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Investors line up for public housing sale

Baltimore’s housing authority is counting on a massive program of tax credits to persuade investors to buy and maintain about 37 percent of its public housing units.

Paul Graziano

Paul Graziano, executive director of the Housing Authority of Baltimore City, says improvements needed on the city’s 11,000 units would cost a total of $800 million. (The Daily Record/Maximilian Franz)

Supporters of the proposal say the plan is vital to ensuring the long-term health of much of Baltimore’s public housing stock, but critics believe it’s a sweetheart deal for developers.

“The incentive is that [the developers are] going to get paid from the tax credits given to them from engaging in this venture,” said Michael Runnels, associate professor at Loyola University Maryland’s Sellinger School of Business.

Earlier this week, the city’s public housing authority announced it would sell 4,072 of its units as part of a U.S. Department of Housing and Urban Development experiment to entice private developers into fixing and maintaining dilapidated public housing.

The program allows for 60,000 units of public housing nationwide to be sold to developers, a plan that would profoundly shift the responsibility for ownership of public housing from the government to the private sector.

To entice private investors to buy the units, the government will provide 4 percent low income housing tax credits, which in turn can be sold to companies who seek such credits to offset their earnings. The tax credits, along with a boost in rent subsidies from the federal government, are designed to make managing and repairing public housing more attractive to private companies.

To take advantage of the tax credits, developers are required to maintain the properties for disadvantaged residents for at least 40 years. Runnels said that isn’t a prohibitively long time to wait on a real estate investment.

“In the real estate game 40 years, with a colossal tax write-off, with no enforcement mechanism to make sure the housing goes to the needy after 40 years, is an excellent long-term investment in real estate,” Runnels said.

Supporters of the program dispute suggestions from housing advocates that the deal will lead to a shortage of affordable housing and is a giveaway to developers. Rather, they say, it’s an investment in the long-term health of the city’s public housing stock.

Ava Goldman, president of Marlton, N.J.-based Michaels Development, one of the companies buying the public housing, said she views the company’s efforts less as a purchase than as a partnership with public housing agencies to restore the units. She said housing agencies can’t take on debt to finance renovations, while the Rental Assistance Demonstration program allows developers to step in and make the improvements housing authorities can’t afford.

“As far as we’re concerned this housing will remain affordable into perpetuity. There are no plans, there are no interests, and we have no capability under the regulations to turn this into anything but long-term affordable housing,” Goldman said.

Paul Graziano, the executive director of the Housing Authority of Baltimore City, said selling the public housing makes sense because of the financial situation facing the agency.

He said it will require an estimated $800 million to complete the necessary capital improvements on the roughly 11,000 units of public housing in the city. At this point there is about $4 million available in the public housing capital fund to address those projects.

He said selling the units will allow about $300 million in renovations to be undertaken.

“It’s not enough to mop the floors and paint the walls and change the washer and the faucet,” Graziano said. “After a period of time you’ve got to start replacing elevators, and heating systems and roofs and all that kind of stuff.”