L.A.'s New Generation Fund: $100 Million for Affordable Housing

Describe the mission of Enterprise Community Partners for our readers. What is the focus of the organization, and what is the Southern California agenda for the organization?

Jeff Schaffer: Enterprise Community Partners is a national non-profit organization, working in the field of affordable housing and communities, primarily as an intermediary to local community-based organizations throughout the country. Our goal is to provide technical assistance and capacity building for the affordable housing and community development industry and bring significant financing to support development of affordable housing and community facilities. Enterprise has been around now for over 25 years and was established by James and Patty Rouse. We've been in Los Angeles for just over ten years and our mission here is the same mission that we're engaged in nationally. We have an active program of technical assistance training. We have a lending program to support the acquisition of property for affordable housing development. Enterprise Community Investment is the for-profit subsidiary of Enterprise Community Partners that does tax credit syndication, multifamily mortgage, structure finance and other real estate financing, so we have the staff from Investment here in the L.A. office as well as other national staff.

Mayor Villaraigosa, former Senator John Edwards, and Enterprise Community Partners Chief Executive Officer and President Doris Koo recently announced a new housing fund called the New Generation Fund, which will be overseen by Enterprise. Where is the money coming from, how will it be administered, and what is the promise of that money for Los Angeles?

Schaffer: In 2006, Enterprise hosted its annual Network Conference in Los Angeles (now the Enterprise Community Conference) -just around that time that Enterprise had been involved in New York City working to establish an acquisition fund. Mayor Villaraigosa asked Enterprise to work with his administration to create a similar fund in the city of Los Angeles. What makes this exciting and unique is that it's a collaboration of the public sector, the private banking sector, and non-profit organizations working collaboratively to pull together this $100 million fund. Banks and financial institutions have invested $100 million of venture capital, which is the money that will actually go out the door in the form of loans to affordable housing developers. At the moment we have about $14 million for the city and foundations that will serve as a top loan loss reserve, money that will be drawn upon in the case of the loss of any loan originated from the fund. The investment by the city, along with the philanthropic dollars for that top loss reserve, basically help to buy preferential terms from the senior lenders.

How will housing organizations and developers secure access to these funds?

Schaffer: We use New York as a model but then adapt that model to meet the needs and circumstances of Los Angeles. Typically, the housing developers, profit and non-profit, go to community development and financial institutions (CDFIs) as a source of pre-development lending. What we've done with the New Generation Fund is to engage the participation of all the CDFIs working in the city of Los Angeles as loan originators. Enterprise is one of originators, but the Local Initiatives Support Corporation (LISC), the Corporation for Supportive Housing (CSH), the Low Income Investment Fund, and Century Housing will also be originating loans. Forsyth Street Advisors, based in New York City, is the fund manager and we're also working with the California Community Reinvestment Corporation here to assist with managing the local relationships.

What are Mayor Villaraigosa and the city's leadership priorities for this new fund?

Schaffer: The fund is intended to advance the housing agenda of the city. The fund in and of itself does not have targeted priorities. The city has indicated that its priorities, when it comes to the housing development, will focus on transit-oriented development (TOD), preservation, properties with expiring use restrictions, as well as some of the large residential hotels in the Downtown Los Angeles area.

In terms of how this fund will operate, the credit committee will review proposals as they come in. A soft commitment letter must be provided to the city to indicate that a review is done to ensure the project is consistent with city priorities although such a commitment letter is by no means final approval or a guarantee of funding. That follows what has been done with the New York acquisition fund to ensure that all projects coming through the New Generation Fund will be consistent with city priorities.

What is the impact of the rapid rise of foreclosures nationwide on affordable housing policy and investment, especially in California and metro Los Angeles?

Ali Solis: Enterprise is developing and implementing a set of program and policy responses to address the devastating impact that concentrations of foreclosed properties have on whole communities. We led the successful Save America's Neighborhoods Campaign (www.saveamericasneighborhoods.org) to include $4 billion in community stabilization funding in the housing bill. In addition, in partnership with NeighborWorks America, LISC, and the Housing Partnership Network, we are exploring the potential creation of a National Community Stabilization Trust. The trust would work with lenders and servicers on a national basis, in select markets across the country, to transfer or facilitate discounted bulk purchases of foreclosed properties in order to put those properties back into productive use as affordable for sale and rental housing.

Schaffer: Locally, we're supporting the city as it thinks through the creation of a holding entity that would receive properties. That entity would also have the finance agencies available to work with the federal money that's available to support that effort and to determine how properties would be disposed of, whether they are made available either to non-profits or for-profits. That is still in early thinking, although we're moving forward quickly. But in the mix of that conversation is a look at how the New Generation Fund fits into that as a funding method to help support those efforts.

The U.S. House of Representatives recently passed the Housing and Economic Recovery Act of 2008 and it's expected that the Senate will also do so within the next day or two. What provisions of this bill did Enterprise Community Partners most strongly support?

Solis: While this landmark legislation includes many incredible affordable housing provisions that Enterprise fully supports, for the purpose of this conversation, let's talk about the emergency neighborhood stabilization funds included in the bill.

The $3.92 billion of emergency grants are dedicated to dealing with the impact that vacant foreclosed properties are having on communities.

Most of the focus prior to the enactment of this landmark legislation has been on doing everything we can to keep families at risk of losing their homes to foreclosure in their homes, which remains a number one priority. Having gone through a number of real estate crises in the past, but also having run neighborhood stabilization programs back in the '90s, we worked with Congress to pass a law called the Asset Control Area Program that allows local governments and qualified non-profits to buy HUD-owned foreclosed properties from the FHA at a discount, rehabilitate them, and then put them back into productive use for homeownership. Enterprise has directly run and financed a number of the ACA programs around the county, including one in Los Angeles. Our experience is that if you are able to amass a significant concentration of foreclosed properties within a particular neighborhood, fix up the properties and quickly get them back into productive use, you can stop the cycle of disinvestment and decline.

What that community stabilization strategy does for the stability of the overall neighborhood isn't just confined to the obvious things like the return of the tax base to that area, but includes restoring hope to those families that stayed in their neighborhood throughout the crisis, paid their mortgage, and yet have seen their property values plummet with the rising tide of foreclosures. We created a national coalition called the Save America's Neighborhoods Campaign, where representatives from civil rights organizations and housing industry associations-over 50 organizations-came together to draw attention to the need for emergency stabilization funding to be included in the housing bill. The House kept these funds intact, despite an earlier veto threat by the President. We're hoping to see the final passage very soon, with these funds included.

The bill does many important things for affordable housing, one of them is to create a permanent Affordable Housing Trust Fund, but it also creates a national Capital Magnet Fund. Enterprise worked with other coalitions and CDFIs across the country to urge Congress to include this provision in the bill. The Capital Magnet Fund would be administered by the CDFI Fund at the U.S. Department of the Treasury and would leverage significantly more private capital to further affordable housing and economic development efforts in this country, especially for very low-income families.

In the early years of The Planning Report, we had a number of interviews about the Neighborhood Reinvestment Corporation (now known as NeighborWorks America), which appealed to our readers because NRC addressed more than housing-they addressed investment in housing, infrastructure, and community facilities. Enterprise likewise is built upon the reputation of Mr. Rouse, who built new communities, not just housing. Do the new housing bill and the work of Enterprise reach beyond just building housing?

Solis: Mr. Rouse always believed that housing was really a platform to help families move up and out of poverty. But without the other necessary comprehensive community outreach tools, progress can't be realized. Enterprise absolutely seeks holistic and comprehensive community development as a goal; housing is a means to help get there. This bill provides many opportunities to encourage that; the Capital Magnet Fund is one example and the neighborhood stabilization funding is another. The bill includes a set of proposals to modernize the Low Income Housing Tax Credit (LIHTC) program, the nation's largest affordable rental housing production program, which Enterprise helped create as part of the Tax Reform Act of 1986. Among other things, the modernization proposals would streamline the rules and regulations of HUD and USDA housing programs when they are used in conjunction with the LIHTC in order to provide comprehensive community development and revitalization.

Crisis often offers opportunity. What are the opportunities for affordable housing advocates and investors presented by the current housing crisis?

Solis: One of the opportunities provided by this housing legislation is the creation of a permanent Housing Trust Fund, which would provide a new, permanent stream of resources to support the critical affordable housing preservation and development needs in this country. The Capital Magnet Fund is another opportunity.

There are also preventative measures included in the bill. One of the most prominent of such measures is the $300 billion in FHA loan guarantees to refinance mortgages of troubled borrowers. The program is, albeit, voluntary for lenders, but it's one important tool that's available to help families keep their homes. While Enterprise is focused on dealing with foreclosed properties, anything that can be done to help keep a family in their home should be the first priority. The other opportunity that is included in the bill is the $180 million for NeighborWorks America to continue its counseling efforts. One of these things that we've noticed in running programs on the ground is that you need to have counseling from the front end (pre-purchase) all the way through and including post-purchase homeownership retention in order to have a successful program.

One of our key priorities as we look toward the new administration is to improve the sustainability of the housing we produce-green building and energy efficiency-including a new provision that would allow some of the emergency funding to be used to make retrofits and improve energy efficiency for those homes. That's a huge next step in where the country and Congress need to be looking. We need to make green and energy efficient housing a priority, especially to the most vulnerable and low-income families.

If you package it together with a Housing Trust Fund, a Capital Magnet Fund leverages significant private capital and brings in the private sector to invest in low and moderate-income communities. But it should be noted that these emergency funds are dedicated specifically for communities highly impacted by the foreclosure crisis, to work with non-profits and other partners to quickly stabilize them by putting foreclosed properties back into productive use.

We haven't seen legislation like this in decades. Our goal is to continue to find new innovative policy solutions that help close the affordable housing gap for millions of low-income families.

Lastly, how does the California housing crisis, with all its peculiarities, fit into and impact the provisions of the bill that's now moving through Congress? How are California's particular affordability challenges dealt with in this new legislation?

Solis: California has two of the staunchest advocates on this particular piece of legislation. Speaker Pelosi worked very hard for provisions that would directly assist high housing cost markets and high housing cost states, and she fought for inclusions and the increase in the loan limits, among a number of other things. Rep. Maxine Waters from Los Angeles really became the champion of the issue of community stabilization. There was a time when many were turning their backs on this provision. If not for the assistance of Congresswoman Waters, I'm not sure that this provision would actually be in this bill today.

Schaffer: I appreciate that Enterprise, in looking around the country, has decided to focus a portion of its response to this issue in California, Southern California in particular, and is bringing along partners amongst banks and financial institutions, Bank of America, for example, to be part of the focus of the efforts in this region.