NONPROFIT HOUSING ORGANIZATIONS AND INSTITUTIONAL SUPPORT: The Management Challenge

NONPROFIT HOUSING ORGANIZATIONS AND INSTITUTIONAL SUPPORT:

The Management Challenge

ALEX SCHWARTZ* New School for Social Research

RACHEL G. BRATT Tufts University

AVlS C. VlDAL New School for Social Research

LANGLEY C. KEYES Massachusetts institute of Technology

ABSTRACT: The viability of the low income housing built by nonprofit organizations in US cities hinges on the ability of these groups to maintain and manage it. Nonprojt sponsors and their institutional support system have only recently begun to recognize the importance of property and asset management. First priority continues to be housing production, followed by organizational capacity building. This paper explores how the institutional support network for nonprofit housing has begun to address the need for stronger property management. Drawing from recent six city study, the authors examine different ways by which local and national networks provide financial and technical support for property management. They conclude with a series of recommendations f o r broadening and strengthening institutional support f o r property management in the nonprofit sector.

Nonprofit organizations are central to the delivery of affordable housing in many parts of the United States. Community Development Corporations (CDCs), religious organiza-

* Direct crll correspondence 10: Alex Schwarr?, Communily Rrseurch Drvekopment Cenler, New SchooljiJr Social Resecirch, New York, N Y I001 1.

JOURNAL OF URBAN AFFAIRS, Volume 18, Number 4, pages 389-407 Copyright 0 1996 by JAI Press Inc. All rights of reproduction in any form reserved. ISSN: 0735-2166.

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tions, and nonprofits working with the homeless, the elderly, and the disabled have assumed a leading role in the production and management of low income housing. Their importance has risen in the past 15 or so years as the federal and state and local governments have turned to them to sponsor and often manage subsidized developments. Their growth reflects the increasing tendency of all levels of government to employ the nonprofit sector to provide a wide range of public services (Salaman, 1995).

The prominence of nonprofit housing organizations is reflected in legislation and regulations requiring federal housing programs to include their participation. For example, the HOME block grant program established by the National Affordable Housing Act of 1990 requires local governments to earmark at least 15% of all funds to qualified community- based, nonprofit housing groups. Similarly, the Internal Revenue Code requires that states allocate at least 10% of their Low Income Housing Tax Credits to housing developments that are at least partially owned by qualified nonprofit organizations.

The success of the nonprofit sector in producing and maintaining low income housing is a tribute to the perseverance and creativity of CDCs and other nonprofit sponsors. How- ever, as crucial as they are to the production and preservation of low income housing, nonprofits are supported by a broader institutional network. This network of government agencies, intermediaries, foundations, financial institutions, educational institutions, consultants, trade associations, and other institutions provides many of the resources that enable nonprofits to produce and manage housing.

In another paper (Keyes, Schwartz, Vidal, & Bratt, 1996), we explored the ways in which the institutional support system for nonprofits is a function of, and contributor to, a locale’s social capital. We use the concept of social capital, which has enjoyed recent attention (Putnam, 1993) to discuss how reciprocity and a sense of shared vision emerge from and strengthen the networks of civic, private, nonprofit, philanthropic, and government agencies and organizations involved in the production and preservation of low income housing.

This paper is concerned with the specific types of support the institutional network provides, focusing on the growing attention being paid to housing management. As the federal government continues to bail out of housing programs, it will be up to the institutional support networks to pick up the slack. Their ability to do this depends on a clear understanding of the tasks that await them. This paper is aimed at illuminating the nature of the management challenge facing nonprofits and the types of responses that will promote a viable nonprofit owned affordable housing stock over the long term.

First, we briefly describe how the institutional network has organized itself in many cities to provide a fairly consistent group of supports that enable nonprofits to produce affordable housing. The purpose of this section is twofold: to demonstrate that, within a remarkably short period of time, support systems for nonprofit housing production have become widespread and integral to the production system and to argue that these support networks provide a good foundation for assuming their next set of challenges which relate to assisting nonprofits to manage their stock of affordable housing.

Then we outline why housing management is so important, what it encompasses, and why it is timely for local and national institutional support systems to focus their energies and resources on the housing management challenge. The general lack of interest in housing management is reflected in the fact that the published research on institutional support

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for nonprofit housing overlooks the issue of property management. Until now, the litera- ture on the nonprofit housing sector has focused squarely on housing production and organizational capacity building.

Next we explore the key types of support for management that institutional networks are providing nonprofit owners of affordable housing. We draw attention to the management challenges that organizations are facing and outline the types of responses that have been forthcoming. Much less standardized than the supports for development, these initiatives offer a menu that can be adapted by other groups that are beginning to develop responses to nonprofit and management problems. Finally, we present recommendations concerning the ways in which institutional support systems can become more responsive to management.

We draw from our recent study of property management in the nonprofit sector (Bratt, Keyes, Schwartz, & Vidal, 1994). This research focused on nonprofit organizations in six diverse localities: Boston, Chicago, Miami, New York, Oakland, and Minneapolis/St. Paul. The research involved field visits to three nonprofit organizations in each city (except in Miami where the sample included only two) and detailed analyses of two developments from each nonprofit’s portfolio. Field visits were made to a total of 17 organizations and 34 developments. By design, this sample includes organizations and projects that represent a wide range of experiences, both positive and negative.

SUPPORT SYSTEM FOR NONPROFIT HOUSING PRODUCTION

The major priority of the nonprofit housing support network is production. Getting nonprofits to increase the scale of new housing production has been the paramount issue for the support network throughout the nation. The nonprofits and their institutional supporters have identified several key obstacles to the wholesale production of affordable housing:

(1) predevelopment costs for feasibility studies, legal, engineering, and architecture fees, purchase of development rights

(2) development financing: equity capital, mortgage, gap financing (3) organizational capacity: training and technical assistance and general operating

support These requisites are emphasized in virtually all evaluations and other studies of the non-

profit housing sector (Bratt, 1989; Clay, 1990; Goetz, 1993; Mayer, 1990; New Ventures, 1989; Vidal, 1992; Walker, 1993; Goetz & Sidney, 1994). They defined the initial agenda of the institutional support network with different institutions specializing in particular ones. Walker (1993), Goetz (1993), Pickman, Roberts, Leiterman, and Mittle (1986), and others have described how various institutions have addressed these needs.

Predevelopment Costs

One of the most frustrating and perennial difficulties facing nonprofit housing organizations is the shortage of funds to investigate and plan potential development opportunities and to cover predevelopment costs (e.g., feasibility studies, options on properties). By the time money is in place, the development opportunity may be gone. Nonprofits derive most of their funds for development-related expenses from developer fees and other line items on the development budget. These funds, however, do not become available until after the underwriting for a project is completed. Some nonprofits are able to husband these fees to

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use as seed money for their next project, but fees often are inadequate to cover all predevelopment expenses, especially if the nonprofits are not allowed adequate fees as happens in many cities. If a potential project does not get financed, funds expended on predevelopment costs are lost.

State and local government agencies, local housing partnerships, foundations, intermediaries, and bank CDCs have recognized the need for predevelopment financing and have responded in many locales by offering grants and low interest loans so that nonprofits can explore development opportunities. Goetz ( 1993), for example, found that predevelopment financing is offered in more than half of the cities and states with one or more nonprofit housing developer. Local housing partnerships have focused on the problem of predevelopment financing as have many state government agencies (Terner & Cook, 1990). Walker (1 993) estimates that nearly two-thirds of 37 local partnerships funded predevelopment costs. In Boston, for example, the city government has allocated a portion of its HOME funds in annual support (currently $650,000) for a Program Implementation Fund. Admin- istered by the Neighborhood Development Support Collaborative, this fund helps nine community-based nonprofits initiate new projects. The fund is also supported by several foundations (Bratt, et al., 1994).

Development Financing

By far the most common form of assistance for nonprofit housing sponsors is for the financing of individual developments. Intermediaries (state and local governments, local housing partnerships, and foundations) have channeled billions of dollars in financing for low income housing developed by nonprofit organizations. Most development projects require three types of financing: equity, mortgage, and gap. The Low Income Housing Tax Credit, established by the Tax Reform Act of 1986 and made permanent in 1993 (but now facing possible termination by Congress) is the single largest source of equity capital for low and moderate income housing. As of 1995, the tax credit helped subsidize the development of more then 740,000 housing units (James Tassos, personal communication, March 1995). In 1994 it accounted for about 40% of all multifamily rental housing starts (Harvard University Joint Center for Housing Studies, 1996). The Local Initiatives Support Corporation (LISC) and the Enterprise Foundation have established affiliates, the National Equity Fund (NEF) and the Enterprise Social Investment Corporation (ESIC), to syndicate tax credits to corporate investors to generate equity capital for low income housing projects. To date, the two intermediaries have generated nearly $2 billion in equity funding for nonprofit projects (LISC, 1994; Enterprise Foundation, 1994).

Typically, nonprofit sponsors must secure several additional sources of financing to complete the deal. A recent HUD funded study of 15 tax credit developments found that they used an average of 7.8 funding sources (Herbert, Heintz, Baron, Key, & Wallace, 1993). Most nonprofits obtain mortgages to cover some of the remaining development costs. Banks, bank consortia, and state housing finance agencies typically provide long- term mortgage financing.

The balance of project costs is covered by funds known as gap financing because they bridge the gap between equity and mortgage financing and total development costs. Gap financing is crucial because nonprofits would not be able to charge affordable rents if they relied too heavily on market-rate mortgages. Gap financing typically has two elements.


The first is bridge loans which are repaid from syndication proceeds that are received from limited partners (typically purchasers of Low Income Housing Tax Credits). Bridge loans are often provided by the national intermediaries, but also may come from bank CDCs, local housing partnerships, or other sources.

The second element is subsidy dollars which may come from more than one source. As with predevelopment assistance, a variety of institutions have responded to this need. Numerous city governments offer grants and low interest loans funded by CDBG and HOME block grants, housing trust funds, and other sources for this purpose (Goetz, 1993; Connerly, 1993), as do foundations and local housing partnerships. Most nonprofit-sponsored housing projects would not be viable without this potpoum of grants and loans.

Organizational Capacity

In addition to financial assistance to support housing production, the institutional support network has strived to increase the capacity of nonprofit organizations to build low income housing by offering various types of technical assistance and training. State and local governments, intermediaries, universities, community colleges, consultants, and trade associations (including CDC coalitions) help nonprofit organizations with a host of technical, financial, construction, and organizational issues. For example, LISC, the Enterprise Foundation, and some of the well established nonprofit housing sponsors (e.g., Boston’s Community Builders) assist and train nonprofit groups to underwrite developments financed with Low Income Housing Tax Credits. According to Goetz’ (1 993) national survey of states and large cities, more than half offer some form of technical assistance to CDCs, most often for financial feasibility analysis, construction management, and project design and engineering.

As financial and technical support for housing development has become more common and more standardized, the institutional support network in the cities with the most developed nonprofit housing sectors has broadened its focus to include other aspects of organizational development. Many nonprofits, especially growing ones, need help in developing financial control systems, changing their organizational structures to accom- modate new activities, refining the roles and responsibilities of staff as new people are added and more specialization is possible, and helping boards of directors deal with increased responsibilities (Clay, 1990). Boston and Chicago led the way in the mid-to-late 1980s in developing what has become a standard programmatic approach to assessing organizational capabilities and building capacity through a combination of structured assistance and annual mileposts.

Equally important, such groups require dependable operating support if they are to be effective and resilient. State and local government and foundations are key sources of basic operating support for nonprofit housing organizations, including staff salaries and over- head costs. According to Goetz’ (1993) survey, almost 60% of cities with CDCs provide administrative funding as do almost 50% of the states. Foundations fund staff salaries and other operating expenses at selected organizations. In Chicago, for example, the Mac- Arthur Fund for Community Development provided several nonprofits with $30,000- $50,000 in general siipport annually from 1988 to 1993 as part of a structured capacity- building program. Iucreasingly, the United Way has added housing organizations to the roster of neighborhood groups it supports. As of 1992, more than 70 United Way chapters

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provided financial support to nonprofit housing organizations (Dreier, 1994). In Boston, for example, the United Way supports nine local CDCs that successfully completed a capacity-building program developed by the Neighborhood Development Support Collab- orative. LISC and the Enterprise Foundation have operating support programs at a number of their sites.

In summary, a significant institutional support network for nonprofit housing producers has grown up in a number of locales. Even in the cities where it is most robust, the support network usually is unable to offer the level and consistency of support that it and the nonprofits deem necessary. Nevertheless, support systems, where they exist, generally identify a set of key problems and devise a standard way to deal with them. We argue that this attention to housing production, while crucial, is not sufficient.

Over the past few years, in those cities that have the most developed support systems for affordable housing production there has been a growing recognition of the need to focus attention on managing affordable housing once it is built. Slowly, we are seeing the emer- gence of a new series of services and supports and, in some cases, new institutional structures. Before describing how these new supports are evolving and what they comprise, we present a brief overview of why housing management is so important and what it entails.

HOUSING MANAGEMENT CHALLENGE

The central challenge confronting nonprofit housing sponsors (Bratt, et al., 1994) is to preserve the existing stock of affordable housing, the properties they now own and those they will acquire and develop. Meeting that challenge requires effective housing management. However, the task is more difficult and complex than ever before due to several factors. First, growing concentrations of poverty in central city neighborhoods, increased levels of violence, and the social disruption wrought by drug trafficking and use make it more costly and difficult for housing managers to provide residents with a decent, safe place to live. Second, nonprofits are in the housing business because they have a social mission: They commonly serve households whose social and economic problems threaten stable tenancy, the maintenance of good neighborliness, and a steady rent roll. Third, the complexity of the current system of affordable housing production adversely affects housing management in a variety of ways.

The layering of subsidies and financing required for production and the character of the developments produced have serious implications for housing management. The multiplic- ity of funding sources plays out on the management front in the form of multiple and complex reporting requirements and tenant eligibility rules. Staying in control of these requirements demands a familiarity with numbers, data, and systems that often are immensely complicated and time consuming. Tenant selection and retention become a numbers and eligibility game that requires a high level of “orchestrative talent” on the part of management.

Further, given the acute need for affordable housing in many localities, funders often seek to spread increasingly scarce subsidy dollars across as many developments and units as possible, thereby producing developments that are smaller in size than they typically were under the deep subsidy production programs of the past. Small developments are


more costly and time consuming to manage and often are not large enough to allow for an onsite manager. This, in turn, undermines management’s ability to control the property effectively (Bratt, et al., 1994).

The nonprofit multifamily rental housing stock generally has been underwritten through a complex set of financing arrangements that often do not provide deep enough subsidies at the outset (Walker, 1993; Hebert, et al., 1993). Operating budgets have been thin and developments have been brought on line with an inadequate level of rehabilitation. Prob- lems that are not fully addressed at the outset of a development’s life do not go away. They get worse and create ongoing management problems.

Despite its difficulty and importance, housing management until recently has been put on the back burner and has never enjoyed the excitement or visibility of the front end of the housing business: development. Once the housing is produced, someone has to run it. It has been a hard lesson to learn that a successful development is not one that gets built, rather, it is one that survives for at least the term of the mortgage. It has been little acknowledged that housing managers are key actors in assuring the visibility of affordable housing over the long term and few people realize how much skill their job requires. As a result, housing management often has been characterized by low salaries, high turnover, and little professional identity or recognition.

Housing management comprises two closely interrelated functions: property management and asset management. The contextual factors that make housing management increasingly challenging affect both. Property management includes all the day-to-day tasks of operating a development, such as selecting tenants (and when necessary, evicting them), collecting rents, maintaining the building and grounds, making repairs, and paying bills, as well as helping to plan and implement capital improvements. Property owners may perform this function themselves or hire an outside agent to do so, although the owner remains ultimately responsible for the quality of management delivered to tenants.

Asset management involves the careful oversight by the owner of the financial and physical health of the development. Though long a familiar concept to private sector property owners, asset management is a relatively new notion for many nonprofit housing groups. Asset management is the owner’s responsibility, the duty to oversee the current and future well-being of a property beyond the day-to-day functions of building maintenance, rent collection, and dealing with tenants. It includes long-term capital and financial planning, monitoring the physical and financial condition of the development, and overseeing the property manager. Asset management requires that owners recognize their long-term responsibilities to other parties, to regulators, to lenders, and to limited partners if the project is syndicated.

Although the distinction between property management and asset management appears simple in principle, it is less clear in practice because the roles of the owner and property manager are so closely intertwined. The owner requires from the property manager information about the condition of the development and feedback on day-to-day decisions that may affect the long-term financial and physical viability of the property. The manager, in turn, requires clear guidance about the owner’s plans and priorities and he or she must have enough latitude and discretion to respond effectively to the everchanging situation.

One distinction between asset management and property management is essential: Non- profit groups are not required to be property managers but they must be asset managers.

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Nonprofit sponsors usually can choose to do their own property management or to employ outside management companies (either for-profit or nonprofit). Neither self-management nor outside management is inherently superior to the other. Bratt and her associates ( I 994) found that either approach can be successful. The decision to self-manage or contract out should hinge on several factors, including the size and configuration of the nonprofit’s housing stock, the operating budgets of the properties, the availability of qualified professional management companies, the availability of experienced property managers within the nonprofit’s staff, and the mission of the nonprofit itself (Bratt, et al., 1994). Whether a nonprofit does its own property management or contracts out, it must be its own asset manager. In overseeing the long-term viability of its housing, the nonprofit must “manage the manager”, whether the manager is an employee or an independent management company.

It is not an overstatement to say that the future of the nonprofit affordable housing movement will depend on the success that the nonprofits have in navigating their way through the myriad problems and challenges posed by housing management. As with the production agenda, they will need to depend heavily on a host of public and private institutions and resources. It is essential, therefore, that the support networks that have formed around a production agenda move aggressively into providing assistance for management. Without a significant amount of help and support from the institutional support system, it is unlikely that the nonprofits will be able to meet management challenges effect i vel y .

INSTITUTIONAL SUPPORT FOR PROPERTY MANAGEMENT

Property management has recently become a major concern of the institutional support network. I t was not until the late 1980s and early 1990s that institutions broadened their focus from property development to include property management. Now that the issue has been raised, housing management is receiving attention by the national intermediaries and in cities across the country. The system is still in a state of flux, however, and different approaches are being tried in different places as key members of the support system explore their options and test and refine interventions.

Support networks vary among the six locales studied by Bratt and associates (1994) in terms of the extent, type, and coordination of assistance. New York, Boston, and Chicago have extensive support networks involving government agencies, intermediaries, foundations, educational institutions, trade associations, banks, and other organizations. In the Twin Cities, government agencies, foundations, and intermediaries have coalesced to focus on stabilizing existing housing developments, paying considerably less attention to management training and technical assistance. Oakland and Miami have the least developed support networks of the six cities we studied.

Cities with extensive well-coordinated support networks offer nonprofit groups more resources to improve their management skills and to deal with difficult projects. When the system is well coordinated, nonprofits know where to go for different types of assistance. In cities with weak support networks (Oakland and especially Miami are cases in point) nonprofit groups must be more aggressive in seeking financial and other types of assistance and may be forced to search for help from service providers in other localities.

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FINANCIAL SUPPORT

The institutional support network typically provides more money for housing development, social services, and overall organizational development than for property management. Nevertheless, state and city agencies and foundations have begun to provide several types of financial support for property management and related activities. The two basic forms of financial assistance are: project-specific and organization-specific. In some cities, especially in Minneapolis/St. Paul, the institutional support network focuses on the financial and/or physical rehabilitation of distressed developments. In other places, the support network helps underwrite the salaries of an organization’s management staff or funds other management-related activities (e.g., acquisition of property management computer software).

Both types of financial assistance can help compensate for inadequate underwriting, inadequate reserves, inadequate operating budgets of individual developments, or inadequate management fee revenues of entire organizations. By providing funds to reduce debt, pay for major repairs, or cover the salaries of security guards, asset managers, or tenant organizers, the support network substitutes for operating income, reserve funds, or management fee income.

Project-specific Assistance

The most common form of financial assistance for property management-related functions concerns individual developments. Government, state housing finance agencies, and other institutions have refinanced mortgages to reduce debt service costs, provide low interest loans or grants to pay for needed capital improvements (substituting for capital reserves), provide Section 8 vouchers or certificates for needy tenants, and pay for the deployment of security guards at crime-ridden projects.

The most elaborate example of project-specific financial assistance is the Twin Cities’ Interagency Stabilization Group (ISG). The ISG consists of seven government agencies, foundations, and intermediaries, all of the area’s major housing-related institutions. Each member has given top priority to the stabilization ofthe existing stock. New housing development is off the agenda. The group meets weekly to coordinate institutional efforts to preserve the existing stock of subsidized housing in the Twin Cities with a focus on distressed developments. Most stabilization plans combine financial assistance with recommendations andor requirements that the owner modify asset and/or property management practices. In some instances, the ISG has concluded that the property should be sold or, in extreme cases, demolished. Nearly all stabilization plans include financial assistance for capital improvements or deferred maintenance and some have included assistance to enhance the capacity of the organization to carry out its management tasks. As of November 1994 the ISG had committed more than $5 million to assist 63 developments under nonprofit and for-profit ownership.

Other cities also offer funds to help with repairs and financial restructuring, although such assistance is by no means the centerpiece of the nonprofit management support network, as it is in the Twin Cities. In general, project-specific support is available on an ad hoc, if not haphazard basis. New York City, for example, offers two programs to help fund the repair and upgrading of occupied buildings, including those owned by nonprofit orga-


nizations. The city’s Article 8A Loan program provides low interest loans to the owners of multifamily buildings, including nonprofit organizations as well as private landlords, to replace or upgrade major building systems andor correct substandard or unsanitary condi- tions. New York’s Participation Loan Program gives private landlords and nonprofit groups low interest loans for the replacement of two or more building systems and the modernization of building interiors (Michetti, 1993). The Article 8A and Participation Loan Programs are not limited to nonprofit groups and represent only a minor share of the city’s total expenditures for housing development and renovation. Also, the need for this assistance vastly exceeds the supply, given the age of the city’s housing stock and the fact that the city did not start funding the gut rehabilitation of its in rem (tax foreclosed) housing stock until the late 1980s. As a result, community organizations (and low income coopera- tives) own thousands of units of housing in buildings with little if any reserves and revenues too low to meet the cost of repairs, taxes, utilities, and other operating costs.

The support networks in Boston and Chicago provide funds for occasional financial workouts. The Massachusetts Housing Finance Agency (MHFA) and Metropolitan Boston Housing Partnership (MBHP), for example, have helped refinance a number of projects. MHFA also provides a different type of project-specific assistance, subsidizing the cost of employing security guards at a number of developments. These developments are located in high crime areas, but lack the revenue necessary to hire security staff.

Organizational Assistance

Financial support for property management functions at the nonprofit itself is much less common than project-based assistance. Nevertheless, in a few instances government agencies and foundations have taken this approach and funded some management personnel salaries. The clearest example is in Oakland, where the government provides $50,000 annually to the city’s largest nonprofit housing developer to cover the salary of one of the organization’s two asset managers. In other cities, financial assistance for nonprofit organizations is not so closely targeted to property management and is usually directed at ancillary functions such as social services and tenant organizing. For example, the Metro- politan Boston Housing Partnership provides multiyear grants to nine CDCs to cover the salaries of resident organizers and other staff, including at least one property manager (Bratt, et al., 1994).

With the notable exception of the Twin Cities, property management receives much less financial support than new development, social services, or organizational capacity building. According to the former director of one of Boston’s support institutions (Pat Canavan, personal communication, September 1994), it is very difficult to raise money for property management. Funders are more excited about helping CDCs undertake new projects than they are about supporting the salaries of management staff. They are even less excited about funding project workouts (i.e., debt restructuring). Property management, she says, just “doesn’t grab funders” the way new development does.

Direct financial support can substitute for inadequate reserves or operating budgets. This substitution effect can enable nonprofit groups to provide more comprehensive management services than their operating budgets and management fees would otherwise allow. It can be crucial to the financial viability of individual developments. However, the substitution of external subsidies for internally generated revenues may not continue indefinitely.

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When the subsidies expire, the recipients may not be able to continue offering the same scope of management. Chicago seems to have cut back its financial support for low income housing and the same could happen in New York and elsewhere. Vulnerability to possible future cutbacks underscores the need for assistance that addresses the long-term needs of the developments and organizations. Where possible, it is desirable for operating budgets of developments to be modified through an increase in the management fee, thereby enabling the costs of needed management functions, such as security systems and asset management to be covered.

TRAINING AND TECHNICAL ASSISTANCE

Training and technical assistance are the most prominent features of institutional support for property management. National, regional, and local institutions offer classes and workshops of various lengths on many aspects of property management. Government agencies, intermediaries, foundations, and other organizations have sponsored or subsidized training programs for property managers. They have provided workshops and courses on specific management issues and tried to promote the field of property management in general, attempting to enhance its prestige as a profession. These and other institutions also provide various types of technical assistance to nonprofits which are aimed at improving their management skills and capacity. Training is structured in a variety of formats, from half-day workshops to semester-long courses. Most training is provided in a classroom setting, although one new program emphasizes on-the-job training. Training is offered at several geographic scales: national, regional, and local.

The training provided by the institutional support system supplements courses offered by local community colleges and other educational institutions as well as by the Institute for Real Estate Management (IREM), an affiliate of the National Association of Realtors. IREM conducts a series of week-long courses on property management in most major metropolitan areas. Indeed, in many places local educational institutions and IREM are the only sources for training in property management. Although they provide thorough cover- age of property management for standard, private sector housing, they tend not to focus on issues specific to subsidized housing owned by nonprofit housing groups operating in inner city communities.

At the national level, the Enterprise Foundation, the Neighborhood Reinvestment Corpo- ration, and IREM jointly sponsor a five-day training program for nonprofit housing managers. The Neighborhood Reinvestment Corporation, in conjunction with the Enter- prise Foundation, and LISC sponsor the Consortium for Housing and Asset Management (CHAM) which supports a network of regional centers for training and technical assistance. In another effort to strengthen property management for nonprofit organizations, LISC published a comprehensive handbook (Stockard, 1993) on the topic which it dissem- inated widely within the nonprofit housing community.

A regional source for property management assistance is the Community Builders, Bos- ton’s largest nonprofit housing organization. The Community Builders established the Management Support Center in 1993 to provide training and technical assistance to nonprofits based throughout the Northeast. In its first year of operation it provided about $140,000 in technical assistance to organizations in Boston, Maine, Philadelphia, and


Camden, New Jersey. Funded by the federal HOME Program, foundations, and property management fees, the Management Support Center enables property management staff at the Community Builders to provide other nonprofit organizations with handson training and technical assistance in a wide range of areas. Unlike most programs, which offer mainly classroom instruction, the Management Support Center emphasizes on-the-job training. Staff from the Community Builders work at the offices of the client organization, helping staff develop various management skills.

Most often, nonprofit groups receive training and technical assistance from local institutions. The cities with the largest stock of nonprofit housing, especially Boston, New York, and Chicago, have relatively well developed training programs for property management. In Chicago the provision of training and technical assistance is highly centralized, con- nected almost entirely with the Property Management Resource Center. In New York and other cities training and technical assistance are provided by a number of organizations, each operating independently of the others.

Chicago’s institutional support network funds the Property Management Resource Cen- ter (PMRC) to meet virtually all the city’s needs for training and technical assistance. PMRC was founded in 1989 to focus on capacity and skill building for active property managers, including nonprofit and for-profit organizations. Funded by grants from foundations, local government, corporations, and from fees, PMRC offers seminars to providers of affordable housing on a broad range of property management and maintenance related topics. It also holds monthly managers’ meetings to which it invites guest speakers to provide ongoing education on various topics (e.g., removing drug dealers, budgeting and financing for the management of smaller properties). PMRC cosponsors and (subsidizes for members) training programs for professional certification.

Boston’s largest management training program is the Tenant Assistance Program (TAP) run by the MHFA. TAP offers workshops for property managers and residents in dealing with substance abuse, alcoholism, AIDS, mental illness, and other tenant problems. Other sources of technical assistance and training in Boston include the Metropolitan Boston Housing Partnership (MBHP) and the Neighborhood Development Support Collaborative. One of the MBHP’s management-related activities is its Security Initiative. This program provides a forum for property managers, security companies, and sponsors to discuss the range of issues that impinge on security, including tenant screening, the use of temporary restraining orders, drug-related legislation, and information that would help the police con- duct searches at developments. This initiative originally was formed out of concern for the drug problem in MBHP-sponsored developments, but has since been broadened to deal with all aspects of security.

New York also features a variety of training programs for property management. Train- ing and technical assistance are provided by the national intermediaries, by the New York State Department of Social Services, by several educational institutions, by other nonprofit institutions, and by a number of independent consultants. This support, however, has been poorly coordinated. Nonprofits often are unaware of existing resources or where they should go for specific types of assistance. As the director (Richard K. Koral, personal communication, October 1993) of one training institute put it, “there are a lot of bits of pieces out there that don’t quite add up to a whole.” The city’s housing agency, foundations, intermediaries, educational institutions, and other sources of management support recognize the

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support structure’s fragmented character and have started to collaborate in sponsoring a comprehensive property management training program at New York Technical College, a unit of the City University of New York. The program started in spring 1994 with the hope of eventually becoming an accredited college for housing-related professions.

In the Twin Cities, property management training specifically geared to the needs of nonprofit housing organizations is limited. However, the Twin Cities’ largest housing nonprofit, the Westminster Corporation, is an important source of management training. Many of the property managers at nonprofit and for-profit management companies received their initial training as Westminster employees. A unique source of technical assistance in the Twin Cities is a foundation funded computer database on the revenues and expenses of nonprofit housing. Created to help nonprofits and others to develop realistic budgets for their developments, the database is used by the Twin Cities’ Interagency Stabilization Group in developing stabilization plans for distressed developments. Training and technical assistance are least extensive in Miami and Oakland, limited largely to the standard property management courses that are not oriented to subsidized, nonprofit owned housing.

Beyond the formal financial and technical supports for property management that different locales have developed, there are variations in the overall levels of political and moral support for CDCs in general and property management in particular. Community development trade associations, local housing partnerships, and foundations also provide informal support for property management (e.g., forums where nonprofit housing managers can meet and discuss common concerns). In view of the extent of their institutional supports, it is not surprising that New York, Boston, Chicago, Minneapolis, and St. Paul all have organizations that serve as trade associations and political advocates for the interests of CDCs and other nonprofit housing groups. These organizations attempt to obtain resources for community-based nonprofits and to shape housing and other government policies and programs to meet the interests of their constituencies. Where such an environment exists, the challenges facing nonprofit housing organizations may be more readily overcome.

CONCLUSIONS AND RECOMMENDATIONS

Institutional support networks are essential to nonprofit owners of affordable housing as they confront current management hurdles and those to come. However, the complexity and variability of these networks should not necessarily be viewed as virtues. Were the system more streamlined and uniform, it would likely be more efficient, imposing lower transaction costs on the nonprofits and their institutional supports. A more rational system would not require nonprofits to seek funding and technical assistance from multiple sources, each with its own administrative requirements. The complexity of the current system results from the efforts of local institutions with limited resources and abilities to fill the vacuum left by the federal government’s failure to provide adequate funding, oversight, and other support for subsidized housing.

Although the support system remains focused on production in some places, the three major national intermediaries and local supporters in several of the cities studied have begun the process of identifying management needs and formulating strategies to address them. Commitments of funding, training, and technical assistance are coming together in a variety of thoughtful programs that constitute the field’s early response to what is widely


acknowledged as an emerging situation requiring vigorous attention. Preserving and managing good quality affordable housing is a tough job for anyone who undertakes it, particularly in neighborhoods and markets where poverty is acute and disinvestment is a fact of life. The management problems that are internal to the sector are being broadly, albeit quietly, acknowledged and the institutional support network (both community-based and national) that transformed community development from a social movement to an industry in the 1980s is turning its attention to housing management.

Our key recommendation is that the nonprofits and the institutional support network of public, private, and nonprofit organizations must join together to confront the management challenge. Much of the energy, technical expertise, and strategic development needed must come from the institutions that have brought the industry to its current stage of development and sophistication. They will require additional resources from people who see the opportunity the sector presents, who understand the rationale for the choices and commitments the country has made in building the nonprofit sector, and who accept the challenges and responsibilities that follow from these choices.

This recommendation of additional investment comes, in most cases, in advance of serious financial problems. The limited evidence available suggests that nonprofit groups generally are meeting the daily challenges of property management. They are not repeating the same high degree of failure they experienced in the late 1960s and early 1970s under the federal Section 236 subsidy program (Hays, 1995).

A recent study of the financial status of the older HUD insured multifamily housing stock found no significant difference in the financial condition of housing owned by for- profit and nonprofit sponsors (Finkel, 1993). Bratt and associates (1994) found few signs of immediate problems in their six-city sample. However, many of the developments they studied had inadequate reserve funds and excessive reliance on nonrecurring revenue sources signifying future trouble. The need for preventive action is paramount to get ahead of the curve and to avoid the kinds of trouble with which the Department of Housing and Urban Development has become so familiar through the foreclosure of thousands of feder- ally subsidized and insured housing developments.

Institutional Cooperation Perhaps the most important requirement for successful housing management is sound

initial underwriting, that is, to structure the deal right in the first place. While this may sound like exhortation, there is, in fact, an evaluation process involved in coming to terms with what it means to “do the management figures right”. That evaluation, in all its complexity, is one that must be undertaken by nonprofit sponsors and those with whom they are underwriting their developments. Once again, it is ultimately the responsibility of the sponsor to make sure the deal is one with which it can live. Getting the numbers right is a process that involves other players whose concern for the survival of the development is almost as profound as that of the sponsor itself.

All the relevant actors (intermediaries, lenders, and subsidy providers) need fully to understand the obstacles and tradeoffs involved with a given development. If the decision is to proceed, explicit plans for dealing with potential management problems must be worked out while the development is being planned. Those plans should be seen as a mutual responsibility of all parties, not solely the task of the sponsor.

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Improving the Low Income Housing Tax Credit

Since 1987, the LIHTC has been the core of the current national rental housing production system. It not only generates crucially important equity capital for low income housing development, it is the nexus of partnerships between the public, nonprofit, and for-profit sectors. The syndication of tax credits brings the national intermediaries, corporate investors, and public agencies into alliance with nonprofit housing sponsors. While there are aspects of the LIHTC program that seem to be working well, such as the devolution of policy responsibility to state housing finance agencies, there are important ways in which the program is problematic. Although it is obvious that suggestions for improving the LIHTC will be moot if the program is terminated, our research has led us to several observations about how the tax credit should be altered to simplify long-term housing management issues.

Without Section 8 or its equivalent, many LIHTC projects cannot work. Even with Sec- tion 8 the deals often are cut so thinly that their financial health is vulnerable to market fluctuations (Bratt, et al., 1994). Thus, to the extent that Section 8 or another source of subsidy is essential to the LIHTC, policymakers need to recognize that cutbacks in Section 8 could severely jeopardize the tax credit. A second issue, also related to the fact that the tax credit, by itself, does not provide enough funds to either produce or manage affordable housing, is that the resulting deals are enormously complex. The tax credit regulations are complex in their own right and each subsidy and financing source, each of which also has its own unique rules, places significant burdens on housing managers to fill out a myriad of forms.

While the Internal Revenue Service is ultimately responsible for the LIHTC, the policy history of the program is one of delegating responsibility to the states. For the most part, the state housing finance agencies have assumed the role of allocating the credits and monitoring the implementation of the program. State housing finance agencies, mainly the members of the National Council of State Housing Agencies (NCSHA), need to lead in reviewing how the LIHTC program is working at the local level, particularly on issues of need for additional subsidy, the coordination of other programs with the tax credit, and reporting requirements. Key to any review should be the input of the various organizations (such as NEF and ESIC) that are engaged in selling equity in nonprofit deals and monitoring such assets for the limited partners.

Enhancing Institutional Coordination

Another way in which the institutional support network can assist nonprofits in carrying out their management tasks is by working to simplify the amount of paper work as well as reducing the need to file repetitive forms during management. Time spent on moving paper is time not spent on other management activities. Accurate reporting and monitoring are crucial for the sponsor and its funders. What is at issue is the efficiency of the current system. The best computer software managed by knowledgeable professionals can help overcome many of the hurdles in the paper chase, but the case for simplification and coordination remains.


Support for Asset Management

Asset management is not receiving sufficient attention from nonprofit housing sponsors. Unless asset management becomes a more widely accepted and consistently executed role of nonprofit sponsors, the value of their buildings and their ability to provide affordable housing over the long term will diminish.

Lenders, investors, funders, and other support agencies have crucial roles in institution- alizing asset management in the field. One is to acknowledge that the nonprofits, with proper support, can and should be held accountable for good asset management. “With proper support” means assuring that funding is available to pay for this activity and that the nonprofits have the means to acquire the organizational capacity to do it.

One reason why nonprofits have not done more asset management is that they lack the money to pay for it. Operating budgets of individual properties often do not include an expense line to pay for asset management. Even when such a line exists, it is commonly inadequate to cover the full cost of the job. Management fees pay only for property management. Without reliable funding, even the most responsible nonprofit sponsor cannot do good asset management. Operating budgets developed during the underwriting process should routinely include an asset management fee and provision for adequate cash flow to pay for it in addition to a property management fee. Asset management is a real job, it costs real money, and it has to be paid for. Several important national players, including the three national intermediaries and the National Council of State Housing Agencies, command the respect and credibility to promote the need for asset management as a funded activity as a logical companion to building organizational capacity and stabilizing at-risk developments.

Training and Technical Assistance

Progress by the nonprofits in improving their management will hinge on expansion of the property management support system locally and nationally. Although training and technical assistance are the more prominent types of support available, this support is not yet adequate. Many locales lack training that specializes in assisted housing. Where this training is provided, it seldom addresses the crucial issue of asset management. Those with a vested interest in strengthening asset management (philanthropies, local and national intermediaries, state housing finance agencies, and local governments) have a comparable interest in supporting improved property management and related organizational development.

At the national level, a number of organizations offer property management training that could be adapted to serve the distinctive needs of nonprofits or, if already tailored to their needs, could be made available in more localities. For example, the property management training developed jointly by Neighborhood Reinvestment Corporation, the Enterprise Foundation, and the Institute for Real Estate Management can be expanded to make it more widely available and to add course work on asset management and other topics. CHAM is positioned to play an important role. Its initial focus on a limited number of regional centers, each of which will employ a different approach, should increase the availability of training and technical assistance and shed light on the pros and cons of alternative delivery systems.

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Need for Project Stabilization

The assisted housing owned by nonprofits sponsors is a valuable national social asset whose importance is growing as the privately owned stock of low cost housing shrinks and as it becomes less and less likely that new subsidized housing production will be on the national agenda in the foreseeable future. Our existing subsidized housing provides decent housing for thousands of low income households and exerts a stabilizing influence on the communities in which they live.

In order to keep the nonprofit housing agenda moving forward, locales must confront the needs of affordable housing developments that are facing financial difficulties. For a variety of reasons, many beyond the direct control of the nonprofits, many developments have been financed on shaky footings (Bratt, et al., 1994; Walker, 1993). The national nonprofit intermediaries, perhaps through CHAM, should develop guidelines for locales to follow to launch project-specific financial assistance programs, perhaps along the lines of the Twin Cities Interagency Stabilization Group.

In light of the problems on the horizon, a strategic infusion of funds to stabilize troubled and at-risk developments (financially and physically) is essential to long-term preservation of this housing. Developing a realistic stabilization and preservation strategy will require the collaboration of all the parties with an interest in the well-being of the housing and its sponsors. This means not only those who have, or might want to acquire, direct financial interest in the developments (equity investments, loans, and credit enhancements), but also those responsible for the administration and oversight of production programs (such as the state housing finance agencies that allocate tax credits, city governments providing subsidy dollars, and the syndication affiliates of the national intermediaries) and those committed to capacity building in the nonprofit sector (such as philanthropies).

To win the long-term commitment of all the principal parties, the stabilization process must be strategic. To be fiscally and politically feasible and to have a considerable long- term impact on the nonprofit housing sector, stabilization cannot be simply a new label under which money is funneled to all developments on a formula basis or under which unwise investments or weak management are routinely rescued. Rather, stabilization is about identifying developments that are financially unstable and making reasonable investments in them in the short run that will forestall larger, more expensive problems in the long run and make the properties economically sustainable. Of necessity, all parties will have to acknowledge the possibility that it may not be feasible to stabilize some developments and that tough decisions will have to made.

The growing focus on housing management by nonprofit housing groups and their institutional support network comes in recognition of the fact that the stakes involved are high. The sector’s stock of affordable housing is at risk due to serious management challenges. If these cannot be met, the nonprofit housing movement itself is in serious trouble. If nonprofits are found to be seriously deficient in taking care of the housing they own, the movement in favor of promoting nonprofit housing provision could recede rapidly. If the tide turns, where does housing policy go? Back to the old system of deep subsidies to for- profit developers or to no subsidized production system at all? In view of the current atmo- sphere in Washington, deep subsidies are inconceivable. The greater likelihood is the demise of all efforts to produce affordable housing.

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The nonprofit system may or may not be the last best hope for inner city subsidized housing. At the moment it is the system on the front line, backed by an impressive array of supporters, and the consequences of allowing it to fail would be profound. From a public policy perspective, it makes good sense to capitalize on, and cultivate, the committed and increasingly competent efforts of the nonprofit producers and owners. The institutional support system needs to play a strong role in crafting coordinated programs aimed at assisting nonprofits to overcome the challenges inherent in managing inner city properties.

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NONPROFIT HOUSING ORGANIZATIONS AND INSTITUTIONAL SUPPORT: The Management Challenge

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