To address the shortage of affordable housing and the rise of concentrated poverty in the District, a group of Federal City Council (FC2) trustees is launching the Washington Housing Social Impact Initiative to apply market-driven strategies to build and preserve affordable housing.
On Dec. 1, 2017, 40 community leaders including FC2 trustees and other potential partners met for the first time to learn about the new initiative from Joshua Bernstein of Bernstein Management Corporation and Rob Stewart and Tiffany Butcher of JBG Smith.
The initiative is community-led and has broad support through a partnership with the area’s top business and non-profit leaders. JBG Smith, which brings local market knowledge and proven expertise in real estate development, will manage the initiative’s investments. FC2 will facilitate partnerships with business, government, foundations and the non-profit sector.
“The initiative can be a way of enhancing and leveraging our capabilities, while having an impact beyond our policy influence and executing projects at scale,” says Joshua Bernstein, the FC2 trustee who is spearheading the effort. “The initiative is an idea a number of people are passionate about, and it’s one that is a strategically good fit for the Federal City Council.”
Constraints on existing methods of affordable-housing production, such as tax credits or inclusionary zoning, limit the ability of public and private organizations to effectively stem the growth of concentrated poverty and build or preserve enough affordable units. This effort will bring net new capital and new solutions to address this critical need.
“There still is a huge challenge in affordable housing in our city,” says Anthony Williams, FC2 CEO and Executive Director. “This initiative uses a market-driven approach to address that problem.”
Through the initiative, the development model proposed by JBG Smith would make investments ahead of gentrification in areas deemed “paths for growth”. As those neighborhood-housing markets improve, the initiative could use the value created there from growth to keep rents low.
“This lets us use our knowledge of the market to acquire properties and make investments in communities before they become unaffordable,” says Bernstein. “Instead of generating large profits when prices increase, we will use those proceeds to sustain sub-market rents for longer periods of time.”
The initiative would seek to create a fund with $100 to $150 million in equity commitments to build or preserve 2,000 to 3,000 affordable units in the Washington, DC, region. At least 50 percent or more of investments will be made in DC.
There would be a 15-year initial term with five options to extend for a year. Financial return targets would be 0.25 percent real rate of return (current) and a 6 percent real rate of return (total).
Bernstein says the initiative would also look to invest in or partner with social service providers in newly built or remodeled housing, with the goal of making the greatest social impact through health, education or social support programs. The social investing would be tailored to address the greatest needs of the community as determined in collaboration with community members.