When it comes to affordable housing in the Triangle, even mission-driven developers like CASA can struggle to keep rents low. 

The Raleigh-based nonprofit has a goal to provide vulnerable people access to affordable housing. In November of 2022, it took steps to achieve that goal with the purchase of Grosvenor Gardens, a historic apartment complex on Hillsborough Street. So, last month, when CASA unexpectedly raised rents there by 30 to 50 percent, residents felt blindsided, they told news outlets. 

Jess Brandes, CASA’s senior director of Real Estate Development, says the decision to raise rents was an unfortunate necessity. Even with the help of government funding, CASA’s purchase of the property means the nonprofit has to pay off a pretty steep mortgage, she says.

“The amount of equity we would have needed to get from our local partners to keep rents exactly where they were exceeded what was available,” Brandes says. “Our intention with this purchase was to keep it affordable for 30 years … knowing that there would be likely zero affordability at all if anybody else bought it.” 

CASA bought the property with the help of about $7 million from Wake County’s Affordable Housing Preservation Fund (WAHPF), a pot of money aimed at preserving affordable apartments and other housing. The idea is that instead of selling a property to a developer who will raise rents to levels many can’t afford, properties are sold to developers who agree to keep rents low. 

Unfortunately, “affordable” means different things to developers—who operate based on what the markets dictate—and renters, who often can’t afford market rates. In Wake County’s hyper-competitive real estate market, a one-bedroom apartment now goes for about $1,250 per month. That means even if developers build or buy below-market-rate housing, low-income renters may struggle to personally afford it. 

Case in point: at Grosvenor Gardens, some residents will now pay $1,100 per month for a one-bedroom unit, a $300 hike over their previous rent of $800 per month. For CASA, keeping rents that low is a struggle. Similar one-bedroom apartments in the same area rent for at least $1,300 per month. But for many Raleighites, that means having to pack up and move out—out of the apartment complex and, likely, out of the city entirely. 

In the end, the success or failure of CASA’s endeavor to keep housing affordable comes down to the funding they can secure to buy a property.

“It’s a math problem,” says Brandes. “If you’re buying a $10 million building and … you can only take a $5 million loan, and the city only has $4 million of other money available, you’re [still] a million dollars short. [So] you either don’t do the deal at all, and all those people get displaced and the units are lost forever … or you go, ‘Okay, we’re going to have to stretch these rents somehow, increase the income limits or something, to get over that hump.’”

CASA’s goal is to keep the property affordable in the long term, Brandes says. The nonprofit doesn’t want to see people displaced, but it must either raise rents by $300 now or see them go up by $500 or more in the future. By purchasing the property, CASA can also control what rents will be in 15 or 30 years. 

In 2015, for example, CASA bought a 42-unit apartment complex called Sunnybrook Village located in Southeast Raleigh. At the time, apartments were renting at market rate. Additionally, the owner didn’t accept renters who paid with the help of government subsidies, such as housing vouchers. CASA was able to buy the property with the help of money from Wake County, the City of Raleigh, and a low-interest loan from a bank. 

“We now have 11 units set aside for people with disabilities,” says Brandes. “We’re accepting rental subsidies at that property.”

Brandes adds that CASA has units set aside for renters under 40, 60, and 80 percent of the area median income (AMI), which is about $79,063 per year for one person in Wake County.

“So [we’re] achieving this real mixed-income model where we’ve got kind of a whole spectrum of people,” she says. 

Brandes says if CASA hadn’t bought Sunnybrook Village in 2015, “you and I know exactly what it would be like right now. All the rents would be as high as they could go, they wouldn’t be accepting rental subsidies … it’s really looking at that long view of retaining affordability over the next several decades.”

How it works

In today’s housing market, finding money to purchase property in Raleigh is a challenge, Brandes says. CASA often cobbles together funding from multiple sources, including local Raleigh and Wake County programs, the federal government’s low-income housing tax credit program, loans from private banks, and donations from fundraising campaigns. 

Some of that funding is cash the organization can spend freely, like grants or donations—there’s no interest, they don’t have to pay it back, and they can use it wherever it’s needed. But a lot more of the funding consists of loans—money CASA has to pay back, with interest, and within a certain amount of time. That’s where things get tricky. 

One limiting factor is something Brandes calls “soft debt”—a loan with little or no interest. These loans act more like grants or donations, since they may have a long (10 to 30-year) timeline for repayment or be forgivable. Traditional real estate loans with higher interest rates are also available, but if CASA wants to keep rent affordable, they have to keep the mortgage down, which means they need more “soft debt” than “hard debt.” The WAHPF is a helpful program, but Brandes doesn’t consider it “soft debt,” she says. Interest rates range from about 4 to 6 percent.

One of the goals of the WAHPF is to give affordable housing developers fast access to a source of funding, says Mark Perlman, division director of the Wake County Housing Department. Organizations like CASA can get a loan from the fund much more quickly than grants or other money from county or city governments. 

That’s essential in today’s real estate market, where “a property can come on the market and can be gone within 30 days,” says Perlman. “We felt it was imperative to have a product that can move faster than we can to give our partners a little bit more of an edge.”

So far, CASA is the only organization to take advantage of the fund, although there are several projects in the pipeline, according to Perlman. In addition to securing funding, developers face another challenge in finding affordable properties to buy. Interest in the fund has slowed somewhat after the first loan was completed last year, says John “JJ” Froehlich, one of the administrators of the fund at Self-Help Credit Union.

“We’re hoping to engage with folks who may have affordable properties, naturally occurring in particular, who want to keep them preserved but are wanting to sell them,” Froehlich says. “It remains a very challenging market, but as economic times kind of go up and down, there may be opportunities that come up. So it’s great to have this fund ready to take advantage of those.”

Froehlich also helped manage Durham’s affordable housing preservation fund, which has successfully loaned out some $10 million for the construction or preservation of affordable housing since its inception in 2019. Although it’s still a new program, far more money—about $61.6 million—is available in the WAPHF, much of that coming from private contributions. Wake County contributed $10.5 million of taxpayer money.

Whether the WAHPF will be as effective as officials hope remains to be seen. As in many other city and county programs, developers like CASA are eligible for WAHPF funding only if they use it to buy affordable properties. In this case, the county defines “affordable property” as housing with rents that are affordable for someone making at or below 80 percent of the area median income (AMI). 

Some activists argue that those income limits are too high, and won’t help the people who are truly vulnerable to homelessness. In Wake County, a person earning 80 percent AMI makes about $63,520 per year—which means an affordable monthly rent for a one-bedroom apartment (including utilities) is defined as $1,701 per month. That’s beyond what many in Wake County can afford, and far more expensive than the $750–1,000 per month apartments the area is losing in droves.

According to the fund’s guidelines, preference will go to housing that serves people making 60 percent AMI or below. But that still means an affordable monthly rent for a one-bedroom apartment can cost up to $1,275 per month, roughly on par with the market-rate rent of $1,250 per month. 

The fund isn’t strictly limited to property owners renting to people who earn 60 to 80 percent AMI. Some affordable properties the county may fund do have rents below the “maximum allowable levels,” Perlman says. 

In addition, one major goal of the fund is to prevent the displacement of existing low- and moderate-income tenants. But the fund’s rules leave that responsibility in the hands of developers like CASA, which may be limited in how much money it can spend on an affordable property. 

Still, Wake County officials are hopeful. They anticipate the WAHPF will help keep about 3,200 apartments or other housing units in the county affordable for at least the next 15 years, according to the county’s website. 

“Raleigh [and] Wake County is a very attractive market for investors to acquire existing properties, do a little bit of rehabilitation and then significantly increase the rent,” Perlman says. “We’re losing affordable units almost faster than we can build them. So the preservation fund is intended to help plug that gap.”

Follow Staff Writer Jasmine Gallup on Twitter or send an email to jgallup@indyweek.com. Comment on this story at backtalk@indyweek.com.  

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