Developers in Texas and Florida Struggling with Insurance Increases up to 337%

Developing apartment properties in the current landscape is challenging, especially with a shrinking pool of lenders and persistently high materials, labor, and land costs. However, developers in Texas and Florida are encountering an additional obstacle that sets them apart from other regions: soaring insurance costs.

One such developer experiencing the impact of rising insurance expenses is Doug Faron, the managing partner at Shoreham Capital, a West Palm Beach-based developer. Over the past few months, Faron has witnessed his insurance costs surge from $600 to $800 per unit at the beginning of the year to a significant range of $1,200 to $3,500 per unit, an increase of 100-337%.

These sharp price increases cause delays in project timelines, influence site selection, and sometimes lead to deals falling through entirely. Shoreham Capital, currently working on a development pipeline comprising 800 units divided equally between traditional apartments and build-to-rent townhomes, faces challenges due to these escalating insurance costs.

The mounting expenses have made it increasingly harder for developers like Shoreham Capital to find projects that balance capital costs, construction expenses, and insurance expenditures. This confluence of factors has significantly hindered the development process, resulting in a reduced supply of housing units and exacerbating the existing shortage of available housing.

The situation calls for attention to the regions where insurance costs pose the most significant obstacles and an exploration of the underlying causes behind these cost escalations. Identifying potential solutions and fostering collaboration among stakeholders is crucial to overcoming these challenges and revitalizing housing development in Texas and Florida.

#RealEstateDevelopment #InsuranceCosts #HousingSupply #Challenges #Collaboration

Portland Mayor Wheeler Pledges to Scrap Inclusionary Zoning if It's Not Working

More than six years after its implementation, a work group of professionals is having a fresh look at the impact of the city's inclusionary zoning on apartment development in Portland. The mayor has pledged to tweak or dump the policy if the work group decides it's not working. The work group's recommendations are expected by the end of July.

KOIN-TV reports that Portland's Inclusionary Housing Law, a pivotal ordinance in an attempt to control the city's escalating housing costs, is being scrutinized. Initially introduced in 2016, the law mandates that developers incorporate affordable housing units into their new construction projects, primarily those containing 20 or more units. Under the current provisions of the law, 20% of units in such projects must adhere to affordability standards, which are then offset by incentives such as tax exemptions offered to developers.

However, the definition of 'affordable' in this context is tied to median incomes, meaning that 'affordable' one-bedroom units could still cost approximately $1,598 per month, or $1,918 for a two-bedroom unit. The law has drawn criticism from various quarters, with detractors arguing it is one of the factors impeding overall development in the city.

Critics within the development community, including Patrick Gilligan of Lincoln Property Company CRE, have expressed their concerns about the legislation. "Our inclusionary zoning, unfortunately, if the intentions were to provide more affordable housing, has been a failure," Gilligan said. "It's very hard to underwrite in regards to how you're going to finance a project to go forward."

The law and other barriers to development, including the city's slow permitting process, were highlighted during a January symposium of the commercial real estate group called "Revitalize Portland." Jerry Johnson of Johnson Economics noted that the law had the unintended consequence of making housing less affordable overall.

Meanwhile, the City of Portland is grappling with a shortage of 25,000 affordable housing units, even after the construction of about 1,859 units across 169 inclusionary housing projects since 2017.

In response to the mounting criticism, the Portland City Council has formed a work group to assess the effectiveness of the Inclusionary Housing Law. The group, which includes Samuel Diaz of 1000 Friends of Oregon, is looking into whether the balance between incentives offered to developers and the costs of developing affordable housing is appropriate. 

The recommendations from this workgroup are highly anticipated, and they are expected after July's meeting. They could potentially influence the future of housing development in Portland, as Mayor Wheeler is quoted by KOIN as saying, “I’ve pledged that if it needs to be tweaked, we’ll tweak it. If the conclusion is that it hasn’t worked, then we’ll scrap it.”

Voter's Remorse? Oregon Considers Backtracking on Drug Decriminalization

Less than three years after Oregon's Measure 110, which decriminalized hard drugs, was approved, Clackamas County commissioners are deliberating on its potential reversal. They are exploring an advisory vote for the May 2024 ballot as a means to assess public sentiment about this contentious issue. The debate is driven by a desire to understand whether voters, who initially supported the measure, are now experiencing 'buyer's remorse' as Commissioner Schrader suggests.

The discussion among the commissioners extends beyond just the voters, though. Other options are being considered, such as requesting a special legislative session from Governor Tina Kotek or redirecting funds toward behavioral health resource networks. Commissioner Ben West is urging local communities to step up in support of their neighborhoods, schools, parks, and law enforcement agencies, emphasizing that the current legislative direction has proven inadequate. 

In April 2023, DHM Research polled Oregon voters about repealing portions of Measure 110 to bring back criminal penalties for drug possession, while continuing to use cannabis taxes to fund drug treatment programs. Key findings from the survey include:

• More voters believe that the root cause of homelessness is drug addiction and mental health problems rather than a lack of access to affordable housing
• A majority of Oregon voters think that Measure 110 has been bad for Oregon
• More than 6 in 10 voters think that Measure 110 has made drug addiction, homelessness, and crime worse
• 63% of voters support bringing back criminal penalties for drug possession while continuing to use cannabis taxes to fund drug treatment programs
• Voters become more supportive of bringing back criminal penalties for drug possession when hearing about the state’s struggles standing up treatment programs

Read more at Clackamas County, OR commissioners consider overturning 'failed' Measure 110 (koin.com) and Oregon voters support bringing back criminal penalties for drug possession - DHM Research

Applications Open for Prosper Portland "Small Business Restoration" Grant Funds

In response to the closure of numerous small Portland businesses since 2020 due to the adverse impact of the COVID-19 pandemic and ongoing vandalism, the city's economic and urban development agency Prosper Portland has introduced the Small Business Stabilization Restore Grant. This program is set to provide up to $25,000 in grant funds to a selection of eligible businesses using money drawn from the American Rescue Plan Act.

To qualify, businesses must have reported an Annual Gross Revenue between $300,000 and $3 million in 2019, commenced operations before the pandemic was declared in March 2020, and currently employ at least three people. Applicant businesses should be located along designated commercial corridors of Portland, "82nd Avenue, East Portland (I.e., east of I-205), N/NE Portland, Central City, or Inner Westside Portland."

The grant money can cover certain operational costs like security measures, interior repairs resulting from vandalism or break-ins, and equipment replacements. However, costs such as graffiti removal or window repair are excluded as they're covered by Prosper Portland's existing Local Small Business Repair Grants.

Applications for the grant will be open from June 16th to June 26th, with the selected recipients to be notified on July 10th. Companies will be evaluated based on number of employees, annual gross revenues from 2019 to 2022, and if they're based in an "underserved and underrepresented" part of Portland. Businesses requesting over $10,000 must provide referrals from other programs and a list of received grants over the past year. Additional grant cycles are planned for late 2023 and early 2024.

Learn more and apply at ProsperPortland.us.

Pandemic Relief Fraud Alert: Lessons for Rental Owners in Oregon and Washington

In an unexpected turn of events, six people have been indicted on federal charges for making false claims for Seattle rental assistance funds. The group reportedly utilized falsified documents and pretended to be landlords to illegally apply for emergency rental assistance designed to stop tenant evictions, according to the U.S. Department of Justice.

The defendants allegedly stole over $2.7 million from the King County rental assistance program. This strategy was designed to take advantage of the emergency assistance for renters facing eviction. The accused also allegedly tried to defraud the unemployment systems in Washington, California, South Carolina, and Nevada.

The 26-count indictment was discussed by Nick Brown, U.S. Attorney for the Western District of Washington, who called the operation a “wide-ranging fraud scheme.” Phoenix resident Paradise Williams, 29, was held up as the plan’s mastermind. There were many arrests of the group members, including two in Phoenix, one in Houston, and three in Washington State.

Williams and her accomplices used the pandemic relief programs—intended to help small companies and others at risk of eviction—for their own gain. Brown noted that these dishonest actions took much-needed aid away from truly needy individuals.

Williams prepared fictitious paperwork and instructed her associates to pose as renters and landlords. According to reports, each dishonest landlord received sizeable fees totaling tens of thousands of dollars for each fictitious tenant application.

Williams was also accused of using at least 21 fake rental assistance applications to pose as the landlord to steal approximately $740,000 in emergency funding. It was discovered that neither Williams nor her companions were the tenants they had represented themselves as, nor did they own any rental properties.

Williams was not the only defendant the grand jury indicted.

• 32-year-old Seattle, Washington resident Rayvon Darnell Peterson
• 28-year-old Tia Janee Robinson, Fife, Washington
• 45-year-old Houston, Texas, resident Jahari Asad Cunningham
• 37-year-old D’arius Akim Jackson from Bonney Lake, Washington
• 32-year-old Pacific, Washington resident David Jesus Martinez

The defendants allegedly submitted at least 35 false applications for Economic Injury Disaster Loans (EIDL) between June 2020 and August 2021, requesting more than $3.7 million from the Small Business Administration (SBA). Due to the success of two of the applications, $30,000 in losses resulted. Williams allegedly tried to defraud the SBA’s Paycheck Protection Program (PPP) as well.

The money gained fraudulently is said to have been wasted on expensive holidays, trendy clothing, jewelry, and even plastic surgery. According to the indictment, if proven guilty of wire fraud, the culprits may receive up to 30 years in jail and a $1 million fine. A 20-year prison sentence may be imposed for money laundering.

The FBI is handling the matter with assistance from the Small Business Administration and the Office of the Inspector General. 

This incident serves as a sharp warning to all landlords to be on the lookout for such fraudulent operations in their homes or business dealings. We should all aim to have our tax dollars reach people who genuinely need it.

The Runaway Cost of Portland's Affordable Housing

The Joyce Hotel: A Model of Success or a Cautionary Tale?

Authors: Tyler Johnson, Rob Marton, and Greg Frick

As cities and states strive to build affordable housing, they must learn from the successes and pitfalls of others. The City of Portland, for instance, has recently touted the allocation of all funds from its affordable housing bond, approved six years ago in its creation of 1,859 units. But unfortunately, while the efforts to create housing for vulnerable communities are commendable, the execution leaves much to be desired.

The City’s Bond Oversight Committee (BOC) recently released its 2022 report, which stated that the Portland Housing Bureau had exceeded the original 1,300-unit production goal by 43%, resulting in 1,859 permanently affordable homes.

The report states that the cost to taxpayers per unit is an average of $373,000. However, according to a report from the City’s budget office, the actual price is closer to $490,000, with $150,000 as the average City subsidy. The budget office analysis, issued in October 2022, also stated that “…constructing 20,000 units of affordable housing could cost approximately $9.8 billion and, based on PHB’s current contribution levels, could require a direct City subsidy of $3 billion.”

There have been previous concerns about transparency and the accuracy of the City of Portland’s reports. In one instance, the Inclusionary Housing (IH) Calibration Study Work Group discovered that the city counted inclusionary zoning (IZ)-regulated units in bond-funded and low-income housing tax credit-funded projects as part of their “affordable units produced by IZ” count. This practice was deemed questionable by experts claiming it inflated the program’s perceived productivity while neglecting to account for any reduced or undeveloped densities in Portland as developers worked to find loopholes in the requirements and sometimes built fewer units than they were allowed under current zoning.

Here are just two recent examples of The City of Portland's runaway spending:

• This week’s opening of The Joyce Hotel at 322 SW 11th, a 66-SRO former flophouse, for $383,463 per unit or $945 per square foot. These 250-square-foot studios offer kitchenettes and shared baths. Whether the renovation costs include the hundreds of hours of City of Portland staff time needs to be clarified.
  
  
• Near the Joyce Hotel is the current ongoing renovation of the Fairfield Apartments at 1103 SW Harvey Milk Street. This asset will be converted to 82 affordable housing units for $482,000 per unit or $1,300 per square foot. Most of these refurbished apartments will be SROs without kitchens or private bathrooms.

Managing Affordable Housing Communities is Expensive and Time Consuming

What’s worse, we cannot even be sure that once the city's housing projects are open, our government can ensure residents' safety. Consider a June 7, 2023 Willamette Week story about a $28.4 million, 159-unit low-income apartment complex with city oversight that has “descended into chaos in just two and a half years.” Tenants refer to the community as “a living hell” with nonresidents shooting drugs on the stairs, smoking fentanyl in the elevators, and vandalizing plumbing.

The pitfalls faced by Portland’s Housing Bureau offer valuable lessons for other cities and states seeking to build affordable housing. Portland’s costs far exceed the market-rate norm for workforce and luxury apartments. According to third-party data from CoStar, the average price per unit of an average apartment sold in Portland from 2017 to 2022 was $220,261. The average cost of newer, luxury and high-end apartments was $314,363. It’s easy to see that the City’s affordable housing costs of $490,000 per unit offer a window into bureaucratic inefficiencies.

Affordable housing is a complex issue that needs serious solutions. Unfortunately, city, regional, and national leadership is afraid to change. It’s time to try something different. Putting policies in place from the municipal to the federal level that penalize rental housing providers does not make sense when it is clear that public housing development costs are not in line with the market.

The goals of our affordable housing projects need to be refocused. We suggest this two-pronged approach as a solution:

• If the goal is to house people in need, cities and states should consider purchasing existing housing stock and maintaining affordability rather than developing new projects. This would allow the government to leverage savings to accommodate more people in need quickly and permanently.
  
  
• To reduce overall per-unit costs, our city, state, and federal government should award and allocate funding to developers with a proven track record of building new quality housing at a lower price per unit.

Portland, specifically, must improve and streamline its permitting process. The average permitting time in Portland is excessively long. Even Willamette Week complains that Portland’s affordable housing developers are subject to “Soviet-style bureaucracy.”

As cities and states tackle affordable housing, they must learn from Portland’s excesses and mistakes. Reevaluating the approach to affordable housing and ensuring accountability in spending tax dollars is crucial to meeting the needs of low-income and houseless residents. If the Portland market builds apartments for less than $490,000 each, the City of Portland should, too.

Tyler Johnson, Greg Frick, and Rob Marton are partners at HFO Investment Real Estate, a brokerage specializing in multifamily assets throughout Oregon and SW Washington. 

Recent HFO Transactions

Catch up on HFO's latest transaction activity:

"This sale underscores the strong demand for multifamily assets in Oregon's suburban areas, and we are proud to have played a role in this significant transaction," stated Greg Frick, founding partner of HFO. "With their strategic locations and potential for value-add opportunities, Laurelwood and Lake Fir offer the new owners a unique chance to meet the increasing demand for high-quality residential options in the Lake Oswego area."

Read more: HFO Successfully Coordinates $19 Million Sale of Suburban Portland Multifamily Portfolio | HFO (hfore.com) 

New Portland Ordinance Prohibits Daytime Camping in Public Areas

The city council of Portland has passed an ordinance aimed at addressing the long-standing homelessness crisis by prohibiting daytime camping in most public areas. The measure allows camping only from 8 p.m. to 8 a.m. in nonrestricted areas, with campsites required to be dismantled during the daytime. Camping near schools, parks, and busy streets is entirely banned. 

The ordinance was supported by business owners citing customer losses and safety concerns, but advocates for the homeless argue it will further burden vulnerable individuals. The law aligns with a 2018 federal court ruling that allows reasonable restrictions on campsites while preventing arrests for sleeping outside when adequate shelter is unavailable. Mayor Ted Wheeler expressed appreciation for council members' support and emphasized the importance of education and outreach to ensure effective implementation of the ordinance.

Commissioners Dan Ryan and Rene Gonzalez voted in favor of the measure alongside Mayor Wheeler, while Commissioner Mingus Mapps was out of town but expressed support. Commissioner Carmen Rubio voted against it, stressing the need for more shelter sites, increased capacity at service locations, and proper training for police enforcement. 

To address the shortage of shelter beds, Portland plans to establish regulated outdoor camping areas. The ordinance will be phased in, with enforcement expected to begin in late July. Violators will initially receive warnings, followed by fines or potential jail time. Mayor Wheeler intends to prioritize alternative sentences that connect individuals with necessary resources. 

Read more at KOIN.com and learn more about how Portland's camping ban compares to other similar ordinances in other cities this article from Willamette Week.

Reporting a mess? Here's where to report trash, illegal camping, property damage, graffiti, vandalism and more in Portland, Oregon

The Revitalize Portland Coalition has provided the following information that will help multifamily owners and residents 

On June 7th, RPC hosted an information session on reporting problem issues to the City of Portland. RPC participates in the City of Portland's regular Downtown Problem Solvers meeting which is "a collaborative team to expedite the cleaning of unsafe and unsanitary conditions across the public realm, and to establish preventative and stabilizing measures to the further activate public spaces." This work is organized by the Public Environment Management Office (PEMO), and they want to encourage property owners, neighbors, and residents to report non-urgent quality of life issues.
Report these issues:

• graffiti
• property damage
• broken windows
• vandalism
• unauthorized camping
• debris and trash