Developer finds profit in affordable housing

In Larchmont, developer Ron Moelis has followed with keen interest the federal settlement that requires Westchester County to build affordable housing in wealthy communities with low minority populations.

His company, L+M Development Partners Inc., has a 25-year track record in the affordable and market-rate housing business and a $2-billion, 8,000-unit portfolio that also includes 750,000 square feet of commercial space. Yet Moelis, as CEO and chairman, doesn”™t expect to be a player in the county”™s projected seven-year program to comply with a federal judge”™s recent court order.

Project scale and risk have largely kept his company out of Westchester and focused instead on New York City, where affordable housing is more welcomed and competed for by communities and financial resources to build it are greater, he said. Making its first business leap outside the metropolitan area, L+M last week closed on the first 200-unit phase of an 800-unit project to redevelop the Lafitte District of New Orleans for victims of Hurricane Katrina. That is being done in partnership with two nonprofits, Enterprise Community Partners Inc. and Providence Community Development.

“It”™s inefficient to do small jobs,” said Moelis, who in 1984 co-founded the company, formerly L+M Equity Participants, with Sanford Loewentheil, a third-generation builder who like Moelis was raised in New Rochelle. Their company typically focuses on 80-unit to 300-unit projects, “with the most optimal in the 100 to 150 range,” he said, “which is hard in Westchester because there aren”™t many big projects here.”

 


L+M  Development is building one large-scale project in southeast Yonkers, The Ludlow, an 11-story apartment building at 330 Riverdale Ave. with 137 units of affordable housing. The $54.5 million project, built on a 2.5-acre site assembled by L+M from five rundown and largely vacant parcels, is expected to be completed by the end of 2010.

 

Its financing was put together through multiple public and private sources, including Bank of America, the Yonkers Industrial Development Agency, the state Housing Finance Agency, state Division of Housing and Community and Urban Renewal, Westchester County housing implementation fund and the county”™s new homes land acquisition program. It is the kind of mixed partnership, often including nonprofits, in which Moelis and his 120-employee company have found profitable business opportunity as well as social rewards.

In Westchester, “You really do need the county resources for affordable housing in the county,” Moelis said. He questioned whether, with the federal agreement to build 750 units in municipalities with little or no black and Hispanic residents, county officials will be willing to continue committing resources to communities outside those areas targeted according to their racial and ethnic percentages.

“It will be interesting to see how that affects places like Yonkers and Mount Vernon and New Rochelle,” where there is “a huge need” for affordable housing, Moelis said. He said a balance is needed between affordable-housing production “and the social and economic integration in the wealthier communities that the lawsuit seems to be geared at.”

Moelis said L+M”™s project in Yonkers originally was looked at as an affordable home ownership development. “As the market changed dramatically, it became virtually impossible to do that both from a financing perspective and a marketing perspective,” he said.

 


In the frozen credit markets that have stalled other developers, “It”™s only possible to get financing for affordable housing,” Moelis said. Even then, “It has gotten much more difficult to close on affordable housing deals. But there is liquidity in affordable housing, there is credit, which does not exist in much of the real estate world.”

 

The CEO said the Yonkers project will cost about $300,000 per unit. That is well below the figure of $448,000 per unit that Deputy County Executive Susan Tolchin recently cited as the county”™s cost to build affordable housing. Moelis thought the county”™s figure too high, although he noted development costs are higher in those northern communities where the county as part of the settlement likely will propose to build.

“It”™s going to be a lot more expensive to do in the area they”™re talking about” in part because of land acquisition and construction costs, he said. “In the communities they”™re looking to build in, it”™s hard to get a development through. That presents more issues. There are huge amounts of pre-development costs in going through the planning process in many Westchester municipalities. That in and of itself discourages developers from going in with affordable housing.”

“One could easily argue that the hurdles to development in Westchester prevent Westchester from becoming Miami or from becoming Orange County (Calif.). That”™s a positive. The negative is it increases your risk and your cost.”

 


In one of their early ventures in the ”™80s, Moelis and Loewentheil encountered that. In the town of Lewisboro, they bought land on which they planned to build 23 homes. Their project languished five years in the approval process and died when a newly elected town supervisor forcefully opposed it.
“We lost a lot of money,” Moelis said. “The lesson there was there is a lot more risk in the local approval process than we ever experienced. In New York City, while there are hurdles, they”™re much more manageable”¦It wasn”™t a picnic in Yonkers, but it was certainly easier than what we went through in Lewisboro.”

 

In Westchester, “The risk of the development process is egregious. It”™s fraught with unforeseen dangers. That”™s going to contribute to the cost and the ability to do anything on scale” and turn a profit.
L+M Development”™s more recent projects in emerging urban markets include luxury condo developments such as The Kalahari in Harlem and Northside Piers on Brooklyn”™s Williamsburg waterfront. Yet affordable-housing development, which the partners first pursued 21 years ago as a socially useful business opportunity, remains a key part of their operations.

“It”™s a great business, affordable housing,” said Moelis. “There are not enough people doing it. It can be profitable. It”™s very personally satisfying. It”™s also very intellectually stimulating in putting together the financing.”