Thursday, June 19, 2008

Industry Insight: Neil Albert on DC Development

He may not get microphone time at every press conference or a pair of scissors at every ribbon cutting, but Neil Albert, Washington DC's Deputy Mayor for Planning and Economic Development, keeps busy as the man behind the curtain for development in DC. Despite a schedule kept full by the 10,000 new affordable housing units he has been charged with creating in his first four years, Albert made time to sit with DCMud to discuss the latest RFPs, affordable housing, and why he thinks DC can shed its monumental, federal skin and become an full-fledged international city.

You went from working with the previous Mayor as Deputy Mayor for Children and Families to the Deputy Mayor for Planning and Economic Development. How did you get into development?

Albert: I started in finance and headed a nonprofit in New York. I was interested in parlaying that expertise into development on a small scale. I had the opportunity to really get into development when I was Parks director; a large part of what I did was real estate development. We built a number of recreational facilities in the city, including the first LEED-certified facility in DC. I then became Deputy Mayor of Children Youth and Families because that portfolio was one of the ones that needed a little shaking up and focus and energy. The former mayor asked me to do it and I did it for a year. Then I went into the private sector and started a nonprofit working with DC schools in professional development and bricks and mortar actually building new schools. I’ve always had a real estate finance focus throughout my career.

When the mayor-elect asked me to join his administration in this role, I thought it was a great opportunity to put what I’ve been doing together. What I do is not just about financial real estate development, but there is a human component to what we do. A major part is the New Communities portfolio, the human capital – HOPE VI-type developments. We’ll be removing a lot of traditional government subsidized housing to create more mixed income housing. Part of that is changing psyche, the mindsets; preparing them to be able to write a red check, go to work every day like everybody else.

Speaking of subsidized housing, the bar for the amount of subsidized housing private developers must provide is being raised from 20-30 percent. On what basis was that decision made?

Albert: That decision was made before us. When the Anacostia Waterfront Corporation was dissolved, the Council adopted legislation that required the affordable housing component - that’s the majority of what my office works on. By default, it has become standard here.

How does that play into some of the other new developments the city has issued RFPs for - in which the city asked for 30 percent but is not doing the workforce housing? It’s like the city is focusing on lower income development.

Albert: The mayor made a real commitment to affordable housing when he was elected and we are committed to building over 10,000 units in the first four years at different AMI levels, so all RFPs have the 30 percent requirement and our language is pretty general because we want to make sure that we achieve affordable housing levels without paying unnecessarily for it. And so what drives affordable housing in mixed-income developments is having market-rate housing that can actually subsidize lower income housing without having to come to the District government for subsidies.

We want true diversity in housing. Whether it’s Hill East, Poplar Point, 5th and I, including the affordable component is necessary to have the correct mix.

These are perhaps not the best times for condo builders. How does that play into the marketability of a project during difficult times?

Albert: I don’t know if it makes it more difficult. From our experience, in the last few years, the development community has embraced not necessarily the 30-30-30 mix, but at least the 30 percent affordable component. City Vista is an example, and I think that’s kind of what’s driving that project being sold. It came on line at a time when the condo markets were going in the wrong direction, so having twenty percent of the units as affordable provided some stability. The market on the affordable level was much greater than the market than on market-rate level. The results and feedback from the development community have been positive. Yes, people like to make as much profit as possible, but we have to balance their need for the highest return with the broader city policy and goals for providing affordable housing.

You referenced City Vista and other projects that have an affordable housing element. Some developers have told us that they are having some difficulty finding qualified people and actually bringing them to the table, that this makes their job more difficult. Have you ever studied that?

Albert: I would say they need to try a little harder. We can do a better job as a government, having a central repository database, which we are working on. I know the city Council actually passed legislation that will require a sort of central registry for those interested in taking advantage of affordable housing projects. In some cases it’s about us doing a better job preparing applicants; it’s a huge education process that needs to go into preparing people for home ownership. You can’t just get up one day and decide to be a home owner. When you buy a condo, pay the fees, have to abide by the rules of the condo board or association - you have to have a down payment, some sort of reserve in case the AC breaks and it’s not the condo association’s responsibility - we can do a better job of preparing those in that income category to take advantage of these opportunities. In that case, yes, people have gone to the table and not closed.

Where did the 10,000 unit figure come from?

Albert: The 10,000 number came out of a housing task force in the Williams administration, and then-Councilmember Fenty introduced legislation that set up this Comprehensive Housing Strategy Task Force and they made a recommendation that the city needed to build 55,000 new units of housing over the next ten years to deal with the population increase, special needs housing, etc. And then they broke down some sub categories – 19,000 affordable, and for those affordable units, there were some smaller ranges that included special needs 2,500 units, etc.

We wanted to make sure that we could achieve that in a ten year period, so we set a goal of 10,000 in first four years, so with about 2,500 a year we are well on our way to at least funding those projects. We’re not only calling for them, we are providing funding for them through the housing production trust fund and some of the other housing sources available. I am confident that we’re going to make that.

In terms of your position, you have a huge hand in what happens in terms of development, and development seems very high on Fenty’s list given his appearances at development press conferences. How do you want DC to be perceived from a national standpoint, what are your development goals?

Albert: We want to truly make a diverse city here, but my opinion is that we have the great opportunity of positioning this city as a great international city on par with Paris and London and Amsterdam. People talk about great cities and I see DC as one of those. We are not on the cusp of that yet, we have a little ways to go, but I think we’ve got the major elements coming together. We have a vibrant downtown, people want to be here, and every vacant office building is being gobbled up by big lobbying firms or law firms or national organizations that need to be near the seat of power.

We’ve started to pay attention to our retail. We can now shop in DC, when I came here eight or nine years ago, you couldn’t do that. Now there are good restaurant choices, you have really great options springing up and also good entertainment options. The Washington Post did an article about how DC is no longer a daytime town, it’s becoming a nighttime destination, so you don’t just leave the office canyons and go home to the suburbs, you go to night clubs and restaurants in the central business district.

What I think will put us on par with some of the mature cities that make a statement both locally and internationally is having kind of the right balance between cultural amenities, which we have a lot of in our museums, but also local cultural amenities like the Spy Museum and Madam Tussaud’s; cultural amenities not just downtown, but also in other neighborhoods. We have lots of theaters and shopping destinations, so that when tourists come, they are not just sleeping in hotels and visiting the Mall, but also getting into the neighborhoods and discovering them. So what I would like us to be known for is raising the bar to be a city on par with a lot of the other international cities. And right now, we kind of lay in the shadow of great U.S. cities, but we are still holding our own.

How do you see your specific role and interaction with the private development community and with residents of the city - how do you mix the two?

Albert: I see myself as convener of private sector and the natural community residents who sometimes have needs that complement each other and sometimes oppose each other. In many cases, my role is just to be the arbitrator. Getting the services from the private sector that the residents need, whether it is incentives or bringing offices to neighborhoods so people don’t have to jump into a car to get to work, but can hop one metro stop to another. I really see my role as a convener or facilitator of those communities. I am really concerned about the amount of new jobs we create in the District, I’m happy to say that even while the rest of country is going through a downturn, we are still seeing job growth in DC.

Traditionally, you look at the government as the creator of jobs. In the District they still are, but the service industry is also creating new jobs in entertainment, restaurants, retail and the federal government is doing its role by positioning government agencies in the District – the DOT by the ballpark or the ATF building at New York Avenue. They put us in partnership with each other to keep the economy going.

Our job is bringing the balance between the haves and the have-nots in DC, so we have the big law and lobby firms and the non-profits and the associations who are squeezed by real estate taxes right now, but that add to the flavor of DC. Instead of them having to relocate to suburbia, we step in and try to provide incentives to keep them here. We are trying to keep a vibrant balance of community within the city.

The city has issued a number of development RFPs. When will we see some selections?

Albert: 5th and I will be announced soon, and Minnesota- Benning, we are so excited about that project, but we won’t make a selection until August. The developers up for that are City Interest who owns the East River Shopping Center and Parkside, Donatelli Development, and Marshall Heights Community Development Organization which is partnering with Rick Walker who did the Home Depot and Brentwood Shopping Center by the Rhode Island Avenue Metro station. They are all competing for the 600,000 s.f. of developable space.

And Tenleytown?

Albert: Tenley is still outstanding; we’ll hopefully have a decision soon.

Can we ask about MIZ (Mandatory Inclusionary Zoning, requiring most developers to build subsidized units)? Councilmember Graham has been vocal about moving it forward…

Albert: Yes, the mayor is committed to MIZ, but he wants to do it in a way that doesn’t slow or stop the development of mixed-income housing. My job is to do it right. We are getting comments from a wide cross section of the city including the private sector, affordable housing providers, and advocates.

We issued administrative regulations two months ago for comments. We are going to take those comments and reissue a draft of the regulations and put it out for final vetting and hopefully make a decision in the next sixty to ninety days. I also believe that the housing development community will embrace it because I think we’ll do it in a responsible way that’s non-punitive. Then, we’ve been looking across the country to see how this has worked. It’s a mixed bag but it’s going to happen.

Finally, developers have told us that they struggle with the amount of information that has to be provided with a PUD and with the amount of time it takes to get approval for projects in DC. What is your response to that?

Albert: I totally agree. We are working on it; the Office of Planning will be sending suggestions about how to streamline the process in the entire District. The PUD shouldn’t take 18 months anywhere in the world, not to mention the DC area.


Anonymous said...

I don't know how inclusionary zoning can be "non-punitive", at least from the developers' perspective. I appreciate that some other cities force housing providers to undertake the social function of providing houses for people that can't afford them, but that's should never be a function of the private sector. How about if they raise personal income taxes in order to pay for cheap housing? Because there would be an outcry, and rightly so, but developers constitute a small minority of the population, so the rest of us think its fine, provided we don't have to pay.

Anonymous said...

@ Anon 3:26

A developer is still making his profits. The dev corp just pays the city less to acquire the land due to the extra costs the city has imposed.

The private sector isn't too interested in building affordable housing on prime real estate. On the flip side the government building affordable housing has historically failed because it creates housing projects with concentrations of poor. It's been determined that mixed income is the best way to house the poor because it disperses the affordable housing with market rate housing.

To achieve mixed income housing the public and private sector need to work together. More specifically, the government needs to provide the incentive to developers to include affordable housing in their projects. That's what Neil Albert is doing with these RFPs.

All that said, I am curious how affordable housing works with condos. I think I get it with apartments. But in a condo, if a low income 'owner' decides to stop paying their $380/mo condo fees - then what?

Anonymous said...

I fully agree that mixed-income is better than a low-income housing project. My gripe is not the mix, but in foisting a disputable social responsibility upon one small group. If you believe in the concept, pony up some cash and make it happen. You, and I, don't want to do that.

The government could, if that was its priority, pay the developer for this kind of housing, or build it themselves. Instead, they just say "build it". According to you, the developer is still "making his profits". That is contrary to everything known about the industry; many are losing money. You may have noticed how many developers have stopped building.

Do we ask car sellers to subsidize car sales to poor people? Or contractors shoe salesmen to subsidize their product for people that can't afford it? The cost is only invisible because you and I don't see it, but landowners and developers make their economic decisions on these factors, which means they will be less likely to build. A reaction that perversely lowers the supply and raises the price to the rest of us.

Anonymous said...

Developers have stopped building? In the District and Arlington - Really? Why is there a new DCMud article everyday with news about another development then?

I think you are mixing your message as well. First you say all the costs are unfairly put on the developer. Then in your final paragraph you say the costs are passed on to the consumer.

Anonymous said...

It is true that in the District RFP’s the City expects to pay for this housing by releasing the ground they own below market. However, at 30% affordable and at 30 and 60 percent of AMI, they can give the land away for free and it will still not cover the cost to the developer to provide the units. On top of that, the City has their hand in the developer’s pants on a number of levels:

• Preparing an RFP: a significant expense and what percent have actually been awarded in a timely manner? Or at all? Confidence in the process is costing the City.
• CBE’s: Developers are forced to use up to 35 percent local contractors. These folks generally don’t exist to do projects of this scale.
• First Source Agreements: The developer is required to use the Department of Employment Service as its first source to hire. Given DC’s stellar school system, that’s a pretty shallow pool of qualified applicants.
• Equity: A material portion of the equity needs to be provided by a CBE equity partner. There isn’t a lot of this cash lying around. Just look at the SW waterfront project.

Why would anyone take a run at these RFP’s under these conditions?

Now try leasing a building at what will need to be top dollar with 30 percent of the units (and probably a higher proportion of total residents) occupied by DC’s working poor. Remember, these aren’t the school teachers, policemen, government workers. Would you want to live there? Really? And as the significant inventory under construction has been pointed out, who would finance this building given its competitive handicap.

Finally, how many units, really, will punitive affordable housing policies generate? Even if it were 10 percent of 5000 units (near term planned estimate), that’s far short of the mayor’s 10,000 unit goal. In the meantime, safe, clean Arlington, Alexandria, and Bethesda beckon with lower rents, lower taxes, reliable garbage collection, and decent schools.

In order for DC to be economically vital, it needs to attract young, affluent professionals who will then hopefully choose to stay here as their careers progress. People have choices, and living in DC can be a tough decision for some. Discouraging people from moving here, which is what these affordability policies do, will keep average household incomes in DC at about half of the regional average.

Anonymous said...

Very comprehensive and informative post from "Anon @ Jun 23, 2008 5:39:00 PM".

Can someone please explain how affordable housing works for condos? I can sort of connect the dots for apartments. The government could subsidize the rent. If the person no longer qualifies at some point their rent could be raised or their lease not renewed.

But with condos how can someone making 30% of AMI afford to buy? You can't just sell them the unit at a reduced price point because they would just flip it. The goal is to house the working poor - not hand them a real estate arbitrage opportunity. Also, what happens if the individual just stops paying condo fees?

Anonymous said...

Its as simple as you state, the government requires the seller to sell it to them at a remarkable discount. Take the case of Chase Point, in Friendship Heights, where DC mandated affordable housing 1 block from the most high-end retail in the city. So qualifying residents, including some students, were able to buy for the mid $100's in a building that started otherwise in the $600's.

The residents have to sell it for a price based on their purchase price, but they get a condo subsidized by the developer. The District gets to say it provided subsidized housing, but it doesn't cost anything from DC coffers, since the developer is footing the bill.

Anonymous said...

So how can I tell if the condo that I recently moved into will have 20-30% affordable housing? Would it have been in my condo docs somewhere?

My building seems to be about 40% full right now. Do they tend to move people into the affordable units ASAP or all at the end?

I understand what the city is trying to accomplish. But I would hope that if a building was going to be 30% HUD housing that the prospective buyers of the market rate units would have atleast been told. We're making the biggest financial investment of our lives and don't deserve the city and the builder colluding to suppress facts from us.

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