Interview with Andrew Warren Senior, VP, Commercial Real Estate, TD Bank.

0:00 Speaker 1 Good morning. This is Mike Stola for the Stolar Real Estate Report. One of the topics that constantly is being discussed in the real estate market is affordable housing. New York City has housing, but the rents are unfeasible for many people. So what’s going on with affordable housing? What are the tax legislations, what are the implications today? I

0:22 have Andrew Warren, who is the senior vice president Commercial real Estate Affordable Housing a TV Bank. Thanks for having me so tell me what’s going on in the affordable housing market.

0:33 Speaker 2 It’s a challenging time right now.

0:34 Speaker 3 I think developers in the city are still facing a number of challenges. Economically. We’re looking at interest rates that are still high, operating costs that are high, and development costs that are high based on inflation. You know, you’re looking at Washington and cuts for federal funds and the potential for tariffs and is making affordable housing harder to build that set here

0:53 in the city. We are definitely moving forward on a significant amount of housing production. To say how much we need that’s the bigger question.

1:01 Speaker 1 But the big question that you and I have been discussing recently is what happens to the affordable housing that may have been built in the seventies, eighties, and nineties, and now the properties have to be maintained, they have to be covered. What’s happening with those units.

1:18 Speaker 3 There’s a lot of units that were built, you know, in the seventies and eighties, a lot of stuff that was financed by the Housing in Urban Development Section eight Housing. You’ve got a lot of public housing that was built even longer before that. There’s a number of different housing programs that were created over the years. If it was

1:33 HUD financed, it’s possible that those units may still be affordable, especially if they’ve got rental subsidy that runs with it. If they were just done with tax credits, you know, they may not have that restriction depending upon where they’re built.

1:45 Speaker 1 So what happens with something that was built with tax credits and it’s runoff over there?

1:50 Speaker 3 I mean, these are the hardest units, right. These are called at risk housing units because they’re at risk of losing their housing restrictions. Those are buildings that may have had you know, they may have been building a different time, right.

2:02 The city’s changed a lot over the last thirty forty years. The incentives that were provided to developers a long time ago. Was timed right, so they only had a limited amount of time where they were required to keep rents restricted.

2:14 At the end of that restriction, the landlord is legally allowed after a certain window to raise rents on the existing tenants. We’ve got to preserve those units. It’s called preservation housing, to make sure that even though everybody’s always focused on adding affordable housing, you can’t lose sight of the existing housing stock we’ve got because if those rent

2:32 restrictions burn off. The city’s changed in a lot of ways, but the one things have been consistent is that rents have always gone up here and the people that are living in those units most likely cannot afford to live there at market rents today.

2:44 Speaker 1 Now, with regard to these properties which are thirty forty fifty years of age, the roofs need replacement, the boilers need replacement. How are those being taken care of?

2:56 Speaker 3 Yeah, I think the city really steps up in that, especially with older buildings. There are subsidies, there are at tax incentives, there are programs that are out there if a developer is able or willing to extend the affordability restrictions.

3:08 The city has funds available, both capital and operating to help those buildings maintain themselves. A boiler, a roof, windows, kitchens, baths, things that maybe thirty forty years old. They need to be replaced in order to keep people in their units in house safely.

3:23 Speaker 1 What do you see as the major difficulty today to maintain affordable housing property from the past.

3:30 Speaker 3 I think the operating costs have definitely gone up. I think insurance, especially in the city, has gone up significantly. You know, if you want to keep rents affordable, you know your operating expenses eventually will creep up on you.

3:42 So it means that the cash flows of these buildings may not be able to keep up with inflation. So what we’ve got to figure out how to do is to keep people in their units, be able to keep their rents affordable, but then provide the right level of subsidy or the right level of incentive to keep the

4:01 mortgages low and keep those units in place.

4:05 Speaker 1 So what kind of subsidies do you recommend or suggest?

4:09 Speaker 3 I think the city’s got a number of capital programs available from New York City Housing Preservation and Development, the New York City Housing Development Corporation, and then the state has programs as well. You know, there’s only so far that you can go, right, the mortgage is a mortgage.

4:22 The rents of the rents, the expenses of the expenses. There’s only so much equity that people can invest in these things to make a you know, albeit lower rate than a conventional market rate building, but something that’s economically viable.

4:33 The gap between those and the cost that it keeps to maintain and build these units is high.

4:39 Speaker 1 What about the New York City Housing Yeah, so, yeah, I mean the city has been very focused on on on attacking the New York City Housing Authorities building I can I take that off er.

4:54 Speaker 3 Yeah, So with the New York City Housing Authority, the city has been very, very actively preserving these units. They’ve been working hundreds of millions of dollars to convert thousands of units and restore them. It’s probably one of the largest initiatives of the city. I mean, the price tag to actually repair Nischa is thirty plus billion dollars and

5:15 probably increasing now with inflation. So to even start, every single unit helps, but the price tag is going to be big. That said, there are a lot of good programs, federal programs and state programs that they’ve been focusing on that that have made a difference, have been able to address up repairs, put buildings, you know, back in good service,

5:36 and keep the people that are living there who deserve to live there in their units long term.

5:40 Speaker 1 Let’s discuss why does a developer want to be in the affordable housing businessness.

5:47 Speaker 3 Well, there’s a different I mean there’s a lot of developers out there, right, there’s nonprofit, there’s for profit the city.

5:52 Speaker 1 Let’s talk about some of them.

5:53 Speaker 3 Yeah, I think a for profit developer they definitely you know, there are definitely good developers out there that want to build affordable housing. They’ve got a business model around it, they understand it, and their good stewards of the affordable housing they build. Right, there’s a mission element to it, but their incentives just like any other landlord. The best

6:10 developers out there also partner with nonprofits to make sure that not only are you building affordable housing and maintaining it with a good for profit partner, but you can provide the services to the residents to make sure that they can stay in their units, live independently, and have you know, long economic and strong outcome for living in

6:28 those units.

6:29 Speaker 1 What about the senior housing.

6:31 Speaker 3 Senior housing is definitely in demand. You know, it’s reality that the population is certainly aging, especially as baby boomers, you know, are looking towards retirement. Incomes are going to reduce as people leave the workforce. You know, we want to keep people in the city that have lived here that made the city what it is. So to be

6:48 able to provide affordable housing so that people can age in place naturally within the city that they’ve made is important and it’s a growing need.

6:55 Speaker 1 Especially let’s talk about where the new developments taking place to the in affordable housing. Yeah, I mean that’s it, and White Banks can involved with it.

7:05 Speaker 3 Sure, the city is developing in every single borough. I mean it used to be in certain boroughs that everything you saw going up was affordable. Now if you look at what’s happened in Brooklyn or even the Bronx, right, you’ve got a mix of market rate development and affordable happening at the same time.

7:22 Speaker 2 You know.

7:23 Speaker 3 And then when you look at a mixed income building, especially with new zoning restrictions, you know you’re getting mixed income housing, good solid mixed income housing, or a conventional market rate unit is also going to have an affordable unit in the same building, but for where they’re building, it’s everywhere where you’re seeing more development happening is further

7:40 and further out though, and there used to be areas that were naturally affordable right parts of Brooklyn, Queens, the Bronx.

7:47 Speaker 2 These areas are under attack.

7:48 Speaker 3 You’d be surprised at how high what is considered an affordable rent is in the South Bronx. It’s unfathomable to somebody who looked at this twenty twenty.

7:56 Speaker 2 Five years ago, but that’s the reality.

7:59 Speaker 3 Is the rents today studio in the South Bronx to be even considered affordable to somebody making eighty percent of median income, not even full media income. Across the city, it’s probably about eighteen hundred and fifty dollars a month.

8:10 Speaker 1 How could they afford that?

8:13 Speaker 2 It’s hard, It’s very challenging to afford that.

8:15 Speaker 3 The reality is that most people in the city that affordable rent is probably not affordable to them.

8:21 Speaker 1 So so how are they getting subsidies to pay the rent?

8:24 Speaker 2 Some people have other subsidies.

8:26 Speaker 3 You’ve got people over housed in units, not necessarily the affordable units, but people trying to make do by adding additional families into non subsidized units, and then people have to make do they have to figure out how to survive in the city where rent is the only constant.

8:43 Speaker 1 What about the affordable housing and the new City of Yes, the four eighty five X and also the conversion of office buildings to residential.

8:55 Speaker 2 Three great ideas.

8:56 Speaker 3 So the City of Yes is interesting because it’s it’s a sort of holistic shift of how we look at development in a city. Right, you’ve got economic development opportunities, you’ve got housing opportunities, and you’ve got carbon neutrality trying to look at the pollution and the energy efficiency.

9:12 Speaker 2 Targets that the city has.

9:13 Speaker 3 And I think a lot of the ways that that affordable housing is challenged is the timelines and the zoning restrictions. So what City of Yes is doing is looking at the contextual neighborhoods and figuring out how to add some density responsibly, but also adding zoning changes that make sense.

9:29 Getting rid of a parking requirement next to a subway station where nobody has a car makes perfect sense. Adding a accessoral accessory dwelling unit behind a low rise two three family makes sense if you can add some density there You’re not going to put one hundred story building in a low rise neighborhood and queens, but adding anything

9:48 anywhere adds units, especially in the housing crisis we have now. The office conversions is also exciting, right, I think you know, you look at neighborhoods like the Financial District that didn’t exist thirty forty years ago. In the same way those office buildings came after nine to eleven. Right, we had liberty bond programs that added thousands of units in Creators.

10:06 Speaker 1 We also said for twenty one ges.

10:08 Speaker 3 That’s true, the tax debatement program helped a lot that’s changed. But to add office conversions, I think adding any housing unit in the city is going to make sense, especially for some of these Class BC office buildings.

10:20 Speaker 2 That may take time. You’ve got a retenant, owners have to figure out how to get out of some of the mortgages. That may be overstated at this point.

10:28 Speaker 3 But if there’s an opportunity in the city and the state can come up with the right incentives, we have an opportunity to change neighborhoods, ad housing and address with a significant number of housing units.

10:39 Speaker 2 The affordability crisis in the city and.

10:41 Speaker 1 What if about the effect of the federal government on affordable housing.

10:45 Speaker 2 It’s going to be the.

10:46 Speaker 3 Challenge, especially if the federal budget, which funds public housing, which funds the city, which funds rental subsidies Section eight housing is cut. We’ll see exactly how far the cuts go. Obviously, you know, housing is a big piece of what we need here in the city, and it’s a big piece of the federal government’s objectives. So if there’s a way

11:09 to keep that money, keep people in their homes and build more, I’m hopeful that there’s a path.

11:16 Speaker 1 I think I’d like to thank Andrew Warren for being here today. Appreciate your knowledge of the affordable housing and I think people should look at different alternatives and lenders, especially TD Bank. Thank you for being here. Thank you