Innovative Financing Approaches for Affordable Rental Housing in the Chicago Region

RESEARCH REPORT Innovative Financing Approaches for Affordable Rental Housing in the Chicago Region A Case Study of Community Investment Corporation Kathryn Reynolds Leiha Edmonds Erika Poethig February 2019 RESEARCH TO ACTION LAB ABOUT THE URBAN INSTITUTE The nonprofit Urban Institute is a leading research organization dedicated to developing evidence-based insights that improve people’s lives and strengthen communities. For 50 years, Urban has been the trusted source for rigorous analysis of complex social and economic issues; strategic advice to policymakers, philanthropists, and practitioners; and new, promising ideas that expand opportunities for all. Our work inspires effective decisions that advance fairness and enhance the well-being of people and places. Copyright © February 2019. Urban Institute. Permission is granted for reproduction of this file, with attribution to the Urban Institute. Cover photograph courtesy of Shutterstock. Contents Acknowledgments iv Innovative Financing Approaches for Affordable Rental Housing in the Chicago Region 1 Setting the Context: CIC and the Chicago Housing Market 5 Preserving and Improving Unsubsidized Affordable Rental Housing without Subsidy 9 Providing Loan Products to Address the Quality of Unsubsidized, Affordable Multifamily Rental Properties 9 Collaborating with Other CDFIs to Expand Financing to Small Buildings 13 Program Approaches to Prevent the Loss of Unsubsidized, Affordable Rental Housing Units 17 Partnering with the City to Prevent the Loss of Affordable Units 17 Using a Proactive Lending Approach to Offer Energy-Efficiency Upgrades in Low-Income Neighborhoods 20 Increasing Affordable Housing in Strong Markets 25 Incentivizing Private Developers to Use Public Subsidies to Create New Affordable Units 25 Conclusion 28 Notes 30 References 31 About the Authors 32 Statement of Independence 33 IV ACKNOWLEDGMENTS Acknowledgments This report was funded by a grant from JPMorgan Chase. We are grateful to them and to all our funders, who make it possible for Urban to advance its mission. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of Urban experts. Further information on the Urban Institute’s funding principles is available at urban.org/fundingprinciples. The authors acknowledge Jack Markowski, Stacie Young, and all the staff at Community Investment Corporation for their time and feedback on this brief. In addition, the authors acknowledge Brett Theodos for his review of this case study and Veronica Gaitan for her management of its development. Innovative Financing Approaches for Affordable Rental Housing in the Chicago Region Solving America’s affordable housing crisis will mean increasing production of housing, protecting residents from eviction and foreclosure, and preventing the loss of current affordable housing stock. This case study on Community Investment Corporation, a community development financial institution (CDFI) in Chicago, provides examples of how one organization is employing strategies to improve preservation, particularly in unsubsidized housing stock. Only one in five income-eligible households lives in subsidized housing (Kingsley 2017). For households unable to obtain government housing benefits, unsubsidized “naturally occurring” rental housing provides the bulk of affordable housing in many markets. This study facilitates the adaptation of these practices and strategies by affordable housing and community development practitioners to address similar housing preservation challenges in their communities. As this case study demonstrates, state and local policymakers, civic leaders, financial institutions, and philanthropy all have a role to play in housing preservation work. Community Investment Corporation (CIC) focuses on lending for the acquisition, rehabilitation, and preservation of affordable rental housing, especially unsubsidized affordable housing, in the Chicago metropolitan area. CIC was formed by local financial institutions in 1974 to provide lending products in the Cook County neighborhoods that were hardest to serve. Since then CIC has provided $1.4 billion for 2,400 loans to rehab and preserve 62,000 housing units, providing affordable rental housing to 155,000 people. CIC has both a highly localized approach that provides deep services to the neighborhoods of Chicago and Cook County and the scale of a large, well-financed CDFI (Balboni and Travers 2017). CIC is capitalized by investments from 40 local financial institutions, who pool these funds to support its lending products. As a long-standing CDFI known for its lending on multifamily properties, CIC’s years of experience and understanding of the regional market inform how the organization grows and adapts programs over time. 2 INNOVATIVE FINANCING APPROACHES FOR AFFORDABLE RENTA