Moderator Eric Tao kicked off ULI San Francisco’s Housing the Bay: Housing the Missing Middle program with a challenge and some late 1990s inspiration, echoing Cuba Gooding Jr.’s character in Jerry McGuire: “Show me the money!”

In the context of the June 27th program “Housing the Missing Middle: A New Financial Frontier”, ‘the money’ referred to a single  question: how can we use market forces to accelerate the delivery of the 6,721 workforce/middle-income units currently entitled at San Francisco’s four major development projects, Treasure Island, Hunter’s Point Shipyard, Park Merced, and Mission Rock?

The panelists tasked with solving this elusive problem represented a cross-section of innovative financiers and public policy experts:

Rebecca Foster is the Executive Director of the San Francisco Housing Accelerator Fund (SFHAF), which functions as a bridge lender to help developers leverage private capital to acquire and deed restrict land and small sites (5-25 unit buildings) for permanently affordable housing. After closing their first $30M fund this April, SFHAF has positioned itself as a one-stop shop that can accept and distribute private capital (philanthropy and equity investments) for affordable housing in San Francisco.

Kevin Zwick is the CEO of Housing Trust Silicon Valley, a certified CDFI (Community Development Financial Institution), which, in true Silicon Valley fashion, provides venture funding for affordable and workforce housing, focusing primarily on pre-development and acquisition costs. Since the early 2000s, the Housing Trust has invested over $130M into affordable housing and recently launched the TECH Fund (Tech + Equity + Community + Housing) to provide a vehicle for local tech companies to invest in housing.

Anne McCulloch is the President and CEO of the Housing Partnership Equity Trust  (HPET) which brings together foundations, impact investors and large banks to lower the cost of capital for developing and sustaining affordable housing. Currently, HPET has created over 2600 affordable units in high-opportunity neighborhoods across the country for tenants making 60% – 100% AMI.

Dan Golub is an Associate at Holland & Knight, where he focuses on infrastructure financing in the post-redevelopment agency era. Dan helps cities and developers employ strategies ranging from the familiar – tax increment financing (TIF) – to new tools, such as enhanced infrastructure financing districts (EIFD), to the cutting edge, like community revitalization and investment authorities (CRIA).

If institutional investors are willing to take a lower return when investing in infrastructure, shouldn’t they treat workforce housing the same way? Foster argued that while higher-income units pose the greatest risk to investors because they are more likely to sit vacant in a downturn, middle-income units can actually de-risk a project because there is always demand for middle-income units. McCulloch agreed that workforce housing provides a solid, reliable opportunity for investors. The key, however, lies in convincing investors that middle-income housing should be treated with a different yield than higher-income housing, thereby attracting the same patient capital that follows traditional infrastructure. Tao suggested that, as a first step, perhaps we need to rebrand workforce housing as human infrastructure defined as a safe, reliable, long-term investment.

Zwick concurred that that finding a patient investor willing to accept a 3% return could be feasible, provided the land is free or highly-subsidized (through Foster, Zwick or McCullogh’s organizations, for example). However, the high cost of labor in San Francisco makes it extremely difficult to realize a positive return, acting as a reminder of the challenges inherent in attempting to solve one problem (the cost of capital) without tackling another related issue (the cost of construction).

Financing middle-income housing – our human infrastructure – with patient, private capital will require a profound change in how institutional investors think about workforce housing. Our industry’s ability to attract low-yield, low-risk money to invest into workforce housing rests on our capacity to find that sweet spot between risk and return. With audience members left to consider this problem, Tao closed the discussion with sage advice from Jerry McGuire scion Dicky Fox: “If this [heart] is empty, this [brains] means nothing.”

-By Nikki Lowy