Nonprofit Housing Providers Face Down COVID-19

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As organizers struggle to get strong eviction moratoriums passed and enforced around the country, there’s one sector where evictions during the pandemic were not on the list of options from the start—nonprofit-owned affordable housing.

Projects covered by federal mortgage guarantees and affordability programs, including Low Income Housing Tax Credits and Section 8, were all covered by a 120-day eviction moratorium under the CARES Act as of March 25. (Not sure if your building is covered? Check here.) But nonprofit owners of covered projects,  where over a million households live, had already made commitments—some public, some internal—to keep their residents in their homes. “We adopted, before it was mandated, the idea that we’re not going to ask anyone to move out because of nonpayment,” says Bart Mitchell, president and CEO of The Community Builders, which owns 12,000 units in properties across the Northeast, mid-Atlantic, and Midwest.

But as important as that is, it’s only an emergency stopgap. The next step is making sure that amid rising expenses and falling revenue, these organizations will be able to continue to maintain that affordable housing into the future, without saddling their residents with unmanageable rent debt.

Will There Be a Rent Cliff?

So far, the bottom hasn’t fallen out, but there are worrisome signs. Affordable housing managers were keeping an extremely close eye on rent payments for April.

How much those receipts differ from normal depends on resident demographics and the affordability programs involved. Residents with fixed incomes are primarily still able to pay their rent, though they might be slower about getting it out under a shutdown. Residents participating in income-adjusted rent programs, such as project-based Section 8 or Housing Choice Vouchers, are likewise expected to be OK, though it may take a little time for their income recertifications to be processed to change the amount they are expected to contribute toward their rent. Tenants in Low Income Housing Tax Credit (LIHTC) properties who don’t otherwise have any rent supports and who have lost jobs, gigs, or hours to layoffs, quarantine, or caregiving needs are the ones who will most likely be unable to pay their rent in an ongoing way, say nonprofit housing providers.

Different housing mixes and different regional experiences of the pandemic have led to a variety of experiences in terms of tenants’ ability to pay rent. Mercy Housing experienced a 12 percent reduction in resident rent paid for April, concentrated primarily within 27 percent of its 25,000 units where tenants are paying LIHTC rents without subsidy. The Urban Land Conservancy, a land trust in Denver that had 152 units of affordable housing in its portfolio, experienced a 14 percent drop in residential rent collected.

In Minnesota, the Greater Minnesota Housing Fund, a community development financial institution (CDFI) that supports affordable housing development, surveyed regional affordable housing owner-operators who operate a total of 31,500 units from April 6 to 13. Declines in rental income were reported in 99 percent of portfolios, ranging from less than 10 percent up to 40 percent, with an average of 16 percent. Rental losses were above zero but below 10 percent for 48 percent of the total units. They were between 31 and 40 percent for 26 percent of the total units.

While GMHF found that losses were slightly higher for rent-assisted units (19 percent average as compared to 12 percent for non-assisted), those losses should reduced as long as sufficient funding is maintained to accommodate the income recertifications. “Declines in rental income for rent assisted units are expected to be mostly temporary due to atypical COVID-19 related lags in processing rent assistance by federal, state, and local administrators,” noted GMHF in releasing the survey results.

Capitol Hill Housing is located in Seattle, where the virus hit first in the U.S., and which experienced one of the earliest shutdowns. CHH owns 1,560 units across 46 properties and also earns revenue from property management. In the first week of April, it was projecting 20 to 40 percent rent shrinkage, and a potential loss of up to $4 million (out of a budget of $18 million) by the end of the year. “That’s a lot of pressure on our reserves and our operations,” said CEO Christopher Persons at the time. However, by mid-April more rent had come in, and Capitol Hill Housing was on track to have losses somewhat below 20 percent, with a total projected loss of $2 million to $2.5 million.

Those organizations with commercial or nonprofit tenants are also experiencing large losses on that front. ULC non-residential rent collection is down 27 percent, and that would be higher if not for one large public agency that is still able to pay in full. Capitol Hill Housing is giving all its small-business tenants a three-month rent deferral, with what happens next up in the air. “From a business perspective, we’re far better off working with our current tenants, than to see them go out of business and then we’re sitting on empty commercial space,” says Persons. “But then we’re also a small not-for-profit, so it’s not like we have unlimited capacity.”

Community land trusts are starting to get requests for a break on ground lease fees from their owners as well, says Grounded Solutions Network CEO Tony Pickett. Though those fees are typically very low, “anything is an extra burden for folks right now,” Pickett says. “Especially if you don’t know when you are going to be able to go back to work. CLTs will have to either tap into reserves, figure out a short-term loan, [or go to] other philanthropic sources. Something to cover that lost revenue.”

Though the National Multifamily Housing Council (NMHC) was widely cited as finding that 31 percent of all households in the U.S. hadn’t paid their rent by April 5, it has since released new numbers showing that as of April 12, only 16 percent of households had not made at least a partial rent payment, as compared to 10 percent as of the same date last year. However, “anecdotally, we are hearing that different parts of the industry are experiencing different levels of rent payments,” said David Schwartz, NMHC chair and CEO, in a press release. “As you would expect, more expensive Class A properties, whose resident base may be more able to work from home, are reporting much higher percentage of rent payments than operators of more affordable workforce properties whose residents are more likely to have had their incomes disrupted because of the pandemic.”

How that will change in the following months is not yet clear. Many job losses didn’t happen until late March, and unemployment continues to rise meteorically, so there are some households that may have been able to pay April’s rent, but won’t be able to pay May’s. Property owners are hoping that may be balanced by some who weren’t able to pay April’s rent being able to access unemployment funds by May, but those funds have been slow to arrive as systems are overwhelmed. Some residents, including undocumented workers, won’t be able to access any governmental supports, and the documentation requirements and bureaucracy may mean that many others, especially gig workers and sole proprietors, may not receive them either, or will take quite a while to see payments.

It is also possible that those who have lost income are going to be prioritizing other expenses, such as food and health care, over rent. Warren Hanson, president and CEO of Greater Minnesota Housing Fund (GMHF), says he’s hearing from owners that they expect “with less income, people are going to be making hard choices, and rent will be secondary to food and medicine.” Urban Land Conservancy (ULC) has received requests for additional rent discounts from voucher holders who have lost their jobs and are looking for any way to cover other expenses.

Keeping Nonprofit Housing Providers Afloat

Meanwhile, expenses are not going down for nonprofit housing providers. In fact they are going up, as maintenance staff increase cleaning protocols and personal protection measures, and resident services staff step up to help residents understand the latest public health recommendations, figure out how to apply for the enhanced unemployment provisions of the CARES Act, and access food and other assistance. At some buildings managed by The Community Builders, staff are allowing access to the building’s computer lab for one person at a time and cleaning between each use to allow residents to apply for assistance, says Mitchell.  While some non-urgent repairs and upgrades that require access to individual apartments are being put off, those will all have to be made up later and don’t represent actual savings.

And salaries, utilities, regular maintenance, and taxes all have to be paid as well. “We use monthly rent to pay the monthly operating costs,” says Mitchell.

While many organizations have started to talk with their lenders about mortgage forbearance, none Shelterforce spoke with had actually gotten a change in their debt obligations put in place as of early April.

Many affordable housing owners, especially the larger ones, have reserves set aside, and they are using those up first. Those can carry them for a couple months.  “That’s why you have reserves for these kinds of emergency events,” says Linda Mandolini, president of Eden Housing in California. “But if this goes beyond two or three months, we seriously need the state and the federal government to consider how they will help us get relief.”

Others are optimistic that government partners will come through. “We are not aware of concerns by our Council of Community Housing Organizations member organizations about long-term financial impacts from rent drops,” says Maya Chupkov, communications director of Council of Community Housing Organizations, a member organization based in San Francisco. “Our community housing providers are on the front lines of keeping people housed and served and supporting the unhoused, and we are confident that the city is just as committed as we are to keeping our members’ affordable housing properties financially sustainable through this health crisis and beyond.”

Pay What You Can

Affordable housing owners are mostly waiting to see how people are doing before making any drastic moves. Across the board, they see the best balance for taking care of all their residents as encouraging those who can still pay their rent to do so, while working with those who can’t.

“Pay what you can when you can,” is the current policy of OPAL (Of People and Land), a community land trust on Orcas Island in Washington state, for example, and that’s more or less the policy at many other organizations as well—talking with each tenant to figure out their particular situation, helping them access what resources are out there, hoping more support will come online, and arranging payment plans for if and when their income returns.

Though none wanted to make a formal policy statement about it, because they would not be able to do it for everyone and stay in business, many affordable housing operators told Shelterforce that barring substantial rent relief they will have to write off some portion of rent payments by the end of the year, rather than leave people with unsustainable catch-up plans.

Capitol Hill Housing had actually raised $300,000 as of early April from individuals to help its tenants with rent, trying to create a situation where neither they nor their tenants ended up in an untenable position. They’ll cover up to 80 percent of a resident’s rent from the fund, says Persons, and work out a payment plan for the remaining 20 percent if the resident can’t pay even that. Persons said they’d divert any excess funds raised to their commercial tenants, but he didn’t expect there to be any.

Aaron Miripol, president and CEO of the Urban Land Conservancy, says ULC has quietly set up an internal fund, drawn from its capital reserves (not reserves required for lenders), to cover rent shortfall. But without federal rental and loan assistance and bank debt forbearance, he expects that to last only about 90 days. After that, “if we’re still seeing what we’re seeing, then things will get ugly,” Miripol says.

The worst case for an affordable housing project would be foreclosure. “Our portfolio is in the best shape it could be” to deal with a crisis like this, says Mandolini of Eden Housing. “But we can’t do it for a year. And most of our affordability covenants are subordinate to the first lien holders.” That means foreclosure would wipe out all the affordability restrictions and allow a building to return to market-rate rents, which would be devastating, especially in the high-cost California markets where Eden operates 9,000 units.

Getting Help

While debt forbearance is the first and possibly easiest solution to be floated, affordable housing owners expressed a fear that it might create a lump-sum payment requirement all at once in a few months or even the end of the year, which would just kick the can down the road. On the other hand, if forbearance is realized through loan modifications that extend loan terms and move deferred payments to the end, that could make a huge difference. “If we could get payment deferrals for a few months, that would be helpful to keep our buildings fully funded,” says Persons of Capitol Hill Housing. “It would depend what it would look like. If it’s extending the term of the loan that would be hugely helpful.” Persons says that Washington state’s Department of Commerce has “offered to work with developers on a case-by-case basis. And the banks have really offered sort of the same thing.”

Greater Minnesota Housing Fund is starting to receive requests for forbearance from its borrowers, and they are launching those conversations, though they were waiting to see how the numbers look before actually implementing. “It’s causing us to have a stemwinder of a conversation about what do we ask of our investors,” says Hanson. “Our ability to provide forbearance is somewhat built in—we do it all the time. But if it’s across the board, that triggers a need to go upstream.”

Hanson encourages both affordable housing operators and the CDFIs that serve them to talk to their own lenders and investors as soon as possible, and says he’s heard the same from funders who have made project-related investments, or PRIs. “The PRI lenders are going to want to collaborate. They want to know what’s going on, and they don’t want to trigger a lot of technical defaults. They will benefit internally by knowing as much as possible,” he says. “Don’t be in alarmist mode. But share facts.”

If their borrowers do need it, GMHF would prefer to take the approach of extending loan terms. “A catch-up provision creates stress later,” says Hanson. “We’ll have fewer resources in the future. Better to extend the term.”

Hanson suggests that organizations not burn through all their reserves before starting a conversation with lenders. “It’s better to ask for help now,” he says. Having “no reserves puts you in a very brittle situation. You don’t want to be in that position in August when maybe a second wave of this is happening.”

“There will probably need to be shared pain—lenders need to make concessions, the locals paying into the project need to make some concessions, we need to give up reserves,” says Mandolini. “If everybody came to the table, I’m sure we could find a solution.”

Queries to the IRS about whether LIHTC-specific required reserves can be deployed to make up for rent shortfalls remained unanswered at publication time, though the office said it would consider issuing guidance on that question.

As with nearly every small business and nonprofit, affordable housing owners also applied for the Payroll Protection Program (PPP), and other related relief funds, but the PPP ran out of funds quickly, leaving organizations that hadn’t had the resources to apply instantly without help.

Ultimately, the only way to protect both residents of nonprofit-owned affordable housing and the ability of the owners of that housing to continue providing it is substantial federal rent relief—whether to tenants, owners, or both. “We’ve been very involved at national, state, local levels,” says Persons, “to identify how to support tenants so they can pay their rent. But every business is doing the same thing so there’s a lot of competition.”

“Everyone’s depending on some level of revenue,” says Pickett. “It makes everything work and without it, we need some kind of federal relief in the next stimulus package.”

“Getting rental assistance for folks who don’t have a voucher would be huge,” says Miripol. Democrats had proposed $100 billion in rent relief in the third stimulus package. That didn’t make it in, but advocates are pushing hard to get it included in a fourth bill. Rep. Ilhan Omar has also introduced a bill that would cancel all rent and individual mortgage payments, and allow property owners to apply to a fund to make up their lost rent. That bill would prioritize nonprofit housing owners in the disbursement of relief funds.

Housing Partnership Network (HPN), together with Enterprise, LISC, Opportunity Finance Network, Stewards of Affordable Housing for the Future, and the National NeighborWorks Association, has developed a proposal to appropriate $20 billion for both rental relief and owner support, to be delivered through the HOME program. “HOME is a proven existing delivery system that can be used flexibly,” says Lisa Alberghini, HPN’s executive vice president for peer exchange and policy. “This is not the time to create something new.” The program would complement Rep. Maxine Water’s proposal for $100 billion in rent relief, Alberghini says. While Waters’ program is renter-focused, theirs would also be accessible by owners.

“There’s going to be a need for a massive infusion of funds here, just as there are in other sectors that are in great difficulty with COVID-19. The airlines and hospitality sector and others are getting relief,” says Alberghini. “It’s really important that the affordable housing sector also get relief, because we have to keep people home.”