Social-Purpose Real Estate Investment Trust Preserves Affordable Housing in Aurora
The Housing Partnership Equity Trust (HPET) quickly closed on 2000 Illinois, allowing HPET partner Mercy Housing Lakefront to rehabilitate the property and preserve its 128 units as affordable housing. Image courtesy of Donnell Collins for Mercy Housing. Nonprofit affordable housing developers often need to assemble a complex financial structure with many sources to amass sufficient funding for their projects. With nonprofit and for-profit developers often competing for development sites that are on the market for only a few weeks, the 18 months typically needed for nonprofits to secure funding puts them at a disadvantage compared with more financially agile for-profit developers. To expedite the funding process for property purchases by nonprofits, a group of national organizations have joined to create a real estate investment trust (REIT). The Housing Partnership Equity Trust (HPET) recently assisted Mercy Housing Lakefront, a nonprofit affordable housing development and management company, by quickly financing the purchase and renovation of 2000 Illinois Apartments, a 128-unit midrise building in Aurora, Illinois.
REITs are able to fund projects quickly because they have already assembled funding from multiple investors that can be used at the discretion of the trust administrators. To make this type of financing available to nonprofit affordable housing developers, 12 nonprofit organizations in the Housing Partnership Network (HPN) developed the idea for HPET, and in 2013, HPN became the operator of the newly established trust. The 12 organizations are now partners in HPET, identifying potential projects for the trust to fund and participating in its governance.
After securing funding from a number of sources, the trust decided to purchase the 2000 Illinois project with a financing package that included HPET investors Citibank, the Ford Foundation, the MacArthur Foundation, Morgan Stanley, and Prudential Insurance Company. HPET’s investors are willing to accept a lower return than those who invest in other assets because the trust’s funds are used for the preservation of affordable housing, a low-risk, stable asset class. This funding is made available to the partner organizations for affordable housing projects. As HPET was being created, Mercy Housing Lakefront, a branch of the trust’s partner, Mercy Housing, was searching for financing to acquire 2000 Illinois Apartments in Aurora, Illinois. HPET closed on the property shortly after the trust was established, completing the acquisition in approximately three months.
Meeting the Need for Affordable Housing in Aurora
The city of Aurora is in need of affordable housing: 67 percent of the city’s renters earn less than 80 percent of the area median income ($72,400 for a family of 4 as of 2014), and 69.9 percent of these low-income renter households pay more than 30 percent of their income toward housing costs. The 2000 Illinois building, which had been an affordable market-rate property before HPET’s acquisition, is continuing to meet this need by preserving the affordability of its 128 units. Having been renovated to improve quality, the building still houses low- and moderate-income seniors, families, and individuals, and most households earn less than $26,000 per year. In addition to improved quality and retained affordability, residents benefit from the building’s location, which is within walking distance of stops on two bus lines and is near the Presence Mercy Hospital Campus, the office district along I-88, and several industrial and distribution centers.
2000 Illinois offers residents access to amenities, area bus lines, and a nearby hospital campus and office district. Image courtesy of Donnell Collins for Mercy Housing. One of the first steps that Mercy Housing Lakefront took after acquiring the building was to perform an energy audit. Elevate Energy (then called CNT Energy)’s audit recommended replacing the building’s original boiler system, a major project that would yield significant energy cost savings for the owners and renters. According to Drew Ades, executive vice president of HPN and president of HPET, the system was updated to a high-efficiency system before one of the coldest winters in Chicago’s history. Although temperatures that winter were much colder than usual, utility bills for the building were similar to those of the previous year, one of the warmest winters on record.
Mercy Housing Lakefront also partially replaced the building’s roof, improved the site’s drainage system, and upgraded the kitchens and baths in the units. During the renovation process, some units were kept vacant so that residents would not be displaced from the building while their units were renovated. Mercy Housing Lakefront is planning additional upgrades to the 2000 Illinois building, including replacing the windows.
Success and Future Plans
HPET is in the process of purchasing properties to preserve affordable housing in several other locations. As of November 2014, the trust has purchased four additional properties to preserve affordable housing. The trust has provided funds for the purchase of the Woodside Court Apartments, a 129-unit rental property in Fairfield, California. In Norfolk, Virginia, the trust has purchased Woodmere Trace, a 300-unit rental property, and is preparing energy audits and plans for extensive renovations. The trust is also preserving the Mallard Point Apartments, a recently developed, 173-unit rental property in Channahon, Illinois that is one of the few sources of affordable housing in a predominantly single-family community. In addition, the trust recently purchased the Damen Court Apartments, a 150-unit apartment building in Chicago, which will undergo renovations. Using the trust’s funds has reduced the time it takes to close on properties to approximately 90 days.
HPET is also planning to expand by working with more investors, recruiting more nonprofits to become members, and acquiring properties in more geographically varied locations. According to Ades, the trust has “a fairly aggressive growth strategy and [it has] had a positive response from the market in pursuing that.”
Interview with Drew Ades, executive vice president of the Housing Partnership Network and president of Housing Partnership Equity Trust, 29 October 2014; Mercy Housing. 2013. “Mercy Housing Lakefront helps save 128 units of housing in Aurora, Ill.,” Community Matters (Summer), 7. Accessed 4 November 2014.×
Interview with Drew Ades, executive vice president of the Housing Partnership Network and president of Housing Partnership Equity Trust, 29 October 2014; Email correspondence with Drew Ades, 10 November 2014; Minnesota Preservation Plus Initiative. 2013. “The Space Between: Realities and Possibilities in Preserving Unsubsidized Affordable Rental Housing.” Accessed 4 November 2014; Housing Partnership Network. 2013. “Housing Partnership Network Wins $2.5 Million in 2013 NEXT Awards Program to Preserve Affordable Housing Nationwide,” press release, 18 September. Accessed 27 October 2014.×
Housing Partnership Equity Trust. 2013. “Welcome to the Housing Partnership Equity Trust.” Accessed 27 October 2014; Interview with Drew Ades, executive vice president of the Housing Partnership Network and president of Housing Partnership Equity Trust, 29 October 2014; Email correspondence with Drew Ades, 10 November 2014; Mercy Housing. 2014. “Mercy Housing Lakefront: 2000 Illinois Apartments.” Accessed 20 October 2014.×
U.S. Department of Housing and Urban Development. 2014. “Income Distribution Overview,” 2007–2011 American Community Survey 5-Year Estimates Consolidated Planning Data, CHAS Data Query Tool. Accessed 20 October 2014; U.S. Department of Housing and Urban Development. “FY 2014 Income Limits,” FY 2014 Income Limits Documentation System. Accessed 20 October 2014; U.S. Department of Housing and Urban Development. 2014. “Income by Cost Burden (Renters only),” 2007–2011 American Community Survey 5-Year Estimates Consolidated Planning Data, CHAS Data Query Tool. Accessed 20 October 2014; Mercy Housing. 2013. “News & Updates: Mercy Housing Lakefront Helps Create Nonprofit Owned REIT and Saves 128 Units of Housing in Aurora, Illinois,” 9 May. Accessed 27 October 2014; Interview with Drew Ades, executive vice president of the Housing Partnership Network and president of Housing Partnership Equity Trust, 29 October 2014.×
Mercy Housing. 2013. “News & Updates: Mercy Housing Lakefront Helps Create Nonprofit Owned REIT and Saves 128 Units of Housing in Aurora, Illinois,” 9 May. Accessed 27 October 2014; Interview with Drew Ades, 29 October 2014.×