‘The Whole Industry Could Collapse’: D.C.'s Housing Providers Face An Existential Crisis

When Adrian Washington announced last month that he was shutting down his prolific D.C. affordable housing development firm, the news was a shock to many and left the thousands of residents in Neighborhood Development Co.'s buildings in limbo.

It was also a warning.

NDC's collapse wasn't an isolated incident. The owners of tens of thousands of income-restricted apartments are at risk of losing their properties, jeopardizing the future of affordable housing in the nation's capital. 

“The danger is what Adrian Washington faced, that we’re going to collapse. The whole industry could collapse,” said CIH Properties Chairman Michael Huke, whose firm owns 2,700 units in D.C., most of them in Wards 7 and 8. “My thought is if this is not solved by Dec. 31, there may be no turning this around.”

More than 80% of housing properties that have received D.C. funding aren't bringing in enough rental income to pay their mortgages and maintenance costs, according to the District's Department of Housing and Community Development. 

The same day Washington announced NDC would shutter due to an “untenable” operating environment, DHCD announced a new request for proposals — which hasn't been previously reported — for developers to apply for bridge financing amid what DHCD called “a crisis in our housing ecosystem.”

The scale of the crisis is viewed as existential: 22,000 units that house 48,000 vulnerable residents are at risk of foreclosure today, according to DHCD.

“I think NDC is the canary in the coal mine,” Brian Gordon, the senior vice president of government affairs for the Apartment and Office Building Association, told Bisnow. “We are hearing from other companies — these are larger, well-capitalized, conservatively financed companies — that are finding themselves in this very same precarious position. Frankly, we’re starting to smell the desperation that they could be facing a very similar fate.” 

Robert White, who chairs the D.C. Council's Committee on Housing, said NDC's closure is an “alarm bell for something most of us know is happening but is not fully in the public awareness yet.”

The top group representing property owners in the District, AOBA raised this issue in June with a report titled “A Looming Crisis.” It looked at five D.C. housing firms that together own 13,788 units across 126 properties, and it found their combined rent delinquencies — the unpaid rent they are owed from tenants occupying units — was $12.7M. 

Delinquencies have risen dramatically, the report concludes, because of D.C.’s pandemic-era policies that have tripled the length of the legal process required to evict nonpaying tenants. 

While cases have been delayed, many tenants continue living in units without paying rent and rack up tens of thousands of dollars in debts, a massive financial hole that is difficult to escape from. They have left landlords with substantially less revenue to maintain their operations and few options to generate more income. 

The pile of unpaid debt is growing all while landlord costs, including electricity, insurance, water and interest on their loans, have risen by more than 20%, AOBA found. 

“What’s going to happen is some of these properties — without the ability to refinance, without the ability to sell except at a giant loss — a lot of these properties are just going to close operations,” Gordon said. “That’s displacement of tenants. It’s outright loss of affordable housing stock.”

The operating environment has left it nearly impossible for some properties to turn a profit, and brokers in the market told Bisnow they are having a hard time finding investors and lenders willing to put money into D.C. apartments. 

“Affordable housing developers are lining up to get out, which is pretty crazy,” said Nigel Crayton, a broker with Greysteel who works with apartment owners to sell properties. “This is thousands of units. This isn’t like one or two properties.” 

The lack of investment not only hurts landlords, Gordon said, it could lead affordable housing properties to deteriorate, to become redeveloped at higher rents or, in some cases, to shut down entirely and force tenants to vacate.

If landlords default on their loans and lose properties to foreclosure, affordable housing covenants could be eliminated in the process. 

“DC has been a national leader in producing housing, and particularly affordable housing, over the past decade by making strategic investments and forging strong partnerships across our housing ecosystem,” Deputy Mayor for Planning and Economic Development Nina Albert told Bisnow in a statement. “We recognize that market factors, exacerbated by policies enacted during the pandemic, are endangering those hard-won successes.

“While there is impact on market rate buildings, mission-oriented developers committed to helping the lowest-income renters in the District are being hit the hardest. We are focused on working with the Council and all of our stakeholders on finding solutions to provide stability, sustainability, and support to our housing ecosystem.”

White said he has heard from all types of landlords — for-profit developers, nonprofits and mom-and-pop owners — that they face a crisis of unpaid rent. He said he is still working to determine the root causes of this issue and understand how many tenants are unable to pay rent and how many are “gaming the system.”

He said the industry has reached a “crisis point,” and he is working to figure out what policy changes the council can make to help fix the issue and prevent more housing operators from shutting down. White is considering proposing changes to pandemic-era eviction policies and searching for more money to deploy to tenants who can’t pay rent.

“We have to move with a sense of urgency on this,” he said. “Everything is as soon as possible, but we can’t just throw stuff at the wall. We’ve really got to be thoughtful.”

Melissa Steele, the CEO of local landlord E&G Group, which owns 1,700 units across 11 properties, said she doesn’t know if her 42-year-old firm will survive. Its tenants have racked up $6M in unpaid rent, she said. Prior to Covid-19, that number was never more than $1M.

“I’m not seeing trends improving,” she said. “We’re not collecting more dollars. We’re not seeing residents get funding to get themselves out. The problem is getting worse, and that is the scary part of what we’re all facing.” 

One of E&G’s properties, the 1940s-era Meadow Green Courts apartment complex in Ward 7, has been hit particularly hard by delinquencies. Of the 435 units at the property, 336 are occupied by residents, and 125 are behind on their rent. 

To pay the property’s bills and avoid foreclosure, E&G principals Steele, Jim Edmondson, Josh Dworken and Tom Gallagher have decided to invest $2.3M of their own additional equity in the property.

While some landlords would choose to go into default rather than dip into their own pockets, Steele said the company’s leaders see it as part of their mission to provide affordable housing, and they want to deliver on the services they promised to the community.

But that funding will eventually run out, after which E&G won't be able to pay its mortgages, she said. It's a prospect many landlords in the city face. She said this issue hasn’t gotten as much attention as it deserves in part because landlords have been too busy putting out fires to take time to sound the alarms. 

“As landlords, we all sort of commiserate together, but I think what’s happening is that we have just continued to take hit after hit as new hurdles are put in place,” she said. “We’re all trying to survive and haven’t had the capacity to fight. At least in my case that’s true. We’ve been focused on just trying to stay afloat.”

Dean Hunter, a broker who founded and leads the Small Multifamily Owners Association, has been among the loudest voices calling for policy changes to prevent a collapse of D.C.'s housing industry.

He said NDC’s closure is illustrative of a larger issue, and he has seen other small owners — many of them part-time landlords who use the income to supplement their salaries or retirement savings — decide to close up shop and leave the market. He attributed this to D.C.’s pandemic-era eviction policies that have delayed the court process and left landlords unable to collect rent. 

These policies include the Emergency Rental Assistance Program, which was put in place to provide residents who lost income due to Covid-19 with funding to stay in their apartments. In practice, it has allowed many tenants to delay eviction proceedings for months — they can't be evicted if they have a pending application, even if that application isn’t granted.

D.C. has also changed the rules more than once regarding the notice landlords must give tenants before they are evicted, which has meant some cases have been dismissed or delayed due to minor errors that aren’t material to the case, Steele said. 

The courts are also to blame, landlords say, as case timelines have stretched out far longer than they did before the pandemic. The total eviction process took three to five months before 2020, according to AOBA’s report. Now it takes 12 to 16 months.

The largest contributor to that delay is the time it takes to schedule a bench trial for contested cases, which AOBA said took 30 to 45 days prepandemic and now takes four to nine months. The delays can amount to thousands of dollars of uncollected rent for each unit.

D.C. had a freeze on eviction cases that lifted in October 2021, but nearly three years later, it is still contributing to the lengthy delays, Joel Cohn, legislative director for D.C.’s Office of the Tenant Advocate, said in an emailed statement.

“Our understanding is that delays in adjudicating these cases were caused by (a) a backlog of cases resulting from the 18-month eviction freeze; (b) administrative issues e.g., new forms; and (c) technical challenges regarding court filing/data system,” Cohn wrote. 

The backlog has led to soaring tenant delinquency rates that made owning buildings across the city unprofitable, whether for a major firm like NDC or individual landlords, Hunter said. 

“Here we have a large provider ceasing operations in the District. Imagine what small providers are going through,” he said. “It’s not a good time to be an affordable housing provider in the District of Columbia. We are losing providers.”

Greysteel's Crayton spoke out on LinkedIn about NDC’s closure, saying it “signals deeper issues.” He told Bisnow he has received requests from “a lot” of affordable housing owners to provide a broker opinion of value on their D.C. portfolio as they look to divest from the city. 

The problem for those owners is that the value of their properties appears to be plummeting. If a building has a high percentage of tenants not paying rent and isn’t turning a profit, it isn’t going to be attractive for investors looking to buy into the market. And because of these wider issues, Crayton said very few investors are looking at D.C. 

“We’ve spoken to others who look at D.C. as a flyover state because of some of the laws when it comes to landlords,” Crayton said. 

Virginia and Maryland's eviction policies have been less tenant-friendly, and those jurisdictions haven’t seen problems with rent delinquency, CIH Properties' Huke said. 

Enterprise Community Development, one of the largest nonprofit affordable housing providers in the country, also sees this as an issue specific to D.C., Executive Vice President Christine Madigan said. 

She said Enterprise is part of a consortium of 20 mission-driven affordable housing providers with properties in D.C. that launched around the start of 2023 to focus on rent delinquencies that are “compounding unsustainably.” She said 20 owners combined have racked up unpaid rent of $15M per year for the past few years and are calling on the District to take action.

“The affordable housing sector in general is worried because providers are unable to continue to fund payroll and operating deficits caused by rent collections and income reporting issues,” Madigan said in an emailed statement. “DC’s most vulnerable residents could lose their apartment homes as a result of the financial cliff that mission-focused affordable housing owners are experiencing.”

Buwa Binitie, one of the most active affordable housing developers in the District and a longtime chair of the D.C. Housing Finance Agency board, said D.C. must take action to prevent more providers from collapsing.

“The Covid-era laws enacted by the council that still exist are frankly punitive to affordable housing providers,” said Binitie, who is part of the mission-driven housing consortium with Enterprise.

The calls from the industry have begun to get the attention of D.C. lawmakers. 

AOBA’s Gordon said he has met with council members and members of Mayor Muriel Bowser’s staff since releasing the Looming Crisis report. 

“When we rolled this out in June, it hit a lot of policymakers cold. It took them by surprise,” he said. “As we’ve been meeting with them subsequently, it’s starting to settle in that something has got to be done.”

The RFP that DHCD released Aug. 23 shows that it is paying attention to this issue, Gordon said, but he said AOBA’s members indicate it needs to be improved.

The agency is looking to deploy bridge financing to support distressed affordable housing properties in the city and to support planned projects that DHCD has already selected for city funding but have been delayed. 

This money only applies to affordable housing properties that have received local or federal subsidies, Huke said, but a majority of his firm’s properties are naturally occurring affordable units that are facing the same issues around rising costs and delinquencies. He said more than 25% of CIH’s 2,013 units in Wards 7 and 8 have delinquent balances of more than $1K. 

“It doesn’t include privately financed affordable housing like ours, and we’re the goose that lays the golden egg,” he said. “We cost the District nothing. We provide affordable housing at no cost to the District, and we'd provide it for perpetuity if they’ll let us.”

He also said bridge loans won’t solve the problem. He said the city should instead provide a large, direct injection of funding to tenants to pay their back rent, making landlords whole while also giving tenants a clean slate and allowing them to remain in their homes. 

“This is a crisis for tenants that has compounded into a crisis for housing providers,” Huke said. “Housing providers want no part of evictions for these folks. We’re desperate for the city to provide the funding to leave them in place.”