Q&A: Enterprise Homes
Falling prices for homes and land are bad news for the people who own them. They're good news for buyers and affordable-housing developers.
But the tight credit situation — particularly for developers — is another matter. I talked to Chickie Grayson, president and chief executive of Enterprise Homes in Baltimore, about how the economic climate is affecting affordable-housing efforts. (Enterprise Homes is an arm of the nonprofit Enterprise Community Partners, founded by James Rouse of Columbia fame.)
Q. What has the housing downturn, credit crunch and recession meant for affordable housing?
Typically in a downturn, ... people who do housing, particularly people who do market-rate housing, kind of switch over to affordable housing because in a typical economic downturn, there are fewer people to purchase their products. There are many more people at the lower end of the scale. So there are always people who need affordable housing. That need is unending.
But that [switch] is not happening this time, and the reason is, everything that's happening is much more overwhelming than anything that's happened before. ... Up until September it was to some extent a market issue — people weren't purchasing homes — but with the economic downturn and the credit crunch, well, there's no money available either. That's a double whammy.
The real issue is, there's a lack of capital. The result of that lack of capital is there's fewer investors, and those investors that are investing in affordable housing, they require higher yields and they require more money in reserve. ... All that translates into less money available to actually build the product ...
But at the same time, there are many more opportunities. Because when the real estate industry was going strong, people were after any piece of land they could get, and it drove it up to the point that people doing affordable housing couldn't compete in that market. ... But now that we have this crisis going on, there's lots of land that's available.
Q. So, more land up for grabs but no money to buy it?
You have to compete for money, and that takes time.
Q. Is this like anything you've seen before?
No, never. Never. A lot of what I'm describing is the financing on the rental side, for rental affordable housing. But it's also on the homeownership side. ... It's difficult to get banks interested.
I have heard people say that in the early '90s, there was a similar kind of credit crunch for homeownership, for construction financing, but we were building affordable housing at that time — we did 300 units between 1990 and '92 and I couldn't have told you there was a problem. And that was very low- to moderate-income housing. The risks were very slim compared to market-rate housing. The market is always there for that low- to moderate-income buyer.
Which might lead somebody to ask, well, isn't that the [demographic with the] problem with foreclosures? ... And that's simply not true. It's the products that people used to lend for purchases of houses. So those subprime mortgages or interest-only mortgages really were the problem. All the stuff that we've done has all been fixed mortgages ... so people knew what their monthly payment was going to be. There is no problem there. ... People with low- to moderate-income who know what they can afford and who know what their costs are going to be are quite capable of being good homeowners.
Q. Are there foreclosed homes in Enterprise developments?
I'm sure some of them have gone into foreclosure; that's just the world. But I had looked in November ... at Sandtown-Winchester, where we built almost 600 units, and Heritage Crossing, where we built 185 units, ... and there were no foreclosures at that time. ... Sandtown, we started working there 20 years ago, so I'm sure there have been foreclosures, but not during this particular time.
Q. How many houses has Enterprise Homes built?
I think we're about 4,500. We were established in '85, but it's really since 1987, '88 when we actually started doing development. And right now, we have four projects that are under construction — so feeling very fortunate at this point. They're in Baltimore County, Howard County and Baltimore City.
Q. How did you pull together the financing for those projects?
Fortunately, three of them closed last May and June. And then one just closed last week — and it was difficult. There's no question about it. It went through a lot of iterations; it doesn't look anything like it did a year ago.
Q. You had to piece together financing from more parties?
Yes. ... Everybody pulled together to make it happen.
Q. Is there less need for "affordable housing" in the nonprofit-developer sense now that prices have been dropping?
I don't think so. They may be coming down, but still, people who make 50 percent of median income still need some help to make that happen. ... We're talking about the average price dropping from $350 [thousand] to $325 or just under $3. Well, some people can't afford that.
Q. What about affordable rentals?
There are people who need to rent homes more now than ever before as they're losing their homes. ... One of the [rental complexes] we're building has a waiting list of over 300.
Q. How many units does that project have?
Eighty-three. So I think the demand is really significant.
Q. What other trends are you seeing?
I think the trend you're going to see is that houses are going to be smaller and they're going to be greener. Everything we're doing now is meeting Green Communities criteria. It's the responsible thing for us to do, but it also will help people with their utility cost and make their homes more sustainable.
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