CEO Deidre Schmidt of CommonBond Communities, Minnesota’s largest owner and manager of affordable housing, just paid $16 million to buy a 112-unit Apple Valley apartment complex that the organization intends to preserve for its working-class tenants at a time when for-profit owners are scooping up rental units, adding amenities and hiking rents — causing a housing crisis for some amid a red-hot market.
And CommonBond did it without any government subsidy.
That’s very rare in a business where nonprofit owners such as CommonBond, PPL and Aeon, who house and provide support services to the working poor and first-generation immigrants, often need public assistance to subsidize rents or buy down a mortgage on a new development or purchase-and-rehabilitation project that might otherwise be acquired by an owner aiming for an upscale clientele.
However, government resources for affordable housing are limited for assisting the crowd of maintenance and day-care workers, beginning teachers and families struggling on $33,000-to-$50,000 a year in an economy where rents rise faster than income.
CommonBond, which bought 16-year-old Boulder Ridge Apartments, is pioneering locally a new strategy just rolling out around the country.
CommonBond, which makes most of its money from earned revenue and donations, is effectively increasing the down payment by tapping two deep-pocketed equity sources who are “social impact” investors: the national Enterprise Community Loan Fund and a local foundation that has yet to disclose its investment. They are taking a long-term equity position to get a rate of return that is less than the double-digit annual return sought by a real estate investment trust or private equity.
“They are taking a less-than-market rate return for our pledge to keep a lid on rent,” Schmidt said last week. “We are not acquiring the property and adding a pool and club house and ratcheting up rent. We’ll make necessary improvements. And we intend to house anyone currently there who is a good tenant. It’s people in service industries, new college grads, child care workers, young teachers, hospitality workers.”
Ed Padilla, the CEO of Northmarq, a commercial real estate financier, is the chairman of CommonBond’s board. He also is an immigrant who grew up with his family in a small apartment on St. Paul’s West Side en route to a law degree and business career.
Padilla likes this model because it gives nonprofits opportunities to house more people. And, as smart business types know, kids without stable housing don’t do well in school and don’t graduate ready for work or more education. That’s costly. Those kids cost us more in public services.
“This a whole new way to capitalize affordable [housing] that doesn’t require additional public funds,” Padilla said. “The government programs are good and helpful, such as tax credits, rent subsidies and government bonds. But this a new structure and the government programs [may decline or simply not meed the growing need].
“Also this addresses the issue of the concentration of affordable housing in low-income neighborhoods. Those housing options also should exist in great communities like Apple Valley, Woodbury and Chanhassen. They have older buildings, and they do need capital. We will deliver an affordable product that is nice and keeps [low-income workers] in the community. There are jobs in these communities.”
CommonBond at Boulder Ridge serves households who make $33,000 to $47,700, and they pay rents that range from $1,100 for a one-bedroom to $1,599 for a three bedroom. That isn’t cheap. Rents have really skyrocketed and will continue to until the housing-to-renter supply tips with more housing.
The first major conference on what’s being dubbed “naturally affordable housing” is scheduled in the Twin Cities for developers and financiers this fall.
Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at email@example.com.