The fourth and final phase of Gloria Robinson Court Homes in Jersey City, developed by Pennrose, is a 70-unit mixed-income townhome complex that includes affordable homes and an early childhood education center. Courtesy: Pennrose
By Joshua Burd
Along with a new opportunity, a potential statewide push for affordable housing comes with a touch of irony for developers like Pennrose.
Tim Henkel, a senior vice president, noted that the firm is increasingly adding market-rate units to its otherwise affordable projects. The move is meant to “achieve a better shot at operating efficiency,” given the thin margins and complex capital stack of income-restricted developments.
But as municipalities look to settle their fair share obligations, Henkel said many local leaders have gone from tiptoeing around low- and moderate-income units to wanting 100 percent of the homes to be affordable.
“That’s one of the ways the pendulum has swung,” Henkel said. He noted that adding 20 market-rate units a 60-unit affordable project helps the developer’s bottom line because “a 60-unit deal has the same management staff as an 80-unit deal.”
The Philadelphia-based developer still plans to take that same approach going forward, but Henkel conceded it may be more difficult.
“It hasn’t changed a lot, but what you can see is that some of the strategies that were useful become a little bit more challenging to execute,” Henkel said. “Here we’re trying to gain operating efficiency, but it’s more about long-term feasibility, making enough money and having a healthy enough asset that it can be in really good shape in 20 or 30 years and it can survive on its revenue.”
He also called it “an interesting meeting in the middle,” where market-rate developers are adding affordable units in order to increase their density, while affordable developers are sprinkling in market-rate units. With municipalities, “part of our strategy is trying to talk through those issues and say ‘60 units now with 20 market-rate in there is going to look a lot better and be a lot more of a contributor than 80 units of affordable, potentially, even though it checks a few more boxes on your settlement agreement.’”
“Getting the message across is especially important, Henkel said, given the difficulty of maintaining a property with 20 or 30 years of income restrictions. For some affordable housing developers, the day that those restrictions are lifted — or, at least, get scaled back — provide an important source of the return for the investment.
“As an owner who has gotten to that finish line and has investors who have looked at that finish line as something that’s valuable, you’re hard-pressed to not (reduce) the affordability,” Henkel said. “And it becomes another challenge to that municipality that’s been counting on almost the perpetual affordability of that asset. And that’s not a certainty.”