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Yulia Cornwell
Do nonprofit developers need “streamlining” to build affordable housing?
On Wednesday, March 1st, Fairfax Town Council will consider adoption of a new, so-called “streamlining” ordinance, which reduces the number of zoning and planning review steps that a developer must go through to gain approval for a high density, housing project (the hearing starts at 7 pm at the Fairfax Women’s Club). Streamlining would dramatically reduce the number of public hearings and significantly limit the time the public has to comment or object to a particular proposal.
The projects in question are the newly proposed Victory Village project, located on the former Lutheran Church property, and future projects on the properties at 10 Olema and at School Street Plaza.
At Fairfax town meetings, it’s been repeatedly stated that a “streamlined” PDD ordinance (Planned Development District) is absolutely necessary because affordable housing developers do not have the financial resources that traditional developers have. The generalization follows that the affordable housing developers cannot financially afford to go through the multiple steps in the existing PDD planning process which can usually take many months (though usually less than a year).
But is this really true?
Since we are only dealing with the Victory Village proposal and one developer application at the moment, there’s no need to generalize. So, the question becomes does RCD, the developer of the proposed Victory Village project, really need streamlining for their project to be financially viable?
Let’s check and see if RCD’s financial condition can handle the “rigors” of our existing PDD process. To avoid any accounting ambiguity, I’ve chosen to only examine RCD’s 2014-2015 GAAP financial statements, which were prepared by Lindquist, Von Husen, & Joyce, LLP.
Please consider the following:
Adequate Assets?
RCD’s balance sheet shows $482 million in assets and $387 million in liabilities. This means that RCD has approximately 20% equity in the 56 properties in their portfolio. The organization is therefore worth $94 million dollars in the strictest sense (assets minus liabilities). On this basis, there is no question that RCD’s healthy balance sheet could easily handle a year-long planning process on Victory Village, their 57th property.
Adequate Cash Cushion?
RCD’s 2015 balance sheet shows $9 million in cash. But, they also have significant ongoing cash flow from other properties, so this figure is not finite. Available cash acts as a buffer for unforeseen events and delays that might occur. This is an ample amount of cash to undergo the existing planning process for Victory Village and several other projects at the same time.
Access to debt markets to borrow money?
As of today, RCD has accessed the debt markets through 12 instruments listed in these financial statements, including California Department of Housing and Community Development (HCD) loans in the total amount of $318 million. It appears that RCD has more than adequate access to both private and public markets to fund their projects.
Access to other equity-like markets?
There are entries on their financial statements for “Capital contributions” and “Non-controlling interests in LP earnings,” which appear prominently near the bottom of the income statements. These entries represent investment by partners and payouts to partners respectively. I would have never expected to see something like this on the financial statements of a non-profit, and in fact their net capital from this is actually better than one might see in many for profit companies.
In 2015 alone, $25 million in outside capital was invested in RCD while only $12 million was paid out. This net investment of $13 million shows that this organization has the confidence of the investment community, and very likely, could raise additional cash from investors to meet any unforeseen expenses, such as approval delays or design changes.
Final comments
What we can glean from this cursory review of RCD’s financial statements is that they are not like a traditional “charitable nonprofit” in the way that most people think of the term: one that feeds or clothes or otherwise gives away most of its money to people in need. They are in fact, a very “profitable” enterprise that has the additional benefit of not paying any taxes on their earnings.
By re-investing their tax-exempt profits into more and more real estate development, RCD furthers their “banner” cause (providing housing), but they also continue to grow their net worth and solidify their financial condition at an enviable rate.
So why does RCD need the Town of Fairfax to offer it the financial “gift” of streamlining at the expense of public participation? Where is the evidence that the public needs to give up their opportunities to comment on affordable housing proposals in order to see them realized? The answer is, there is no evidence.
The existing PDD ordinance, with its time-tested, multi-step public review process, has served the Town of Fairfax well for decades. There is no question that RCD can afford the costs of its requirements and the concept of streamlining should therefore be abandoned.