Thriving as a non-profit sponsor: CommonBond’s Joe Errigo
At the NHC 75th anniversary gala, I bumped into Joe Errigo, whom I’d last seen about twenty years earlier. As highlighted by this friendly Star-Tribune retrospective, the success of his non-profit, CommonBond, serves as a litany of do’s and don’ts for thriving as a non-profit
CommonBond celebrates its 35th year with a big refinancing and prepares to say goodbye to founder Joe Errigo.
Joe Errigo, still smiling after 35 years
In 1971, Errigo left a job as a planner at the St. Paul Housing and Redevelopment Authority to start CommonBond as a part of the social-justice arm of the Catholic Archdiocese of St. Paul.
“It was pretty simple when we started,” Errigo recalled. “We had 40-year federally insured mortgages and 40-year rental [Section 8 subsidy] contracts.”
Matching property-based subsidy coterminous with amortization of hard debt is the safest underwriting there is.
But I was so much older then, I’m younger than that now.
Over time, as non-profits became more sophisticated, the business got more complex:
“It’s gotten more complicated and expensive. But we’re still in the business of providing supportive housing for working families, seniors and people with special needs.”
That’s a parallel evolution — as ecosystems diversify, they become more complex but they also become more competitive.
“It takes all the innovating you can do just to maintain market share!”
Properly calibrated, this is very healthy, but if resource-starved, it’s horribly destructive.
By the 1980s [actually, early 1990's -- Ed.], the low-income housing business got tougher. The government, once the sole source of financing, froze the number of Section 8 subsidized-rental vouchers. Also at that time, a number of building owners who once housed low-income folks under government-subsidy arrangements came off their government mandates after 20 or 30 years. That meant the private owners were free to convert the units to market rents or condominiums.
Not free at all — the government breached its contracts, leading to the great waves of ELIHPA/ LIHPRHA preservation and mark-to-market.
That prompted outfits such as CommonBond to partner with neighborhoods, local agencies, supportive lenders, employers and affluent investors who could use a limited amount of federal tax credits to get projects done.
Complex task-specific teaming is another feature of a maturing ecosystem. Best-specialists combine with the appropriate other best-specialists.
In addition to developing and managing its own projects, CommonBond increasingly develops the affordable-housing components of larger developments in communities such as Maple Grove and Plymouth.
Survior entities migrate to new ecosystemic niches, in this case inclusionary zoning.
Errigo said the days are largely over when communities fight such housing.
Would it were so.
A protracted battle a few years ago in Maple Grove involved some neighbors who feared “low-income” residents would mean undesirable behavior. But then a business owner stood up and quieted the audience by saying he was having trouble finding modest-wage workers who could afford to live in the community.
Affordable housing is good for healthy communities, because workforce housing keeps the workforce local and makes for a vibrant local economy.
Chief Operating Officer Joe Holmberg, a CPA and veteran commercial real estate chief financial officer, came to CommonBond in 1992. He said the typical multifamily project may require 10 or 12 financing sources and is a lot more complicated than private-sector deals.
10 funders funding!
Here’s a stress of resource shortage: not only is the capital stack more complex because of deeper affordability, an adaptive response to a money crunch is source over-specificity, with leads to source proliferation. The result is entropic inefficiency, soft costs rising as a percentage of the total, one of the reasons affordable housing is often more costly per apartment created.
Still, the law of economic gravity applies:
CommonBond won’t take on a real estate project that it has to subsidize on an operating basis.
How then can one handle social services and other truly charitable activities?
Its fundraising of about $2 million per year is largely restricted to funding the educational and counseling centers and programs designed to improve the skills and earning capacity of residents.
Unlock donor sources and all is well.
That’s the key: social services operate as a separate division, separately funded. It’s vital — essential — not to intermingle the funding for housing with that of social services.
When an entity proves itself, larger-scale opportunities arise:
CommonBond recently refinanced about a third of its housing portfolio at a lower interest rate that will permit the organization to reinvest some of the savings to renovate about 1,300 of its oldest units.
This is a wonderful event, one of which we have far too few in America; using corporate-finance umbrella underwriting to bring down the cost of capital across the entire portfolio:
With U.S. Bancorp as the lender of about $60 million in 5.5% financing, CommonBond has done what Chief Operating Officer Joe Holmberg said is the largest such multi-complex refinancing in the nation. CommonBond will take some equity out of the refinancing and, combined with reduced interest payments, underwrite improvements at 17 older housing complexes that are part of the 54 developments it owns in 33 communities in and around the Twin Cities.
Smarter is safer:
“The financial expertise of the CommonBond staff made this a wise bond investment for U.S. Bancorp,” said Gerry Thole, a bank senior vice president and CommonBond board member. “This enables CommonBond to preserve housing for the long haul.”
Errigo, who said he is paid nearly $200,000 to oversee a $160 million real estate portfolio and numerous programs that also keep hundreds of elderly in their own apartments and out of high-cost nursing facilities, indicated that he will stay active as an advocate and consultant in the housing area.
Ave atque vale, Joe; keep fighting the good fight.
