As I was reading the Los Angeles Business Journal’s Special Report “Owners Weigh Master Leases,” I was struck by how close we are to making a transformational difference in housing our unhoused population. Greater access to affordable, transitional, supportive and veteran-serving housing has become today’s great moral imperative and perhaps the most vexing crisis Los Angeles has yet faced in the 21st century.
Unfortunately, the immediate need and demands for action have distracted progress toward long-term solutions that can truly meet and transcend this challenge. Having worked closely with a number of government agencies from Hawaii to Washington D.C., I’m impressed by the dedication and hard work of the professionals involved. However, more times than not I am shocked at the constraints our public servants are under in decision-making, thus impacting their ability to meet societal needs and expectations.
There is a role for the private sector to support this mission with a time-tested approach that can deliver critical housing at this time of need. The best public/private partnerships are structured to leverage the private sector to support strategic government imperatives and a solution to this crisis that can be easily replicated from established programs.
Not yet widely accepted
The current master leasing approach has not taken root as a widely accepted vehicle for delivering housing at scale in Los Angeles. As pointed out in the Special Report, there is effectively no money to finance these in mass despite the volume of what is required, thus it’s just not a viable option. Five-year master leases are too short for virtually any financing, whether for construction, renovation or fully operational housing. here is, however, an approach utilizing this vehicle that will provide immediate relief with a vision to solving the crisis for decades to come.
Long-term master leases to government with both private owners and nonprofit housing operators open the doors to massive sources of low-cost institutional capital that are ready to be deployed over a multi-decade time frame.
There are successful examples of long-term master leasing for essential facilities already in practice. New York City’s shelter program is based on long-term leases, and they have made a significant and noticeable jump in meeting housing needs. The Federal government has long benefited from this strategy to meet operational goals and program needs. For example, they employ long-term leasing of medical clinics providing veteran care (an approach which also could be utilized to house our veterans) as a crucial part of the VA’s health care strategy. Various state and local governments, as well as universities, also take advantage of this solution to help meet their funding needs. Using a similar model, long-term master leases for housing projects in Los Angeles will enable stakeholders to rapidly move forward with surety of funding and provide much-needed housing at scale critical to solving the problem. This public/private collaboration has long been the gold standard in providing capital for these leased essential facilities.
Resources to increase master leases
A number of national nonprofit organizations have signed on to support these mandates for affordable and homeless housing, most notably the Mortgage Bankers Association. (MBA.org represents commercial real estate and housing finance in the U.S.)
Our Affordable Housing Team at Gantry is leading these efforts with nonprofit housing providers, various government agencies, Veteran Service Organizations (vet housing) and other stakeholders to make widespread use of this financing vehicle a reality.
As a longtime Angeleno, I have been fortunate to enjoy the benefits this city has provided me, both personally and professionally. Like most of us, I’ve watched in dismay as the impact of homelessness and affordability on our communities has become more and more pronounced. We have less than four years until Los Angeles will play host to the world and the 2028 Olympic games. Between now and then, delivering timely, long-term solutions for housing the un-housed and supporting affordability will be critical to not only showing the City of Angels in its best light, but how we responded to this intractable challenge.
Mark Ritchie is a principal with the Los Angeles office of Gantry. He is a long-time member of the Mortgage Bankers Association and is leading the group’s efforts to provide private capital to help solve our unhoused housing challenges. Ritchie has served on a number of boards including the Commercial Real Estate Finance Council and National Federal Development Association.
