If Chicago were to adopt stricter affordable housing requirements throughout the city, it would likely be a boon for local developer and property manager Evergreen Real Estate Group. But like most Chicago real estate players, CEO Steve Rappin is more concerned about the overall state of the local economy.
From 1999 to 2011, Evergreen primarily focused on property management, including looking after about two dozen nonprofit buildings in Chicago, and did some acquisition rehabs. When the economy turned south in 2008, it became harder to do those rehabs using 4 percent low income housing tax credits, so the company stopped doing deals for a few years until 2014, when it started taking advantage of 9 percent credits.
“A 9 percent tax credit delivers twice the amount of equity for a deal, so they’re easier to do,” Rappin said. “Because of the economy, we’re forced to change our strategy to do 9 percent tax credits, and because 9 percent tax credits typically are ground-up new developments, that’s when things started to change forever.”
Evergreen’s first adaptive reuse project using the 9 percent tax credit was Aurora St. Charles, involving the redevelopment of an old hospital into 60 units of affordable senior housing. After that, it converted Milwaukee’s former Blommer Ice Cream Factory into a 64-unit affordable apartment community.
“I think adaptive reuse is something that has a ton of legs. Taking an old hospital, taking an old factory, taking an old school and turning it into affordable housing,” Rappin said. “Often those properties no longer have a purpose. They’re vacant, and they can be cheaper than new construction.”
Now the firm is working on a $60 million redevelopment of the former Ravenswood Hospital, which has been vacant since 2002. The building will be transformed into a 193-unit affordable senior housing development, known as Ravenswood Senior Living, with independent and assisted units.
It also recently finished the 45-unit affordable Oso Apartments development in Albany Park and partnered with the Chicago Housing Authority and Chicago Public Library on two affordable developments anchored by library branches in the West Ridge and Irving Park neighborhoods.
With about 350 employees and approximately 10,000 units in 11 states, Evergreen is a “really robust mid-market real estate company that is growing bigger,” Rappin said. Roughly 4,000 to 5,000 of those units are located in Chicago, and nearly all of them are affordable.
Our interview with Rappin has been edited for length.
Why does Evergreen do so many senior housing projects?
Evergreen has a rich history with senior housing. About 50 percent of the properties we manage are senior independent, affordable properties. We want to build affordable housing, and oftentimes because of NIMBYism, there’s less resistance to senior housing than there is to family housing. It’s really interesting to me that we have all of these discussions about rent control because of the affordable housing crisis, but at the same time, there are people that don’t want low income housing tax credit projects in their backyard. It’s much easier with affordable housing to move in low-impact senior residents.
Do you think the demand and ease is what’s driving other developers to explore senior housing too?
In the world of affordable, developers often see that it is more acceptable to a community to have senior housing rather than family. There are 10,000 baby boomers turning 65 every day, so the demand is what is driving all the senior housing you’re seeing proliferate through the entire country. Market-rate is based on demand. Affordable, I think, is based on ease.
How should Chicago approach the affordable housing shortage?
Rent control is not the solution and I think that’s simply been proven. When rent control is enacted, it cuts supply, so rents are artificially held low, investors are no longer interested, developments are no longer built. There’s less housing, less jobs, less everything going on. We’re seeing that throughout the country, and it’s logical that that pressure would be there, after the longest economic boom in U.S. history, but it just doesn’t work. I think that pressure will be alleviated whenever the tide turns. For a long time everybody has been saying we’re in the ninth inning of this economic boom, but whenever the tide does turn, I think that rent control thing is going to dampen a bit.
What do you think the solution is?
I think the solution is to enhance the low income housing tax credit program. That would’ve basically fixed the 4 percent low income housing tax credit and really helped finance many, many, many more deals. Other solutions could be overcoming NIMBYism, enhancing zoning to allow for more density and allocating more funds and resources towards affordable housing.
Should the city strengthen its affordable housing requirement for new residential developments?
Maybe it makes sense to take it from 10 percent to 20 percent in areas that are really going through intense gentrification, but I would not push the pedal, particularly in this economic climate, with investors so skittish on the ARO.
Should developers incorporate affordable and market-rate units into the same buildings as part of the ARO? Or should they be separate?
I would like to see the initiatives separated and see the state and the city have affordable housing initiatives. I’d rather that be a bucket and let the market-rate investors invest the way that they do best because I do think there’s a trickle down effect. I just think that there are other mechanisms to build affordable housing and to help facilitate affordable housing that should not be tied to something that will impact Chicago’s economy in the long run.
Would stricter affordable housing requirements throughout the city even impact Evergreen?
I think it would only be positive for Evergreen, because it would allow us to create joint ventures with some of the larger developers who don’t have affordable expertise. In fact, we’re already doing that with a market-rate developer at two different sites right now. But in my mind, there’s always opportunity in real estate, so I’m looking out for the greater good of the Chicago economy.
It seems like there’s an unusually high number of hospital redevelopments happening lately. Why is that?
I would surmise that it’s because health care and hospital systems have evolved greatly over the past 20 years. We’re seeing it all over the place with brand new state-of-the-art hospitals being built with very wealthy hospital systems and (replacing) outdated hospitals. I think that the stock and the availability of outdated hospitals is only going to continue because there’s a lot of money in these health systems and they can afford to build brand new state-of-the-art hospitals, and they’re incentivized to do that because of the way they get reimbursed. So outdated hospitals are continually going to continue to be available and that is a great opportunity for a low income housing tax credit developer, a workforce housing developer or any type of developer.
Does Evergreen plan to continue doing hospital redevelopment?
Is residential the most natural choice for a hospital redevelopment?
Yeah, I think it is because hospital rooms are rooms, so it’s a little bit easier to convert those buildings into housing because of the way they’re laid out. With Ravenswood, we’re doing a $40 million-plus rehab, so there’s still a ton of work to do to adaptively reuse those hospitals, but residential is the best use, I believe.
How do property tax increases impact affordable housing developments?
Real estate tax increases do have the opportunity to have a profound impact on affordable housing properties. Unlike market-rate landlords who typically will pass increases on to their residents in the form of a rent increase, affordable housing developers often are limited, particularly for low income housing tax credit developers, with published rents that you cannot exceed, so you really can’t pass that real estate tax increase on to the resident. I would say that affordable housing developers are even more sensitive to real estate tax increases than market-rate developers.