Community Development Trust (CDT), the first and largest REIT for affordable housing in the United States, is turning 16 this summer. The New York City-based REIT’s mission is to provide long-term capital in the form of debt and equity investments to support the preservation of affordable multifamily housing nationwide. CDT believes affordable housing is essential to a community’s economic vitality and is key to providing the necessary foundation for families and individuals to succeed in their careers or at school, as well as to thrive in retirement.
NREI spoke with Joseph F. Reilly, CDT’s president and CEO, about how the REIT has performed since its founding, and what he expects for the affordable housing industry in the future. An edited transcript of that interview follows.
NREI: How has the affordable housing field changed since CDT's founding, both in terms of need and investment levels?
Joseph F. Reilly: Since CDT’s first investment nearly 16 years ago, we have seen the demand for affordable housing continue to grow. Our first deal in affordable housing impacted just 35 families, while our most recent investment has extended our total reach to more than 35,000 families.
Across the country, low-income Americans continue to struggle to afford their homes. This is especially true in large, high-cost areas where it can be very difficult to preserve affordable housing because the high demand puts added pressure on market rate housing. This creates problems not just for low-income families, but also for local economies. It is critical for local economies to have housing available at different price points. Everyone who works in an office building—whether they are a CEO, an accountant, an administrative assistant, or a janitor—should have access to housing that doesn’t force them travel from the fringes of a city just because their income is lower than market rate affordability. There is a lot of opportunity for investment in affordable housing and we will continue to work with our partners to identify the right projects, wherever they are.
NREI: Why affordable housing as an investment vehicle?
Joseph F. Reilly: CDT was formed as a real estate investment trust with a public purpose to provide long-term capital for the preservation and development of affordable housing. Our success and growth is intimately tied to the demand and need for affordable housing. Our focus on community development helps us to realize positive returns for our investors as well as the communities in which we invest. Since our first investment we have paid about $57 million in dividends to our investors while also providing the capital for affordable housing that’s impacted about 35,000 families across the country. We pride ourselves not just on our investment choices, but also on the consistency and quality of our work. We put value in creating relationships for the long-term and that is apparent in both our work and in our investor relations.
NREI: How many people would you say CDT is housing at present?
Joseph F. Reilly: CDT’s investments, which have surpassed the $1 billion mark, have financed the development and preservation of more than 35,000 units. We estimate that we are providing over 100,000 people, including families, seniors and individuals, with safe, affordable housing and we look forward to growing that number in the years to come.
NREI: Describe CDT as a company for us.
Joseph F. Reilly: The success of CDT rests squarely on the vision, talent, and dedication of our management and staff. CDT draws on a wealth of knowledge from its management team under the guidance of our board of directors, which is composed of many of the nation’s top experts in affordable housing, residential real estate, finance and community development. Without their dedication, CDT would not be the success it is today.
NREI: How are CDT’s investments split?
Joseph F. Reilly: As a national investor in affordable housing, CDT works with local, regional and national partners to make long-term equity investments and to originate and purchase long-term mortgages. Our investments are about evenly split between equity properties and mortgage loan investments.
On our equity side, we invest for the long term, providing the capital necessary to restructure a property’s ownership, address capital needs, replace major systems and add amenities such as recreational facilities and community centers. On our debt side, we are a national direct lender and secondary market purchaser of permanent mortgages in support of the development and preservation of affordable multifamily communities. As a secondary market for permanent loans, we also purchase mortgages made by CDFIs, community banks and other affordable housing lenders. This a critical component in our mission to expand the supply of capital to affordable communities throughout the country.
NREI: Last January, CDT made a $100 million commitment to the U.S. Department of Housing and Urban Development Rental Assistance Demonstration program, which allows private investment in public projects. How does this work, and how is it going so far this year?
Joseph F. Reilly: The Rental Assistance Demonstration (RAD) program, developed by the U.S. Department of Housing and Urban Development (HUD), was designed to supplement congressionally allocated funds that alone have been insufficient to keep up with the capital needs of public housing units across the country. Now, projects currently funded under the public housing and Section 8 Moderate Rehabilitation programs can convert their assistance to long-term, project-based Section 8 rental assistance contracts. This enables public housing agencies and private owners to obtain private debt and equity to address capital needs while also ensuring that existing tenants will remain in their homes. The RAD program has been tremendously valuable, and through our $100 million commitment, we are increasing public housing financing options while positively impacting the lives of residents.
CDT’s most recent and approved long-term forward commitment was for a permanent first mortgage of $4.4 million for the Ribicoff Cottages, a 55-unit multifamily housing development in New Haven, Conn. This was a two-phase project that required demolition of the existing structures, originally built in the 1950s, and the construction of the new 106-unit Ribicoff Apartments. Once the second phase is complete, the community will consist of one-, two-, three- and four-bedroom units of townhouses and small cottages. This mixed-income community will serve a full range of low- and middle-income families working in New Haven and surrounding neighborhoods.
Working with our partners, we look forward to our continued involvement in the RAD program and this new opportunity to transform communities across the country.
NREI: What are some of the largest recent transactions CDT has seen?
Joseph F. Reilly: In 2013, CDT acquired Ocean Towers, a 360-unit property in the Coney Island section of Brooklyn, in a joint venture with Proto Property Services. Originally constructed under the Mitchell-Lama Program in 1973 and located in an area hit particularly hard by Hurricane Sandy in 2012, the $52 million acquisition and rehabilitation project secured the preservation of 360 affordable housing units. CDT provided $10 million in equity for the project, one of CDT’s largest investments to date and its first in New York City. Improvements to the property included new high-efficiency boilers installed above Sandy flood levels, individual electric meters, full elevator replacement, new building entry, parking lot resurfacing and new entry gate, new unit entry doors and common area improvements. In addition to these significant renovations, current residents could remain in their homes with as little disruption as possible over the life of the work. CDT worked with a diverse group of funding sources to make this investment possible, including the Enterprise Community Loan Fund, New York City Acquisition Fund, Community Preservation Corp., New York City Department of Housing Preservation and Development, New York City Employee Retirement System, State of New York Mortgage Agency, Brooklyn Borough President’s Office and NYSERDA.
While we always aim for market rate returns for our investors, CDT also prioritizes the social impact of our investments. Each project is reviewed to ensure the safety, quality, and longevity of affordable housing for current and future residents. Our work at Ocean Towers meets both those criteria, and for that reason, it is a project of which we are especially proud.
NREI: What do you see for CDT’s future—and for the future of affordable housing, which some believe is heading to a crisis point?
Joseph F. Reilly: Over the last 16 years, CDT has seen growth in terms of the size of our portfolio and also in the complexity of our projects. We see a lot of opportunity for greater investment in affordable housing and we will continue to work with our partners across the country to identify the right projects.
As the demand for affordable housing continues to grow, especially in cities with strong local economies, it will become increasingly important for public policy to help shape opportunities for investment in affordable housing. At CDT, we look for the long-term investment opportunities. Our objective is to invest and stay invested. This means that we can provide long, steady returns to our investors and also fulfill our double bottom line mission of providing the communities in which we invest with sizeable social impact returns.