A Gentler Way to Gentrify? (8/16/2019)
Source: New York Times
Byline: Stefanos Chen
Don’t call the real estate development company Venn a developer. Its founders prefer “neighboring start-up.”
And don’t call the company’s tenants, who are scattered across 20 buildings in the quickly gentrifying Brooklyn neighborhood of Bushwick, renters. They are “members” or “Venners.”
“We describe ourselves as a new way of living,” said Or Bokobza, the chief executive, whose goals include ending the displacement of lower-income residents, creating “fair housing” and “changing the narrative” of gentrification.
The company compiles reports on its progress, recently announcing a 33 percent drop in loneliness among tenants. In Bushwick, Venners pay as little as $900 a month for a “shared apartment” (essentially a private bedroom with a common kitchen and bathroom) and access to community events, like mixers in the back of a bodega.
Fewer companies want to be just developers anymore, and for good reason. The word has become associated with neighborhood discord, fears of rising rents and hipster homogeny. Enter what has come to be known as the “impact” developer, a socially conscious builder navigating a difficult moment when both liberal and conservative groups can quash real estate plans, sometimes for the same reasons.
Whether because of conscience, brand awareness or something in between, an increasing number of market-rate developers are thinking critically about their role in gentrification and are embracing new business models — and often a new vocabulary, as well. In New York, Philadelphia and Washington, projects with civic-minded goals are emerging as the conversation on inequality turns again to housing.
But can this friendlier breed of builders reclaim the “D” word?
A Different Approach
The model adopted by Venn is similar to what some call co-living, the dormlike division of apartments into common areas and discrete, rentable bedrooms of about 120 to 350 square feet. (The company also rents larger, conventional units.) Included in the rent, about $900 to $1,200 for units with roommates, is access to communal spaces in Bushwick — including a coworking office space, a soon-to-be opened coffee shop and art gallery — and frequent social events, like a recent trip to a Queens beach in a yellow school bus.
By contrast, the median rent for a studio apartment in the neighborhood without any of those amenities was $2,076 a month in the second quarter of 2019, according to StreetEasy.
“I believe we can all agree gentrification is inevitable, with both positive and negative outcomes,” said Mr. Bokobza, whose company was founded in Israel in 2016. The company’s Bushwick expansion came after rapid growth in once-overlooked areas in other cities, including Tel Aviv and Berlin, where Mr. Bokobza saw an opportunity to create housing for renters priced out of the city center.
In most cases, the company signs long-term leases on existing buildings, renovates the interiors and then subleases the units to tenants, who get access to a number of amenities and a community event-planning app. Since arriving in Bushwick this year, the company has acquired 20 buildings within a half-square-mile radius, for a total of about 200 bedrooms, and Mr. Bokobza said there are another 30 buildings in the pipeline. While several of the units were vacant, others had leases that Venn took over; Mr. Bokobza said the company intends to raise those tenants’ rent by 3 to 5 percent on renewal.
For Clayton Sean Brown Jr., 22, a college student from Ohio who could no longer afford to pay $1,600 a month or more for student housing at New York University, moving to a $900 Venn apartment with three roommates made sense.
“I’m a person who doesn’t really have financial support from my parents,” said Mr. Brown, who works part-time at a gelato shop, adding that this is the cheapest rent he has had in New York.
But while Venn’s rents may be lower, critics say the units are too small for most families, promote high turnover and are too expensive for longtime residents. The median annual household income in Bushwick was $51,620 in 2017, about 17 percent lower than the citywide median, and almost a third of households spent more than half their income on rent, according to a census analysis by the New York University Furman Center.
“These buildings are still fundamentally often serving younger, whiter populations than those who have historically lived in the neighborhood,” said Emily Goldstein, a director at the Association for Neighborhood and Housing Development, a coalition of housing organizations.
Venn is undeterred. “This is our northern star: We will solve displacement,” said Chen Avni, the company’s chief experience officer. But there is a long way to go. About 40 percent of Venn’s Bushwick renters are not from New York — many are from the Midwest and Europe — and the median age is 24, Mr. Avni said.
The company insists that it’s a work in progress. Its coworking space and other venues are open to the public for a number of hours each day, Mr. Avni said, and the company has a policy not to alter the facades of buildings it renovates, because changing the streetscape can attract more speculative development.
To broaden its base, the company plans to rent larger apartments for families and offer additional lease options. While it is standard to give one- or two-year leases, it will offer up to 10-year leases to residents, with 3 to 5 percent annual rent increases. It is also working on a “Venn-to-buy” model, in which renters can build equity and eventually buy their spaces. But details about this were scarce.
A Balancing Act
In the Logan Circle neighborhood of Washington, a seven-story mixed-use apartment building with some of the highest rents in the area is partnering with a health-care nonprofit that has been there since the worst of the AIDS epidemic in the 1980s and ’90s.
Called Liz, in honor of Elizabeth Taylor, a major donor to the clinic, the complex near 14th and R Streets in Northwest Washington will have 78 units, most renting for $2,400 to more than $6,000 a month. In part because of a zoning mandate, 12 units will be offered for $1,000 to $1,580 a month. The project was designed by Selldorf Architects, known for high-minded museums and high-end condominiums. The addition was built on and around the original clinic.
What is unusual about this arrangement is that the builder, Fivesquares Development, has agreed to pay the landowner, the health-care provider Whitman-Walker Health, an annuity based on rent revenue, rather than buying the property outright. The deal will allow the nonprofit to remain in the neighborhood — with a new office space in the building — and have a say in all major decisions about the development.
“If it was all affordable, it wouldn’t have generated the cash flow that’s going to help serve so many people,” said Andy Altman, a principal of Fivesquares, who was previously the director of the district’s office of planning and a deputy mayor of Philadelphia. Simply buying property in the area would have been easier, Mr. Altman said, but this approach will benefit the community.
“This was one way for us to protect against gentrification,” said Don Blanchon, the chief executive of Whitman-Walker. Selling the site might have briefly sustained the nonprofit, which has 20,000 patients at five sites in the district, he said, but that would have forced it to leave its longtime home in search of more affordable property. Mr. Blanchon would not disclose the size of the annuity, but said it is large enough to also help fund an expansion east of the Anacostia River, in a predominantly low-income black community.
That high-rent projects like Liz have made the neighborhood less affordable is not lost on anyone. Whitman-Walker has been able to remain not only thanks to the annuity, but also because of posthumous donations from about a dozen patients who died of AIDS. In tribute to that history, the new complex will have an L.G.B.T.Q. cultural center on the ground floor and public outdoor space.
“It’s good that they preserved that clinic, but there’s no reason to assume that’s going to be enough,” said Thomas J. Waters, a housing policy analyst with Community Service Society of New York, an affordable housing advocacy group. Revenue from luxury apartments alone cannot turn the tide of displacement, he said, adding that more government subsidy was key to preserving affordability.
But there is no simple solution, and developers can be blocked by different segments of the public for very different reasons.
Some critics oppose buildings they consider too tall, and out of character for the neighborhood, for not only aesthetic reasons but also fear of overcrowding and overtaxed infrastructure. Others see new units, even “affordable” ones, as too expensive for longtime residents, hastening their departure.
“There’s unreasonableness on both sides,” said Craig Livingston, the managing partner of Exact Capital, who met resistance on Blondell Commons, a 182-unit mixed-income complex in the Bronx to be built on a former junkyard, where one-bedrooms will range from $482 to $1,941 a month, depending on applicants’ income. After local residents complained that the nine-story design was too tall for the area, Mr. Livingston agreed to reduce the height, and removed about 50 units from the original plan.
“Jesus Christ could have shown up and said, ‘Hey, I’m going to build a building for the apostles to live in,’ and people would have opposed it,” he said.
“Real estate and social impact need to go hand in hand,” said Gregory Heller, the executive director of the Philadelphia Redevelopment Authority, a public agency. He supports a “triple-bottom-line” approach, a term commonly used in venture capital, that aims for environmental and social goals beyond the financial — not simply for altruistic reasons, but because it engenders trust from community residents, who can make or break a project.
“This can happen totally outside of government subsidy, and it should,” Mr. Heller said, although he noted that the public sector can also play a role. The problem, he said, is finding lenders willing to support projects that are unconventional, and therefore riskier, including those with more affordable units or nonprofit commercial tenants.
Call It “Gentrigation”
For Leslie Smallwood-Lewis and Gregory Reaves, the founders of Mosaic Development Partners in Philadelphia, changing the perception of the industry means bringing new people to the table.
“In our communities, they’re starting to call them colonizers,” Mr. Reaves said of his development colleagues. He and Ms. Smallwood-Lewis are African-American builders in a largely white industry — and in a city with the highest poverty rate of the 10 largest American cities, according to a 2017 report.
Because of the way most buildings are financed, and the high cost of construction, Ms. Smallwood-Lewis said, “you have to raise the rents to such a level that it out-prices people who might already be in the community.”
They have coined a new word to describe a mixed-income approach that encourages racial and economic integration: gentrigation.
At Eastern Lofts, a defunct warehouse in the Brewerytown area of North Philadelphia, Mosaic used a mix of federal tax credits that made it possible to convert the building into 37 apartments, with a day-care center, offices and retail space, and rents about 30 percent lower than those in new buildings nearby.
Most tax credits are fairly straightforward. But one of the subsidies, the New Markets Tax Credit, involves a competitive bidding process that scares away many builders, because of affordability requirements and other oversight, Ms. Smallwood-Lewis said.
“A lot of firms don’t want to go through the brain damage,” she said. “It’s a lot of annual reporting.”
About $3.4 million of the project’s $8 million cost was covered by the subsidies. A like-minded investor, Mazzarini Real Estate Group, was also critical to the funding.
The combination of tax credits allowed Mosaic to turn a profit with lower rents. One-bedrooms started at $800 a month and three-bedrooms at $1,500, while one-bedrooms at a similar conversion a block away were recently listed for $1,450 a month.
Less expensive units also meant that Mosaic could consider potential tenants with lower credit scores, Mr. Reaves said.
“They gave me the opportunity to explain my credit history,” said Don R. Harrison Jr., 34, who was a full-time ice sculptor when he applied for the apartment. He now rents a two-bedroom loft with his three-year-old son, Alec Chase Harrison, and pays $1,200 a month, including parking and utilities. He is currently working as a program coordinator at the University of Pennsylvania, and part-time as the apartment building’s super.
For an upcoming mixed-use project called Golaski Labs, an abandoned medical warehouse in nearby Germantown, Mosaic experimented with crowdfunding the cost of construction, raising about $300,000 from a combination of large investors and small-sum donors — enough to help bridge a shortfall between federal tax credits and loans. And the company will use prefabricated modular construction, which could cut costs by 20 percent. Both the commercial and residential units will rent for below market rate.
Mr. Harrison, who grew up in the neighborhood, said he is glad to see redevelopment in once-blighted areas, but is also concerned that higher prices will eventually push some residents out.
Ms. Smallwood-Lewis acknowledged that concern: It was only after Eastern Lofts was successful that other developers returned to the area, she noted, and when they did, they charged higher prices.
“It’s hard to combat that,” Mr. Harrison said. “I’d like to be here for a while.”