role, retaining the ability to correct any future problems that might arise.

NHDC has developed its program based on the concept of “harmonious differentiation” through which NHDC will work with and complement housing, community development and preservation efforts of other national intermediaries. Initial relationships are being negotiated with the National Council of La Raza and the Congress of National Black Churches. In addition, properties acquired by NHDC will be available for purchase by qualified affiliates of the Neighborhood Reinvestment Corporation, Local Initiatives Support Corporation, the Enterprise Foundation, National Association of Housing Partnerships, National Affordable Housing Preservation Associates and others. (See the contact list for further information on complementary initiatives operated by these organizations.)

NHDC will also work closely with the National Council of State Housing Agencies (NCSHA) and its members at the state level, who will assist in identifying potential at-risk properties and may also provide property financing.

NHDC’s Target Markets

In addition to the large number of existing low-income rental housing units which are immediately “at risk” of loss as a result of market rate conversion, other preservation targets for NHDC will include older assisted subsidy-dependent properties, conventional affordable apartments owned by REITS, Low-Income Housing Tax Credit properties reaching lock-in expiration, and very large-scale neighborhood revitalization projects that are beyond the reach of local non-profit capacity.

NHDC’s Acquisition and Financing Plan

NHDC will focus on properties which can be underwritten, purchased and preserved under a “renewed affordability” paradigm in which a combination of a reasonable acquisition price and value added through financial and operational restructuring, below-market financing, tax credits, local subsidies and non-profit ownership can achieve permanent affordability independent of future federal subsidies.

Now that the initial seed capital is in place, NHDC staff is actively working to identify and purchase its first at-risk portfolios. Timing is of the essence since the majority of the at-risk Section 8 projects will face subsidy expiration in the next three years. If these properties are lost to conventional buyers and converted to market rate housing, the cost of replacing this inventory will be prohibitive.

Opportunities exist for banks and other financial institutions to provide seed capital to support NHDC’s initial activities in their market areas, as well as acquisition and permanent financing for NHDC properties, eventually assumable by the ultimate owner/manager, the local non-profits.

Once up and running, NHDC will earn income from transaction fees, special preservation funds (Intermediary Technical Assistance Grants), cash flows from acquired properties, transfer fees to local non-profits (based on a limited cost-reimbursement formula) and asset management fees. NHDC’s projections indicate that it will achieve self-sufficiency in four years, based on an aggressive acquisition strategy.

To reach self-sufficiency, NHDC’s financial projections show a need for $5 million in seed capital (of which $2 million has now been provided by Congress). NHDC is in the process of raising the remaining seed capital from financial institutions, foundations, corporations and future congressional appropriations.

A CRA Investment Opportunity

NHDC is developing an investment fund whereby participating financial institutions should receive CRA investment credit via acquisition (and subsequent disposition) of existing affordable housing at risk of market conversion.

Acquisitions will be structured via a risk-shared equity pool LLC in which NHDC will be the managing member and participating financial institutions will be the equity investors and members.

Investments are targeted for $5 million increments, although smaller investments will be considered. The investment will have a projected holding period of 3 years and a maximum of 6 years, with a projected return of 5-8%, plus return of capital. The fund will make every effort to target its acquisitions to match the investors’ service areas, broadly defined as states and regions where investors do business. However for NHDC to have the flexibility to respond to areas of greatest need, 25% of the funds will be reserved for use in any location.

As soon as properties are repositioned, stabilized, and the qualified local nonprofit is in place, NHDC will sell or transfer the property to the qualified local nonprofit. At that time, the investors’ equity capital will be repaid. As an alternative, and at each individual investor’s discretion, equity capital returned can be recycled back as a new capital contribution to acquire future properties on the same basis. If there is no otherwise viable affordability-oriented transaction, as a last resort the property can be sold at market value.

NHDC Personnel

While NHDC is a new national intermediary, NHDC staff has a long and impressive history in affordable housing preservation. Jeff Burum, NHDC’s executive director, was the founder and driving force behind Southern California Housing Development Corporation (SoCal Housing), a large and successful regional non-profit which focuses on preservation of affordable rental housing in Southern California. Under Burum’s seven-year stewardship, SoCal Housing preserved over 3000 units of affordable housing with an asset value exceeding $130 million. Other key staff members from SoCal Housing are also involved with NHDC. Sebastian Sterpa, former chairman of the California Housing Finance Agency, will serve as the initial chairman of the Board of Directors. Other members of NHDC’s Board are being recruited and include key national leaders in the nonprofit, philanthropic, private and public sectors.

In addition, NHDC has assembled a team of outside experts to assist with acquisitions, organizational planning and development, and public finance. Team members include Rick Johnston, Managing Director, of Public Finance for US Bank/Piper Jaffray, the authors of this article, and David Smith, founder and President of Recapitalization Advisors, one of the nation’s leading specialists in the HUD inventory.

The ultimate goal of NHDC’s efforts is to help local communities attain greater control over one of their most precious assets—the housing stock that shelters lower income families and seniors. Without a doubt, preserving this housing stock is a huge undertaking, one that, in order to be successful, will require coordination, cooperation, considerable expertise and strong financial support. Management fees can also contribute to the sustainability of local non-profit operations, providing additional capital to address other community needs.

Through its working relationships with other preservation-oriented agencies and through its Board of Directors, NHDC is positioned to make a major difference in the preservation of our nation’s affordable housing stock. NHDC’s success will directly translate into success for the local non-profits who wish to play a role in the preservation of affordable housing in their communities.

For additional information on NHDC, contact National Housing Development Corporation, 8265 Aspen Street, Rancho Cucamonga, CA 91730; (909) 291-1400 or Or visit NHDC’s website at

     Alabama     3     490
     Florida     7  1,282
     Georgia     4     367
     Louisiana     5     876
     Mississippi     4     360
     Tennessee     7     655
     TOTAL   30  4,030
     Aggregate USA 349 37,898
     Alabama     0         0
     Florida    21  2,565
     Georgia    17  1,805
     Louisiana     7     566
     Mississippi     1     100
     Tennessee     4     478
     TOTAL   50  5,514
     Aggregate USA 580 59,670
     Information supplied by the National Housing Trust, as of 12-31-98.

Additional Affordable Housing
Preservation Contacts
LISC’s Community Development Trust, Inc.
The Community Development Trust (CDT) is a for-profit real estate investment trust (REIT) created in 1998 by the Local Initiatives Support Corporation (LISC), a national community development intermediary. CDT acquires long-term fixed-rate mortgages collateralized by affordable multifamily housing and other community development assets. CDT also invests equity in community development projects that meet CRA requirements. As a REIT, CDT can offer current owners of affordable housing a tax-deferred exchange that benefits property owners who have exhausted their tax benefits. Initial capital of $31,750,000 was raised from 18 institutional investors including banks, insurance companies, and one CDFI. For further information, contact Judd S. Levy, President and CEO, (212) 271-5099,

National Affordable Housing Preservation Associates
The National Affordable Housing Preservation Associates (NAHPA) is a national non-profit organized to promote the preservation of affordable multifamily housing in rural areas and small towns. NAHPA is currently completing acquisitions in Illinois and Vermont with a goal of acquiring 3000 units over the next three years. USDA Rural Housing Service has affirmed a financing model for preservation properties to attract the participation of private lenders. NAHPA is now looking to build an organization and to establish partnerships with local and regional non-profit organizations and housing authorities interested in acquiring and/or managing multifamily properties in rural areas. For further information contact Muriel Watkins, Executive Director, (202) 467-8544 or

National Association of Housing Partnerships’ Housing Partnership Development Fund
The National Association of Housing Partnerships (NAHP) is comprised of 60 regional nonprofit housing organizations in 32 states. NAHP’s new affiliate, the nonprofit Housing Partnership Development Fund, will provide a loan facility for use by NAHP members, primarily for purchase of portfolios of HUD-assisted properties. The Fund will offer technical assistance with the financing that is needed for predevelopment costs. The Fund has received CDFI designation, so that bank investors can receive CRA credit and cash awards. $1 million in investment has been raised to date toward a goal of $3 million. For further information contact Kathy Farrell, (617) 720-1999 extension 204,

Neighborhood Capital Corporation (NCC)
The Neighborhood Capital Corporation (NCC) was formed in January, 2000 by members of the Multi-Family Housing Initiative of Neighborhood Reinvestment Corporation (NRC). The NCC membership, comprised of the multifamily organizations in the NeighborWorks Network, owns and operates 15,000 units of multifamily housing. NCC’s primary function will be aggregating capital for the timely acquisition of affordable multifamily housing for its member organizations. NCC members plan to increase their combined portfolio by 10,000 units by the end of 2003. NCC intends to work with other organizations, including National Housing Development Corporation (NHDC), National Housing Trust/ Enterprise Preservation Corporation (NHT/E) and National Association of Housing Partnerships (NAHP). The NCC board has commenced the executive search process. For further information, contact Bill Sullivan, Rocky Mountain Mutual Housing Association, Inc. 1550 Park Avenue, Denver, CO 80218, (303) 863-8651, ext. 211;

NHT Enterprise Preservation Corporation
National Housing Trust is a nonprofit intermediary located in Washington D.C. The Trust was founded in 1986 and is dedicated to the preservation of existing multifamily affordable housing. In 1999, the Trust and the Enterprise Foundation launched the NHT Enterprise Preservation Corporation, which will purchase real estate from owners of multifamily housing, primarily targeting markets where there is insufficient local nonprofit capacity or interest to efficiently complete a transaction. This new nonprofit entity plans to acquire 5,000 apartments over the next five years. In general, NHT/Enterprise plans to focus its activities in the Mid Atlantic, South and Midwest. For further information contact Scott Kline, Vice President for Acquisitions, (202) 333-8931 or Or visit NHT’s website at

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About the Authors

Kathy Kenny and John Trauth are organizational planning and development consultants, specializing in the startup of large-scale initiatives in affordable housing and community development. They are currently assisting the National Housing Development Corporation through its startup phase. John Trauth was also instrumental in the creation of BRIDGE Housing Corporation and Southern California Housing Development Corporation, two regional nonprofit housing developers. Kathy Kenny has also served as a planning consultant to the Council on Foundations, the League of California Community Foundations, the National Economic Development and Law Center, and the Federal Reserve Bank of San Francisco.

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