According to a recent report from the Urban Land Institute, the supply of affordable rental housing in Chicago’s Cook County is expected to decrease by 78,000 units by 2020.
To help prevent the dramatic loss of affordable housing in the Chicago area, Mercy Housing Lakefront (MHL) is undertaking several affordable housing preservation projects that will ultimately leverage more than $200 million to preserve 1,800 units of housing with expiring government-assisted contracts and subsidies.
MHL was named as a NHC 2009 “Pioneering Housing Strategies” Award finalist for the first preservation project completed in this series, Malden Arms, which is an 83-unit supportive housing building serving formerly homeless, low-income, and disabled individuals.
Site improvements included the introduction of many green elements to make the building, originally constructed in the 1920s, more energy efficient. These upgrades were intended to not only reduce the building’s impact on the environment, but also to lower utility costs for residents.
While the project was under budget and ahead of schedule, MHL had to successfully overcome the unique challenge of creating a sustainable, long-term financing structure for Malden Arms.
To help solve the project’s financial dilemma, MHL secured a Long Term Operating Support subsidy from Chicago’s Low Income Housing Trust Fund for 52 of the 83 supportive housing units. The funding allowed MHL to increase rent revenues without impacting tenants’ out-of-pocket housing costs, decreasing a portion of the tenants’ rent in most cases and generating a positive net operating income to support the building’s long-term affordability.
Furthermore, MHL projected that half-way through the life of the building’s tax credits, operating expenses would again exceed projected increases in rents. To proactively overcome this challenge, MHL and its tax credit investor, the National Equity Fund, front-funded a “future losses reserve account” to bridge the financial gap when this time period occurs, ensuring the financial viability of the project through its 17th year.
In the coming years, MHL’s larger goal is to leverage more than $1 billion in affordable housing investment across the Chicago region by creating or preserving more than 5,000 affordable housing units. The strategies and lessons learned through the Malden Arms project will allow MHL to accomplish these goals and more.