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Authority Magazine: CPP’s Seth Gellis Spotlights Solutions to Making Housing More Affordable

July 14, 2021

An Interview With Jason Hartman, Authority Magazine

Do not be afraid to challenge the status quo. Organizationally things need to change as you grow, as you learn and as you evolve. For example, we’ve asked, “does a deal start with the acquisitions team or the underwriting team?”

In many large cities in the US, there is a crisis caused by a shortage of affordable housing options. This has led to a host of social challenges. In this series called “How We Are Helping To Make Housing More Affordable” We are talking to successful business leaders, real estate leaders, and builders, who share the initiatives they are undertaking to create more affordable housing options in the US.

As a part of this series, we had the pleasure of interviewing Seth Gellis.

Seth is senior vice president at Community Preservation Partners (CPP Housing), an affordable housing rehabilitation company that has invested more than $2 billion into neighborhoods across the United States, keeping housing costs affordable for thousands of seniors, families and individuals. Seth provides strategic direction and oversight for CPP East and leads the company’s expansion efforts across the East Coast, which focuses on the preservation of aging affordable housing properties. Under his direction, CPP East has grown its portfolio to include over 1,900 units across 13 communities, investing $450 million in affordable housing communities across eight states. Over the next year, the firm projects an additional $250 million in investments for its current pipeline, which includes the addition of eight properties and 1,157 units across two new states for CPP East.

Prior to joining CPP, Seth worked for several large multi-family developers including Simpson Housing Solutions (now Highridge Costa), where he led a team of acquisition analysts to identify, secure, entitle and finance senior and family development opportunities. Seth was also a corporate manager at the Federal Deposit Insurance Corporation’s Division of Resolutions & Receiverships — Risk Sharing Asset Management Department and led a team that managed a portfolio of more than $50 billion in loss-share asset portfolios.

A licensed broker in Virginia, Seth earned a Bachelor of Science in business administration from the University of California, Riverside, a Master of Business Administration from Drexel University, and is a licensed real estate broker in California.

Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit more. Can you tell us a bit about your “backstory”? What led you to this particular career path?

I was born in Indianapolis and lived there until my parents divorced. My mother and I, along with my grandmother, all moved to Florida, and we lived there until my grandmother passed away. We then moved to California to be closer to family. I was shaped by all of these events, but even more so by growing up in single-parent household. Seeing my mother work so hard to make sure we had food and decent shelter really impacted my outlook on the world and my work ethic in general. I was taught to fight for what you need, be who you want to be, and stand up for those that need help.

I feel very fortunate to have had some really great mentors both personally and professionally. In college I was part of a fraternity, Lambda Chi Alpha. Most fraternities had a house, but ours did not. So, I went to raise money to buy one. Through those efforts I met some great people that liked the hustle I was putting into the endeavor. I had always liked the idea of real estate development and at that point, didn’t really know the differences between housing types.

My first foray into housing was working with the facilities team in my dormitory, which led to a job in leasing for a student housing community while I was going to school. That is where I really started running numbers and getting excited about real estate finance. Through the mentor relationships I had formed I was able to segue into real estate and worked as a runner/marketing associate for an industrial-focused brokerage shop until I graduated. While there, I found the financing and how the projects were put together more interesting than the listing and selling side, and that experience solidified that I should take the real estate development route instead of brokerage.

I landed in affordable housing after securing a position as a land acquisition analyst for Simpson Housing Solutions. There I rose up the ranks and met some really fantastic people, one in particular, Moe Mohanna, who became a lifelong friend and mentor. He entrusted me to take on whatever I could put together so long as we were always treating people the right way and being fair in our dealings. I guess you can say I got hooked on the deals but as I learned more about the people we were helping, the work became even more exciting.

There is simply nothing better than doing for others and being rewarded for your efforts in doing so. Our team motto, “do the right thing, always,” started during my time at Simpson Housing and I’ve carried it throughout my career. I’ve been incredibly fortunate to have opportunities that others may not have had, and that’s why it’s important for me to give back. At CPP, along with its parent company, WNC, the leadership team fosters a people-first mentality, and we truly live it. CPP President Anand Kannan has pushed CPP to become a national presence, and like Moe, very much believes in doing the right thing, always. It’s a guiding principle that has led to our collective success and why we work so well together.

Can you share the most interesting story that happened to you since you began your career?

There are a few, but here is one that sticks out.

I was working on entitlements for a land site. The site itself was zoned for around 120 units, but there was a local measure that required densities of over 10 units to the acre to go to a public vote. The city staff (city will remain nameless) didn’t want the proposal to go to a public vote and instead encouraged an inefficient plan to develop 32 housing units for families instead.

The proposed plan which included the reduced units didn’t go well, and the neighbors got involved because they didn’t want families. The reason being: their kids would vandalize and commit crimes in their adjoining neighborhood. So, the plan switched to 32 senior affordable units. Then the issue became noise at the pool and their grandchildren jumping the neighbors’ walls “stealing their patio furniture.” So, we agreed to berms with walls and to remove the pool. We had all but one neighbor on board with the plan.

In the end, that neighbor was able to get the rest of the community, those that didn’t live near, or around, the proposed senior affordable housing to come and speak out against the proposed project. Needless to say, the NIMBYism was ramped in this community and the city council rejected the project despite the site being identified for affordable housing in their regional housing plan.

In the end, they didn’t care what the state wanted, what the state required, nor what their city really needed for their aging citizens. They just didn’t want “those people” living in their community and pulled out all the stops to prevent them from being there. The council meeting went until just before midnight before the attorney for the city cut it off.

It was eye opening to see how blind people can be to the needs of their community and how callous they could be to people in need, even when they weren’t directly affected by the proposal.

Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?

The tipping point for me occurred when I passed on a high-rise affordable housing deal in San Diego when people that I worked with said it couldn’t be financed. Sure enough it got financed, and only because the developer was willing to put aside its assumptions of what was “too large.” Instead, the developer went for it, made the ask, and demonstrated the benefits. This has stuck with me ever since. You can only get what you ask for. So don’t be shy to ask for something if you can demonstrate a clear benefit relating to your ask.

None of us are able to achieve success without some help along the way. Is there a particular person to whom you are grateful who helped get you to where you are? Can you share a story about that?

There are several that have helped me get on the path I am walking today. If it weren’t for my mother, who taught me early on the work ethic needed to recognize my full potential, as well as mentors, like Tim Burgess and Moe Mohanna, I wouldn’t have found my calling in affordable housing. I feel grateful that everything worked out for me, and I found a career that I’m passionate about that makes a real difference in lives of people while also improving their ability to have the stability to become what they want to be.

I also have to credit WNC President and CEO Will Cooper Jr. for his support of our efforts and CPP’s Anand Kannan for his vision for CPP. Today we are a national affordable housing company and we could not have achieved the growth we have seen on the East Coast and with CPP in general without his leadership. We truly believe that we offer a Different Way to Home.

Do you have a book, podcast, or talk that’s had a deep impact on your thinking? Can you share a story with us? Can you explain why it was so resonant with you?

Growing up I didn’t have a lot, and because I grew up in a single-parent household, I likely attributed finance, or a lack thereof, to a lot of problems in the world. Freakonomics by Stephen J. Dubner and Steven Levitt actually had a large impact on my perspective on how little changes in specific areas can create huge ripple effects of good or bad. Basically, nuance matters and what you do and what local and state politicians do matters greatly in the long run.

Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter was also very influential and impacted my entrepreneurial side. More recently, for those that want to be inspired to stay at the top of their game, I really recommend Can’t Hurt Me by David Goggins.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Stay Hungry, Stay Foolish.” — Steve Jobs

This quote is especially relevant in my work at CPP. As a mission-based developer, we are continually looking for opportunities to make a difference for our sellers, partners and the residents whose lives we can positively impact. This quote resonates in many ways:

Housing in general lacks innovation, and being foolish to me means looking for the less-obvious way to make a deal happen. Often times it takes creativity and a solution-oriented mindset.

When it comes to underwriting, relentlessly pushing for the next housing opportunity and overcoming the next obstacle to creating housing, without regard for how you previously transacted, keeps you fresh and gives you an advantage.

Financial products are constantly changing. In the environment we operate in, we want to be first and we want to find ways to make things work for everyone, which ultimately results in getting deals done that others may not have believed in.

Ok super. Let’s now shift to the main part of our discussion about the shortage of affordable housing. Lack of affordable housing has been a problem for a long time in the United States. But it seems that it has gotten a lot worse over the past five years, particularly in the large cities. I know this is a huge topic, but for the benefit of our readers can you briefly explain to our readers what brought us to this place? Where did this crisis come from?

To make a long and complicated issue as simple as possible, I believe our housing crisis stems from inappropriate land use policies that have been in place for a very long time, combined with ramped NIMBYism and bureaucracy controlling the process.

The real way out of this is to encourage the creation and preservation of as many housing units and types as possible. Increased supply, so long as we don’t lose supply, will drive down or stabilize rents.

Preservation happens to be lot more efficient than new construction due in large part to the minimum construction requirements that most agencies require. The result is much higher costs to construct affordable housing than market-rate housing. The answer is complicated but begins with stopping the bleeding and keeping the housing we have for as long as possible. Encourage this at all costs — not only is it less costly than replacing the housing, it also is preserving housing located in irreplaceable locations that serve an existing community.

Uncertainty for housing developers becomes a barrier for preservation and new construction, so cities and counties should look hard at their PILOT and tax abatement programs and codify them whenever possible to benefit the preservation or creation of affordable and workforce housing. This will give an advantage to affordable housing developers and a reason for sellers of existing communities and/or land to provide the time needed for an affordable housing community to become a reality.

Once you stop the bleeding, create more certainty in underwriting so you can then focus on the barriers and processes limiting or delaying the creation of new supply. These include entitlements, impact fees, and plan review processes that include lengthy environmental reviews in some states. These processes allow the opposition to control the outcome of proposed affordable developments with irrational fear. Reviews by state agencies, in some states, can lengthen the process even further beyond what market-rate developers face. To the extent affordable housing can become by right in the approval process, we benefit by shortening the approval process and creating certainty in new supply. From a seller’s perspective, certainty of a quick execution might be enough for them to choose an affordable developer over a market-rate developer.

It is worth noting that there are states that have recognized this issue of uncertainty and NIMBYism. Unfortunately, they have mixed public policy goals when addressing the issue and mix certainty and streamlined processes with prevailing wage requirements. This solves one problem but substitutes it for driving up costs, still limiting how many units can be produced.

There is also opportunity for states agencies to take a hard look at their scoring, minimum construction requirements, and QAPs, and ask themselves if they are encouraging the greatest number of units being preserved and created or, are there other noble causes being placed ahead of the housing goal itself. If they are a housing agency, I argue that housing should always be the lead priority over other public policy initiatives.

If a state isn’t using all of its volume cap for 4% tax credit and bond deals, it should take a look at why it can’t put its volume cap to use. I guarantee you the answer is not a lack of available projects; it more likely lies with the projects that score under their QAP, or the systems, timing and processes that limit the ability to produce, enhance and protect housing.

Housing is a basic human need and I believe that all of us in the housing industry should focus first on housing and then on the other benefits that we can provide through it to society. The fact is that there are always competing public policy objectives and goals that have to be balanced responsibly. The core of why the housing gap continues to get worse is that as an industry we continue to create advantages for producing new construction market-rate housing over affordable housing, yet still continue to make the production of housing costly, uncertain and time consuming in general.

Can you describe to our readers how your work is making an impact to address this crisis? Can you share some of the initiatives you are leading to help correct this issue?

Since CPP was founded in 2004, we have rehabilitated more than 11,000 housing units across the U.S. and positively changed the lives of thousands of low-income residents, so they can continue to have a vibrant, safe and affordable place to call home.

A People-first business model is at the heart of CPP. This means a strong focus on our residents, but also our partners — the management companies, lenders, investors, and contractors — that help make our communities successful.

Together we all benefit by creating more certainty in being able to provide housing. We serve many of these constituents through our advocacy efforts and also work with major industry groups. Our advocacy focuses on how together, through program changes over time, we as an industry can enhance our ability to preserve, protect, and create as much affordable and workforce housing as possible. Anywhere we see that market-rate buyers and developers have an advantage over affordable housing developers is an area in which we see room for improvement.

For CPP East, on the resident side, we are impacting the lives of over 3,000 residents daily. We continue to Stay Hungry and Stay Foolish, and this is reflected in CPP’s recent recognition by Affordable Housing Finance as the third most active preservation developer in the country, a designation we have received for two consecutive years.

A big initiative that is currently underway is to provide internet as the backbone of our service platform to CPP communities nationwide. We have all become painfully aware of the importance of internet access. Many of us have seen photos of children that lack the crucial connectivity they need at home, and resort to sitting or standing outside of a local fast-food restaurant to use the internet for their remote classes.

I’m very proud that we were ahead of the curve with establishing an internet infrastructure, and that because of our forward-thinking approach, nearly all of our communities already had the infrastructure for kids to be able to stay connected with their classrooms and for our seniors to be able to stay connected with their families during the pandemic!

We are continuing to branch off of our internet infrastructure with IOT, providing security infrastructure and other services to our residents as part of our core belief in connectivity and people!

Can you share something about your work that makes you most proud? Is there a particular story or incident that you found most uplifting?

I’m extremely proud of the placemaking and lives that we are positively changing in some of the properties we have invested in that previously were known as high-crime neighborhoods. From seeing children play in the playgrounds and use the services we install, to the seniors who come out and find comfort in our courtyards, I can’t help but feel like we are doing the right thing, and that we are providing opportunity and housing security where it is needed most. As a brand that is mission-driven, it is gratifying to see our creativity, performance and purpose come to life at each of the communities in which we invest.

For example, our community Winton Garden Towers in Rochester, New York earned a Multi-Housing News 2020 Excellence Award in the Transaction of the Year category and reflects the innovative financing, creativity, and positive impact that CPP strives for with each of its neighborhoods. CPP, with our partner Rochester’s Cornerstone Group, rehabilitated the 206-unit Winton Garden Towers, a community that once had a poor reputation marred by major problems of crime, drugs and physical neglect. Despite the myriad challenges, CPP saw an opportunity to enhance the quality of life for these residents and turn the towers into a beacon of light for the community. We completely transformed both the exterior and interiors, and closely worked with law enforcement and neighborhood groups to ensure everyone felt safe in their new homes. It truly is a Different Way to Home.

In your opinion, what should other builders and developers do to further address these problems?

I covered this extensively in question #7, but here’s a brief recap:

Stay focused on the people we house first.

Connect with local, state and federal officials to continue to showcase the benefits of the housing that is created and preserved by affordable housing developers. This will help with the NIMBYs.

Comment on regulations as appropriate that drive up costs and limit housing production or preservation.

Look for ways to innovate. Do not assume that just because something has been done one way for a long time that it always must be done that way. Working with builders, lenders, and investors to get comfortable with modular building techniques and 3D printed buildings is one example of how we can change and adapt to drive down costs.

Do not forget about workforce housing. It’s a difficult problem to solve, but with creativity there is a formula that solves for it.

Can you share three things that the community and society can do to help you address the root of this crisis? Can you give some examples?

  • Continue to put pressure on our politicians so that they recognize that housing is a basic human need.

    Housing can come in all types and does not necessarily have to be grandiose. For the homeless, a roof, bed, shower, and bathroom with access to laundry can provide individuals a safe, stable place to prepare for interviews and become productive members of society. This, in addition to access to support services, like case workers and social service providers, can help become the base of stability. Providing funding early for housing and support services saves long-term costs for taxpayers. We should encourage resources be devoted to housing that help people transition to more stable affordable housing, and then ultimately into market-rate housing. For example, a stay in a psychiatric unit where ERs routinely send homeless individuals rack up costs exceeding $10K per stay in many cases. This puts a heavy burden on our healthcare system in that by using psychiatric units and hospital beds as hotel/ temporary units they are removing beds from use by those that need them for their intended service.

  • Refocus the housing industry on preserving and providing housing above all other public policy goals.

    It’s the most immediate need and will have lasting impacts. Housing is where stability starts, where communities are built and strengthened, where friendships start, where our elders receive care later in life, and where opportunity can replace crime for our youth.

  • Don’t lose sight of the workforce housing 80–120% AMI renter and owner.

    With new production generally being devoted to luxury housing, police, nurses, teachers, and others that generally fall into this workforce range are being left out. The cost to produce housing is only rising, and unfortunately that will continue to mean that housing will be produced for luxury renters, where the market supports it. There is a lack of quality housing for these individuals, causing them to pay a far greater percentage of their income on housing than they should. There are very few programs out there that serve this group and it’s an area where innovation is needed. We should put pressure on a tax credit program that aids in the preservation and creation of workforce housing as well.

If you had the power to influence legislation, are there laws which you would like to see introduced that might help you in your work?

I would love to see a federal law that prohibited cities and state agencies from making the building requirements for affordable housing more stringent than state building codes and requirements. I’d also like to see a national bonding pool created out of the excess and unused volume cap that some states have. The legislation could allow this excess to be transferred to states with severe affordability problems, and used to generate or preserve more housing there instead of being lost. I’d also like to see legislation that provides a workforce housing credit and perhaps that credit could piggyback on any excess volume cap made available through future legislation.

What are your “5 things I wish someone told me when I first before I became a leader at my firm” and why? Please share a story or example for each.

  1. Build a team that is not afraid to challenge you.

    You do not want “YES” people on your team. You want people that can look at complex problems through different lenses so that collectively you can come up with the most elegant and efficient way to solve the problem. This also allows you to hire outside of the development world and train up. If an employee isn’t a “YES” person, they’ll ask why and learn and grow faster. CPP is very fortunate to have best-in-class talent comprised of individuals whose backgrounds come from outside the affordable housing industry or industries in the periphery. Having these team members ask “why?” is a central part of their rapid growth and our strength as a team.

  2. Build a team that is not afraid to fail.

    If you are afraid to fail, you will only take on projects that are like what you have done before and only work through issues in a manner consistent with your prior experiences. Being uncomfortable and having to think creates opportunities where others do not see them. Team members knowing that failure is acceptable, so long as we learn from our mistakes, gives them the comfort to challenge themselves and their colleagues in what we can accomplish and how we accomplish it. Being afraid to fail stifles you and your organization. Viewing failure through the lens of it being an opportunity to grow flips an organization’s mindset. You need to go into projects and look at new opportunities with an open mind. That’s not to say you shouldn’t mitigate risk to the extent you can, but ultimately you have to be confident in your reasons for why something will work and test those reasons. You do not want to become a ‘no’ organization. You want to be an organization that focuses on solving the “how can we” part of the easy “no.” CPP has developed strategies for entering new states as a result of the failures we have experienced. Although we have never not performed on a deal, we have learned from many. Through these experiences and continual process improvement, the team has implemented best practices off of lessons we’ve learned as we’ve adapted to each community we enter. We learn, grow, implement and improve. We constantly get better.

  3. Thrive in partnership.

    To be a national developer means constantly addressing the housing crisis in different cities, counties, and states. You won’t know all the answers, or even the best answer for the local community you are working in. It’s equally important to work with partners that have local experience and connections that can create efficiencies and mitigate risk while growing faster. A unique quality to CPP, which stems from our WNC heritage, is our strong view that partnership creates value rather than diluting it. When we enter a new community, typically our partners have already been there, either with local management expertise or by owning other communities. They know the pitfalls, who we need to talk to, how to get to them, and what concerns we need to address before we are even in a meeting together. We also benefit by constantly improving our documents with equity or debt and see what true market is for everyone rather than just for us. Our partnerships have allowed us to take on larger projects like Norman Towers, a $150M senior affordable housing community in New Jersey, while preserving and enhancing our balance sheet which affords us the ability to implement a national service plan, which is core to our values of focusing on people.

  4. Always do right by the people we work for, our residents. But also extend this to doing right by the people with whom we work with.

    It’s the people we work with that enable us to make the resident experiences as great as possible. Doing the right thing by our residents is more than an altruistic idea, it a bottom-line measure as well. Happy tenants reduce costs because they tend not to leave, are more likely to pay on time, treat their homes and communities better, and overall allow onsite staff to be more efficient. We create happy tenants by working with the best management companies and focusing on their experiences through measures like providing Wi-Fi and other amenities in our communities. In addition, our asset management teams stay focused on resident needs, and when we notice that there is a need, we look for ways to solve it. One example was providing jackets to the children that live in one of our communities in VA because we noticed that many didn’t have suitable, warm clothing during the winter. We went so far as to make sure they varied in type so that nobody would single them out for being a resident in an affordable housing community. For the people we work with, our constituent partners, their engagement and belief in our scale creates opportunities in underwriting and efficiencies in processing transactions that allow us to grow faster.

  5. Do not be afraid to challenge the status quo.

    Organizationally things need to change as you grow, as you learn and as you evolve. For example, we’ve asked, “does a deal start with the acquisitions team or the underwriting team?” In my view, underwriting leads when you are working on scale. So all projects feed into them for consistency and then acquisitions and project management can support that underwriting through our knowledge and expertise. Project management can mitigate risk and acquisitions can bring the deal home. Ultimately this allows us to leverage our partner relationships and fine tune the plan to be executed on that mitigates the most risk possible while providing the biggest benefit to the community that we can, while at the same time maximizing the benefit the broker can provide the seller in pricing and terms. Everybody wins.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

Care about people and do the right thing, always. Generally, taking the easy way out, extracting every cent, or just being difficult to work with are short-term games to play. It is possible you will win once or twice, but sooner or later you will fail as your reputation will precede you. Plus, people just want to do business with people who are honest, act with integrity and are fun to work with.

Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might just see this, especially if we tag them. 🙂

Elon Musk — talk about an innovator who has put everything on the line more than once to prove something he believes in works. His innovations span finance, space travel, transportation, the internet and healthcare. He has taken on the biggest industries and by avoiding preconceived notions of how they should work he has completely changed how they work now. He has a different way of looking at things that I admire greatly.

We need a big idea that nobody is seeing now to address the housing affordability crisis. We continue to look for this ourselves but have yet to find it. Hopefully we will, but we will be just as happy if someone else does and we can once and for all solve this problem.

How can our readers further follow your work online?

I encourage readers to follow me and CPP on Linkedin and visit our website www.cpp-housing to learn more about what we do and the residents we serve.

This was very meaningful, thank you so much, and we wish you only continued success.

Source: https://medium.com/authority-magazine/seth-gellis-of-cpp-east-how-we-are-helping-to-make-housing-more-affordable-ff98fe98de3b

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