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Taking Advantage
Why spend millions building affordable housing projects when existing condominiums can be purchased for less money?
By Erik Bojnansky
As television and still cameras readied to fire, developers and politicians lined up on top of a mound of dirt in Little Havana on the morning of Nov. 19 with shovels in hand.
"Wait, you need hard hats," yelled Kelly Penton, the city of Miami's communications director. The officials dutifully put on the white, plastic headgear. "Look up, look up, look up," instructed official city photographer Jorge Perez. "One, two, three."
Miami Mayor Manny Diaz, District 3 Commissioner Joe Sanchez and state Rep. Carlos Lopez-Cantera posed alongside CODEC Inc. President Guarion Diaz on the future site of La Palma Apartments, an affordable housing complex for those ages 62 and older. The photo op didn't just commemorate the groundbreaking of the 90-unit rental housing project at 1040 S.W. First St., it memorialized what could be the end of an era and the beginning of the city of Miami's latest venture ' landlord to the working class ' if one Miami commissioner has his way.
Since 2000, the city of Miami has invested $50.2 million, along with another $718.3 million from state and federal sources, to construct 4,580 affordable condos and apartment buildings. This year alone, the city of Miami devoted $269 million in city, county, state and federal funds to multifamily projects. Mayor Diaz wants to invest a total of $1 billion in affordable housing for low- and median-income families ' those who make less than $50,000 a year ' by 2010.
For example, public money subsidized La Palma Apartments' entire $12.7 million construction bill. The U.S. Department of Housing and Urban Development paid $11 million, Miami-Dade County paid $1 million and the city of Miami paid $740,999 via federal affordable housing grants to build the project on vacant land that property owner Lopez-Cantera sold to CODEC Inc., a nonprofit community housing organization.
"This property was ' owned by my family for more than 70 years," Lopez-Cantera said. The state representative claimed the family had many offers to sell, "but we chose to stay with CODEC" because it would benefit the community, he said.
However, District 2 Commissioner Marc Sarnoff believes the city can obtain the units it needs to house the indigent, workers and upwardly mobile professionals faster and for far less money by taking advantage of the slumping real estate market. Instead of paying developers $350 a square foot to build affordable housing projects in "lousy" and sometimes remote locations, Sarnoff said the city should buy up condos now under construction near restaurants, shops and the Metrorail for $175 per square foot or less.
"You can buy existing units and usually they are in pretty good locations ' on the water or by mass transit ' at $150 or $180 a square foot," said Peter Ehrlich, a real estate investor who consults for Sarnoff's office. "It is considerably less expensive than what the taxpayers are paying for these affordable housing projects."
Sarnoff, who proposed the plan during a Nov. 9 Miami City Commission meeting, said he wanted to "start the conversation" and prompt Miami officials to think about new ways to provide affordable housing for teachers, city employees and service workers.
"I'm just trying to make the city realize that there is a market condition that exists that government does not take advantage of," Sarnoff said.
"We have the opportunity to create 'mixed income' neighborhoods," which would alleviate congestion and save on gas consumption, he said. "Imagine the service workers, the clerical workers, the mail room workers who currently work on Brickell Avenue, all living on Brickell Avenue? They could walk to work."
There are plenty of units in the city of Miami that can be purchased for less than $225,000, or even $150,000, according to a survey by the city's Department of Community Development. There are currently 752 residences, ranging from 380 to 1,550 square feet, on the market for between $100,000 and $250,000. Eighty of those, ranging from 337 to 1,075 square feet, cost between $100,000 and $150,000.
Because of the recent development boom, Sarnoff said an additional 19,000 condominium units will be completed in the next two years in what is already an over-saturated market ' especially in such urban areas as the Civic Center and Health District, Edgewater and Wynwood, the Upper Eastside, Brickell and downtown.
"We are in part of a 20-year cycle where it costs more to build something than to buy something already in the market, and this does not happen very often," Ehrlich said. "There are a lot of bargains."
While Sarnoff is discussing his idea with county and state officials, including Lopez-Cantera, exactly how the city would go about investing in real estate still hasn't been worked out.
The city could either provide more assistance to low-income buyers who wish to purchase units below $225,000, or purchase units outright and either rent them or sell them to low- or moderate-income individuals at affordable rates, Sarnoff said.
"You buy them and then you sell [them] to workforce housing," he offered. "We could form a corporation."
Community Development already has a program to provide low-interest loans and grants to low- and moderate-income single-family homebuyers. In fact, since 2000, the city has invested and leveraged $57.5 million to help buyers purchase 511 houses under $225,000. Yet, no such program exists for Miamians who want to purchase condominiums at those rates.
Sarnoff also suggested that Miami imitate the Miami Beach Community Development Corporation's "scattered site" program, in which the nonprofit group, using public funds, purchases units in different buildings throughout Miami Beach and rents them to low-income families and individuals, senior citizens on fixed incomes and those with special needs.
Karen Mock, a Majestic Properties real estate agent, said there is plenty of "attainable housing" as large as 1,800 square feet in the city of Miami for less than $250,000, or $150 per square foot, because many of the development boom buyers can't afford their mortgages. So now, she said, they must rent out their units or sell.
So far, reactions to Sarnoff's proposal have been mixed.
"Well, if it works for the developer and works for the city then it could work," said Joel Krieger of Ingletto Realty.
Although Mayor Diaz said he's "open to anything that provides affordable housing," he opined that the plan still "needs a lot of work."
Others aren't so enthusiastic.
"I don't think the condo developers should be bailed out," said Bernadette Armand, project coordinator for the Overtown-based Power U Center for Social Change.
Aside from assisting Sarnoff's office in gathering research for his presentation, the Department of Community Development, which is responsible for overseeing Miami's affordable housing efforts, has been cold to the idea.
"We don't have enough funds to purchase the number of units necessary to make an impact on affordable housing," Assistant Community Development Director George Mensah said.
Of an annual $35 million budget, Community Development says it has only $3.2 million in state and federal funding available in fiscal year 2008-09 to build houses.
Currently, the city uses nonprofit developers known as community housing development organizations, which are allowed to partner with for-profit developers, to build its affordable housing projects.
In the case of La Palma, CODEC bought a vacant parcel from Lopez-Cantera's family and partnered with Peninsula Housing Development Inc. to build the publicly funded rental project, where seniors dependent on Social Security checks can live in one-bedroom units for only 30 percent of their monthly income. That means residents earning only $300 a month will pay only $90 a month in rent, according to Community Development spokesperson Christine Bermudez-Sola.
Community Development also has funded rental and condominium projects that require developers to keep units below a certain price for low- and moderate-income individuals and families in exchange for a subsidy.
To be eligible for low-income housing, applicants must make less than 80 percent of $45,200 a year, the average median income of the Miami region as defined by the U.S. Department of Housing and Urban Development. Individuals would have to earn less than $33,200 a year; families of eight would have to earn less than $62,650 a year.
To meet workforce housing requirements, however, applicants must earn less than 120 percent of the $45,200 average median annual income. That's less than $49,800 a year for individuals and $93,975 a year for families of eight.
Still, Ehrlich said the city needlessly funnels too much money to community housing development organizations for affordable housing projects.
"They [the city] are paying up to $350 a square foot, and some [projects] are in really bad locations" that "developers find attractive for warehousing poor people," Ehrlich said. For example, YMCA Carver Station, an affordable housing and preschool complex being developed on a five-acre site at Interstate 95 and 71st Street, is located near "busy railroad tracks," a busy expressway and a Florida Power and Light electrical substation.
Krieger, a Realtor selling condo units at Highland Park Lofts in the Civic Center and Health District for around $169,000, said the city should avoid being in a position where it has to own or manage residential property.
"Government is not the best manager," he said. Instead, it should "let the developer make it happen."
Armand of Power U said that while she welcomes discussions about affordable housing, she believes Miami officials are more interested in helping builders than the needy.
For example, she and many other Overtown residents fear that Sawyer's Walk, a mixed-use condominium that Crosswinds plans to develop on city land in Overtown, will gentrify an area where residents make less than $20,000 a year.
Though the current real estate market "can't sustain" the project, Miami officials continue to fight to keep the Crosswinds deal alive, Armand said. "It tells me that the city of Miami is not operating through logic ' it is operating to pander to developers," she said.
Her sentiments reflect two recent affordable housing scandals involving both the city and the county.
A 2006 Miami Herald investigation revealed that Miami-Dade County's housing agency gave land and money to developers who never constructed public housing. Several developers were arrested in relation to the scandal and the State Attorney's Office is now investigating the department's former director, Rene Rodriguez.
Then, in June 2007, the Herald and Victor Igwe, Miami's auditor general, found that the city of Miami gave millions in public funds to five developers who also failed to build affordable housing. The Herald also found out that the Department of Community Development's then director, Barbara Gomez, funneled $1 million in contracts to one of her ex-husbands, Ruben Santana, soon after he was released from prison. (Her more recent ex-husband was Rodriguez, the county housing agency's former director.) She also continued to fund a social service agency that employed her son, Ruben Santana Jr. Gomez was fired from the city in July and lost her pension.
Commissioner Sanchez also is concerned about the appearance of such a plan. "How do we assure the public that this is not a bailout for developers who are oversaturated with units?" he asked during the Nov. 9 City Commission meeting.
Still, many agree that the city of Miami could benefit from mixed-income neighborhoods.
In Montgomery County, Md., developers are required to set aside some future units for low- and moderate-income individuals, Ehrlich said, and Chicago also is looking to create mixed-income housing.
"We think Miami is the only city we know of that is building these vertical poor-people housing [projects]," he said.
Comments? E-mail erik@miamisunpost.com.