October 4, 2011 by Funders Collaborative
Encouraged by funders and advocacy partners across the nation, regional collaboratives are actively sharing what they’ve learned as they explore how transit-oriented development along rail corridors can advance access to affordable housing, jobs and other elements of a high quality of life for all residents.
In mid-September, a Funders Collaborative-sponsored work group explored whether the Twin Cities region’s current funding approaches are sufficient to support the affordable housing and related TOD development along current and future transit corridors (view Framing Document). This work followed up on a June learning session focused on housing preservation and land acquisitionactivities under way along the Central Corridor.
The next day, the Funders Collaborative hosted a learning session that summarized the work group’s discussions and presented two different TOD investment models — from the San Francisco Bay Area Transit Affordable Housing (TOAH) and Denver Metro funds. The learning session provided a preview of key issues, challenges and opportunities involved in considering a new TOD funding structure for the Twin Cities metro region.
Both the TOAH and Denver presenters spoke admiringly of the Twin Cities region’s relative riches — a strong philanthropic community, non-profit developer base and high degree of cross-sector collaboration. Their presentations highlighted how TOD investment can take different approaches based on the realities in a given region and foreshadowed some of the challenges the Twin Cities may face.
For example, local municipalities in fiscally strapped California are not investors in the TOAH fund, which covers the nine-county Bay Area, but they provide essential zoning, entitlements and other non-financial support for affordable housing. Started as an acquisition fund, TOAH has expanded to include construction financing and longer-term gap financing applied to a broader range of projects, including mixed-income and mixed-use developments with community facilities, child care centers, health clinics, fresh food markets and other neighborhood assets that complement affordable housing.
FasTracks — a nearly $7-billion rail system build out in Denver Metro — will place strong development pressures along five new corridors in a relatively short time period. With affordable housing mandates lacking for new construction, relatively few nonprofit developers and existing units for low-income and senior households already in short supply, Denver is focused on preservation and land acquisition ahead of the market. The Denver Metro TOD fund provides a single-borrower revolving line of credit to the Urban Land Conservancy to acquire units and bank land. The City of Denver provides the first layer of loss protection for the fund.
These differences between funds help raise two key issues being faced by the Twin Cities work group as it tries to frame a collaborative, region-wide approach to strategic TOD investment.
Clarifying outcomes. The first is a question of intent. “What are we trying to achieve?” can have different answers, depending on whether the corridor runs through neighborhoods with existing affordable housing or will serve areas where low-income housing is yet to be built; or whether the populations being served by a project are working families concerned about access to schools and jobs or seniors interested in health care access.
Structure for mitigating risk. The second question involves how to structure capital formationwhen fund investors have different goals and are willing to assume varying levels of risk. The public/nonprofit sector pursues mission-related goals and, though it has limited capital, it’s more willing to take risks in order to achieve the outcomes. Private investors want to make money, and care more about risk than specific programs. As one bank participant in the session said, “I can handle long-term, subsidized interest rates. I can’t handle loss.” Protecting senior lenders makes it easier for them to invest in projects that don’t pay high rates of return.
However, building in those lender protections makes funds less flexible and more costly to administer than capital pools. Policy tools such as zoning, infrastructure improvements and public agency processes that reduce complexity for private developers can also create a more flexible environment for investment.
Before the Twin Cities decides to establish a TOD investment fund, it will have to find its own balance that reflects the region’s riches, realities and risks. A report commissioned by the Family Housing Fund will help stakeholders weigh the many factors involved. Drawing upon the work group’s discussions, stakeholder interviews and other expertise, the report will present findings and specific recommendations for the Twin Cities region.
The Funder’s Collaborative will cover the report here when it is released at the end of October.