Building Affordable Housing

Building Affordable Housing

A unique social venture rehabs and relocates distressed properties to create affordable, environmentally friendly housing.


During the building boom preceding the foreclosure crisis, Nancy Welsh could often be found at a construction site in Raleigh, North Carolina, wearing work boots and driving a Bobcat — excavating dirt for an affordable community development consisting of homes from other locations she had saved from the wrecking ball.

Homes were facing demolition to make way for shopping centers, hospitals, road-widening projects and McMansions. Tear-downs were proliferating because of escalating land values and gentrification. Many of these dwellings had seen better days but were structurally sound. Why not recycle them instead of filling up landfills with demolition debris?

Founded in 2006, Welsh’s social venture, Builders of Hope, focused on single-family homes that could be moved to vacant lots it had purchased or obtained through public-private partnerships in low-income communities. The learning curve was formidable, but Welsh, idealistic but practical with a background in sales and advertising, was convinced that rehabilitating existing inventory — bringing the relocated homes up to modern quality, green-building and energy-efficiency standards — would prove to be an expedient and cost-effective solution to providing permanent housing to families being priced out of the market or lacking good options in neighborhoods blighted by disinvestment.

I first heard about Builders of Hope (BoH) from an investment advisor, Jed Emerson. One of his clients, a fund investing in distressed properties, was working with BoH. While Blue Haven Initiative — the impact investing firm I run with my wife, Liesel Pritzker Simmons — looks to achieve market rates of return on its investments as well as maximum social and environmental impact, Jed knew we were keen on applying some of the same principles of impact investing to our philanthropic efforts. In BoH, an entrepreneurially minded social venture, we saw a rare organization that hits the trifecta — delivering social, environmental and economic benefits.

Builders of Hope hits the trifecta - delivering social, environmental and economic benefits.

It was interesting to us for another reason, too: As a former volunteer with YouthBuild, a national non-profit program in Roxbury, Massachusetts, I saw first-hand what a housing development can mean to people — those who live in the homes and those who help build them. When we heard about it, BoH was seeking private capital to buy and rehab more homes, as well as grants to support internal programs — for example, mentoring and skills-training for individuals facing barriers to employment.

Sometimes the most effective form of philanthropy is a low-rate loan: Through a donor-advised fund (DAF), Blue Haven Initiative stepped up with an $800,000 loan with an interest rate of 3%. We supplemented our loan with a grant of $200,000 to help increase the impact of our support.

The below-market loan helped BoH finance an additional four homes a month in its first year. To date, over three years, the Blue Haven investment has helped BoH provide safe, energy-efficient housing for 103 working families. When the loan is paid down, that money is recirculated via Blue Haven’s DAF into other productive grants and impact investments. Our grant helped BoH acquire, rehabilitate and resell more homes and enabled the organization to add two full-time positions, one in construction management and another in property management.

For Blue Haven, the increasingly popular DAF model is ideal for impact investing. DAFs allow investors to receive an up-front tax deduction for the total amount of a charitable contribution, including capital gains on assets donated. The donor or designated financial advisor can efficiently portfolio-manage the fund, without the overhead typically involved in operating a private foundation or charitable trust, while taking advantage of various giving options.

Builders of Hope purchased this property for rehab and relocation.

 

This is the same property after refurbishment.

Our mission at Blue Haven is to seek out investment opportunities and endeavors that generate returns while also bridging gaps in the provision of basic human needs, contributing to the development of local economies, and bringing financial rigor to socially responsible investing. In the case of BoH—run as a business in support of a mission – neighborhoods of renovated homes target a cross-section of homeowners and incomes. Larger homes sold at market or near-market rate subsidize loss-leaders sold below market. Market-rate homes never comprise more than 25% of the total units, however. While buyers are subject to background checks and must qualify for conventional mortgages, BoH also works with less-qualified buyers — directing them to programs that provide soft (forgivable) second mortgages and counseling to improve credit scores.

Initially funded by Welsh, BoH gathered steam in the wreckage of the subprime mortgage crisis. In 2009, Fannie Mae, the federally chartered mortgage giant, launched its First Look marketing initiative. It gave owner-occupants, as well as some nonprofits and public entities and their partners, the opportunity to submit offers and purchase foreclosed properties before for-profit investors could bid. Lacking capital to rehab acquired properties on a large scale, BoH partnered with for-profit real estate investment trusts (REITs), essentially acquiring distressed properties on their behalf. In return, the REITs had to rent or sell at affordable, below-market prices. The deals were structured so that investors could still make a reasonable return, while provisions guaranteed that BoH, in overseeing the rehabilitations, would have the last word on quality control. Using a combination of private and public financing, including about $12 million in HUD Neighborhood Stabilization Program grants, BoH has managed to acquire and renovate nearly 3,800 homes, primarily in North Carolina, Georgia and Florida. Average sales price: around $135,000.

The residents of these homes are typically middle-to-lower-middle-income workers — those who have steady employment but for whom home ownership in safe neighborhoods close to urban centers is all too often out of reach. The ripple effects of introducing quality, affordable housing to people in need are well documented: less crime, lower healthcare costs due to superior indoor air quality, and improved social stability. Eliminating worries about high rent, lead poisoning and gang activity can broadly impact quality of life in a positive way.

Another positive: BoH has a green-building process patent  for a method of building communities comprised of recycled homes. It rehabilitates and manages rental properties but emphasizes sales as the preferred method of securing owners’ dignity and revitalizing neighborhoods. Usually a BoH home is sold even before it is moved and the green rehabilitation takes place, so the buyer can modify basic floor plans. While big on buyer choice as a driver of satisfaction and pride of ownership, BoH shuns rear decks in favor of front porches as a matter of policy. Why? Porches fronting streets and pathways foster community interaction and, on hot days, provide a cooling effect without raising utility bills, as Wanda Urbanska relates in her book Builders of Hope: A Social Entrepreneur’s Solution for Rebuilding America.

But its community-building efforts don’t stop there. Its HopeWorks work-mentor program partners with providers of supportive services to ex-offenders, the homeless, at-risk youth and people recovering from addictions. Participants are enrolled for six months, learning on-the-job skills in construction and green rehabilitation as well as life skills and respect for workplace expectations. For many, participation in HopeWorks offers, quite literally, a new lease on life.

Take Douglas Farror, who was living in a mission shelter in Raleigh after being released from prison when he met Welsh. She “trusted me from day one,” says Farror, 52. “She didn’t even ask about my criminal past. She just sat down, told me the ins and the outs, and asked if I’d like to work.”

He joined HopeWorks in spring of 2008 and went to work framing rescued houses. He wound up joining BoH as a full-time employee and became a jack of all trades — painting, doing demolition work and working as a maintenance man for close to five years. “They gave me a chance when no one else would,” says Farror, who now lives near family in Baltimore. “I am so grateful.”

At Blue Haven, we’re grateful to have found this opportunity. For investors and philanthropists looking to put low-cost capital to work, below-market loans and donor-advised funds can be an impactful way to accelerate change.

Ian Simmons is Co-Founder and Principal of the Blue Haven Initiative.

Philanthropy

Blue Haven Initiative

Project

Builders of Hope