An Introduction to the Development Process

This excerpt from the book HOMEWORK: the Quiet Success Story of Affordable Housing in Connecticut outlines the steps and discusses important milestones in developing affordable housing. This chapter leads the reader from planning and predevelopment to construction and marketing.

Talk to the people who developed the housing profiled in this book, and you will hear about the satisfactions of helping neighbors, creating homes, and making a difference. Ask about the work involved, and they may warn you that housing development requires intensive time, entrepreneurial spirit, expertise, and st4mina. More than one community group has experienced frustration and mis-steps. But the message of HOMEWORK is that it can be done—and is being done all over Connecticut. How? What follows is a brief, simplified primer designed to begin to answer that question for any organization interested in making housing happen and emulating these success stories.

First rule: do not reinvent the wheel, and do not try to go it alone. The Resource Organizations listed on page 00 provide numerous sources of information and support to those looking for help. Among these organizations are technical assistance providers, trainers and development consultants, each with differing areas of expertise and approaches to affordable housing. Request information about them, but more importantly, call and get to know their staff, their style and their specialties. You may later decide to form a long-term, relationship with one or more of them,

Second rule: even though the process outlined below seems neat and tidy, real-life housing development is not linear. It is recursive, rarely moving smoothly from point A to point Z, but may get stuck at point 0, bounce back to B, hop-scotch to D, and return to G a couple of more times. Expect the unexpected, both obstacles and opportunities.

With these caveats in mind, take heart and read on.

1.  Planning

• Set your goals

This part of the process involves intensive soul-searching and resource analysis. Who needs to be involved in deliberating and making decisions—community members, prospective residents, board members, local leaders? What does your organization want to accomplish? What does your community need? Do you want to build one single-family home for ownership, a limited equity cooperative complex of townhouses, or transitional group housing for getting homeless people out of shelters?

• Assess your abilities

Who are the people involved in your organization who possess the special skills, talents, time and/or money to make your dream happen? Does your organization have adequate internal operating systems to manage the proposed project? Does your organization have, or have access to, the necessary start-up capital and are you willing to lose it if the project fails? How will you structure the development project to best achieve your goals? Will it be nonprofit, a partnership, corporation, a subsidiary, or some variation? If you develop a new organization, what will be its relationship to the old organization?

If the skills this project would require differ significantly from your organization’s expertise, or your accounting, communications and management systems are not adequate to manage this type of venture, you can often still undertake the project by selecting and hiring a competent consultant and professionals. Assigning the negotiation of contracts for services and the supervision of consultants to a specific staff or board member will keep the project from unduly interfering with your usual operations.

Whether using a consultant or not, the real estate development process requires drive, a business-like orientation and the ability to take risks. At the same time, it requires tight control and unflinching decisiveness, both of which limit board participation. The open and lengthy decision-making process favored by many organizations adds time to a development schedule and can significantly increase the development’s cost. One way to cope is to appoint a small development subcommittee that can make decisions in a timely way. Another approach would be to partner with an experienced nonprofit developer to handle the development phase of the project.

• Assess the landscape

What community resources must be developed to make your dream a reality? How does your project fit in with local community development plans or economic development strategies? What is the potential for collaboration with others developing housing in your community? Who are key players and decision-makers who could have an impact on whether or not your project succeeds?

Outreach to local officials, neighborhood residents and other key individuals can positively influence both the design and acceptance of a project, In discussing your project concept, work with people one-on-one where possible, rather than in large groups. This will give you a more candid sense of their concerns, better ensure that your plans are understood, and may help resolve potential conflict without strife. Some nonprofits set up community advisory committees early in the development process.

2.  Pre-development

Careful planning and preliminary work can make or break a project. What the outsider sees as development is often just the construction phase, but the pre-development phase of a project consists of a number of components and is often the longest of the phases, taking up to 50% or more of the total time of a project.

• Assemble the development team

Basic members of your development team (in addition to a developer or development consultant if one is selected) required during the feasibility stage will include an architect, engineers, attorney (for help with property acquisition, zoning matters and financing closings), environmental analyst, appraiser, market analyst, cost estimator, accountant, and general contractor or construction manager. Depending on the complexity of the planned development and the internal expertise of the nonprofit organization, the process for selecting the team may be more or less formal.

• Secure predevelopment funding

Identifying and analyzing sites and securing project financing is a costly process. Consultants, architects, attorneys and other professionals must be paid during this predevelopment period, and funds will be needed to secure site control. If the nonprofit does not have funds at hand to cover these costs until project financing has been secured, predevelopment loans or grants will be needed. Possible sources of such funding include state and local government, community loan funds, nonprofit intermediary organizations, and foundations.

• Develop a project schedule

Outlining the predevelopment components and timeframes for achieving each is necessary to monitor project progress and ensure that key deadlines are not missed.

• Select site(s) and attain site control

Research possible locations for your plans. This may involve working with real estate agents, city officials and others to find suitable locations. Before making a selection, check that the zoning will allow what you have in mind and perform a preliminary inspection to determine if any conditions exist on the site that could lead to extraordinary development costs. Try to negotiate an “option to purchase” or “purchase and sale” agreement with the owner that will allow for sufficient time to thoroughly assess project feasibility before closing on the purchase, and that allows for termination of the agreement if project financing and zoning approvals are not secured. A deposit will usually be required.

• Assess feasibility and estimate costs

Most funding sources will require some amount of environmental assessment. In most cases, a “phase one” environmental study will need to be completed, and further study if certain hazards are identified. Funders will also commonly require an appraisal of the property to ensure that the purchase price is consistent with market values, and a market study to determine market rents, projected vacancy, and marketability of the proposed housing units.

Determine the size and design of the planned development based on the physical characteristics of the size, the needs of the future residents, local zoning and building codes, and cost constraints. How many units will be constructed or rehabilitated? What size will they be? Will common spaces for meetings and social gatherings he included in the plan? A survey of the site will be needed to enable the architect, along with the engineers, to develop design plans of the site and building.

The architect, a cost estimator, and/or a contractor can help develop an estimate of the construction cost of the project based on the proposed design. The next step is developing

a financial feasibility analysis which estimates the total costs of developing the property (both construction and non-construction costs), and of operating the property on an annual basis and over the long term. These calculations will allow you to determine the kind of financing and sort of subsidy, if any, the project will require. Using your knowledge of available financing terms and the availability of public subsidies, you must then make a judgment about the feasibility of the project.

• Secure zoning approval

If zoning variances or changes are required for the project to proceed, application for such approvals should be made as early as practical in the development process. This application process goes hand in hand with developing community support for the project.

• Secure financing commitments

Once the project has been determined, on a preliminary basis, to be feasible, you can start talking to funders in earnest.  Most nonprofit housing is financed through a complex process of packaging money from a variety of sources. Sources of funding include federal, state and local government housing programs, banks, corporations, foundations, equity syndication, churches, civic organizations, and individual donors. Nonprofits may find the maze hazardous to navigate without expert guidance because almost all large funding sources have their own unique requirements. In addition, the funding landscape changes frequently, with new funders entering and old ones leaving the field or changing their requirements.

No matter how compelling the need, lenders will not consider your project if it is poorly conceived or presented. Most funders have their own application formats, and many have discrete time periods for making applications, Applications should be complete, polished, professional, and well organized.

Once funding is in place, most institutional funders require periodic reporting from the nonprofit to ensure accountability.

3.  Construction

• Select the contractor

Often the nonprofit will select a general contractor through a competitive selection process. Funding source requirements regarding contractor selection and contracts must be carefully followed.

• Maintain oversight

The nonprofit will meet with the contractor regularly during the construction phase to ensure quality and timeliness. If appropriate, a clerk of the works may be hired to oversee the day to day progress of the development. As construction progresses, payment for work performed will be requisitioned from funding sources or paid from a construction account following required bookeeping and accounting procedures.

4.  Marketing and management

• Begin rent-up or safes

The marketing of units to potential buyers or tenants will typic4ly commence at least three months prior to the completion of construction. Residents will be selected based on their ability to meet qualifications of the nonprofit organization, affirmative efforts to achieve fair housing goals, and any other funder-imposed income requirements.

• Decide on management

Depending on the size and legal structure of the development, the nonprofit may choose to manage the development itself or contract with a management company for resident

selection, sale/lease of the units, and ongoing operation. The nonprofit sponsor must carefully consider whether it has the capacity, and the desire, to meet the round-the-clock demands of managing housing, Selection of a property manager may be subject to funder approval.

5.  Conclusion

The steps outlined above, just a brief overview of the development process, may appear intimidating. The stories of Home Work prove they are achievable. If you are ready to create affordable housing in your community, there is an extended family of housing practitioners ready to help. The appendices and references in this book introduce you to many of them.

This chapter draws on several sources, including How To Be Your Own Developer by Neighborhood Reinvestment Corporation, as well as writing by Janice Elliott of the Corporation for Supportive Housing’s Connecticut Program and Katherine Forcey of New Samaritan Corporation.