Despite a slow start caused by the coronavirus pandemic, a program that provides low-interest loans and other supports for affordable housing in Detroit expects to allocate all of its $58 million in the coming months – more than a year ahead of schedule.
“It’s a good problem to have,” said Camille Walker Banks, the executive director of the Local Initiatives Support Corp. in Detroit, which administers the Detroit Housing for the Future Fund. “We just opened the floodgate.”
The program’s money was expected to last through 2024, but demand since its 2020 opening has been higher than anticipated. The initiative is part of a program designed to help Detroit build 2,000 new apartments and preserve 10,000 units by the end of this year.
“We’re all pleasantly surprised by the pace of interest and deployment of the fund,” said Keegan Mahoney, program director for policy and implementation for Detroit’s Housing and Revitalization Department. “We’re trying to regroup quickly here to raise additional dollars.”
Walker Banks said the push for a new round of funding has already begun, though there have been no commitments yet. Funders for the first round include JPMorgan Chase, Ford Motor Co., Penske Corp. and a number of banks, as well as the Kresge Foundation.
“Our goal is to repeat what we’ve done. Another $58 million would be ideal,” Walker Banks said. “I’d like to duplicate what we’ve accomplished.”
The Housing for the Future Fund has so far closed 14 loans for a total of $27.7 million; those projects will build or preserve 451 units. The latest is Van Dyke Village, a rehabilitation project that closed at the end of August.
There are an additional seven or so projects that should receive approvals by the end of the year, said Victor Abla, LISC’s regional preservation director. Mahoney said those projects account for more than 300 additional units. And about eight more projects are on a waitlist, hoping for more money to come in a second round of funding.
Of the loans that have closed, 45 percent of units are at or below 60 percent of the area median income, $56,820 for a family of four. That figure includes 14 apartments that are considered deeply affordable, below 50 percent of the area median income of $47,350 for a family of four. The projects include 8 percent of apartments that are between 100 and 120 percent of the area median income – $94,700 to $113,640 for a family of four. The remainder are at 80 percent of the area median income, $75,760 for a family of four.
Before the fund closed, Mahoney said, there was skepticism about how many deals would be made feasible through LISC’s main product, a loan with a 3 percent interest rate that must be repaid by March 2035. Especially as interest rates rose, its appeal became more evident.
“It was valuable already, but now it’s huge,” Abla said. “Every project we’ve been talking to, there’s a bigger gap than they used to have.”
The low interest rate allows developers’ money to stretch further, he said. It also has meant some projects that would not have moved forward are able to do so.
Abla said $900,000 worth of developer of color grants have also been integral to projects in early stages, allowing them to press forward with their plans.
Edward Carrington, founder of Flux City Development, said the grant allowed him to pay necessary legal fees when the costs increased for his East Warren Avenue project, The Ribbon. Without the grant, he said, he would have had to return to other lenders to ask them for more money to cover the pre-planning costs of his first new development project. The 18-unit building will have 10 units of affordable housing, all at or below 80 percent of the area median income, and a commercial space for Gajiza Dumplings. Carrington said he’s also considering a space for a day spa.
“We started talking in 2020; for them to be able to promise the (3 percent) rate all the way up to closing in 2023 filled a pretty big gap,” he said. “The market demands required us to kind of play gymnastics when it comes to the numbers. … It was pivotal at getting me to that starting line.”
At The Beauton on Horton Street, developer Charles Dickerson III said the income restrictions will let him put residents in the 29-unit building who might not otherwise be there. Half the units will be for tenants at or below 80 percent of the area median income.
Dickerson came to LISC after pandemic-related delays and rising materials prices increased his costs. He said for two years, he had weekly, hour-long video calls with LISC representatives who helped him through his first ground-up development. He started work this summer.
“They were very instrumental in walking my project across the finish line,” Dickerson said. “They were just truly in my corner.”
A $100,000 developer of color grant helped with an environmental survey and architectural fees; Dickerson also received a $1.55 million loan and $550,000 in preferred equity from the fund.
“It was just a phenomenal experience,” he said. “I’m indebted to them.”
Walker Banks said as the city’s housing affordability crisis continues, there is huge demand for workforce housing. Without the fund helping to fill the gaps, she said, she would expect developers to abandon potential projects if the numbers didn’t align. Its existence has also helped newer developers find their footing.
“We’re turning them away,” she said of the amount of interest in partnering with the Housing for the Future Fund. “We’re not trying to turn people away.”
Those inquiries have become the basis for the waitlist, and both Walker Banks and Abla said they expect additional money to be deployed quickly once it begins to come in. Abla said he thinks second-round projects could begin to close early next year, though it’s likely the interest rate will have to be higher, given rising rates overall. The level of success to this point has given LISC confidence about the next round, once fundraising begins.
“We feel we’ve gotten a proven product,” Abla said. “We have quite a long list of prospective investors and a positive response so far.”
Mahoney, with the city, said projects are moving faster than they would without LISC’s support. He added that an unexpected benefit of the fund is that some developers are rehabbing long-vacant apartment buildings and moving people in. Blight mitigation wasn’t a goal of the fund, he said, but has been one of its results.
He expects the next round of fundraising to be much more fluid, with money going out on a rolling basis as it comes in. Mahoney said there is no plan for the investments to end.
“The idea here is that it’s not a one-time fund,” he said. “It’s really a tremendous success story for the community. There’s so much to build off of.”