Why Affordable Housing Is Nearly Impossible to Build in Today’s Market

Nick Khamsopa (00:00)
Now construction company we just increase the cost from $400 a square feet to $450. So you take that and you want to build apartment housing for the workforce housing and the cost is the cost, construction is the cost. If you take that multiply by 100

the average thousand per square feet. That’s $450 per square feet. You know, it’s $45 million without the land. And you factor the soft cost in it is $75 million to build one of these 100 unit prototypical. That means I have to charge $6,000 a month to cover my mortgage. So there is no affordability and this is a major issue throughout the United States.

Dylan Silver (02:16)
Hey folks, welcome back to the show. Today we’re joined by Nick Khamsopa, a longtime builder, developer, and affordable housing operator with decades of experience spanning construction, development, structured, finance, and international projects. Nick, thank you for joining us here today.

Nick Khamsopa (02:34)
Thank you for having me.

Dylan Silver (02:34)
Now, affordable housing, we were talking in the green room, right, is so direly needed throughout the country right now. what changes are you seeing in the affordable housing space?

Nick Khamsopa (02:47)
The affordable is affordability, right? In the last four years, I’ll give a good example, four years ago. If some in the Northeast a customer comes up to me, I could build them a house for $180 a square feet four years ago. Then going back to $180 a square feet to now have to be you know, three hundred dollars a square feet. So we’ll talk about a jump in four years of a hundred

$20 a square feet. So a per example, if a customer comes up to me and say, listen, I want a 3,000 square feet house built at 3,000 square feet, my cost at $300 about making a profit, I have to add another $100 a square feet for my profit cost of doing business that’d be $400 per foot. $400 times $3,000 square feet at at $1.2 million. But now with a homeowner

have to come up and then purchase the property or the land. That land, average land in I my area is is the cheapest, is 250,000. Now you have construction cost plus the land at 1.45 million for the all in. So how can someone afford it? And then the affordability is that the comp the next door comparison and hours of the home is a ⁓ is a million dollars. Based on inflation and what’s going on throughout the United States,

The cost of supplies and the subcontract, the insurance. It costs so much money that it price out the youth. And there’s no way we can fix this issue. And this is happening not just in my area of the Hudson Valley, New York. It’s happening throughout the United States. Someone might say in Texas, I can do the house for, you know, 200,000 square feet, but still at the end of the day, it’s the standard of living, the cost of living in Texas, the standard of living and cost of living in New York. One hour north of Manhattan is still, you know.

it tie into that pump and comparison analysis. The median house income to where I where my town is you know 700,000 per household per per per residency. So when you take that and then you want to build a new house as a dream home for a young professional coming up is impossible. You have to show up at least 600 to 650,000 cash on the table.

or the bank for not financing. So the only one that can afford that is their grandfather or their grandmother, leave them millions of dollars for them to purchase this home.

Now construction company we just increase the cost from $400 a square feet to $450. So you take that and you want to build apartment housing for the workforce housing and the cost is the cost, construction is the cost. If you take that multiply by 100

the average thousand per square feet. That’s $450 per square feet. You know, it’s $45 million without the land. And you factor the soft cost in it is $75 million to build one of these 100 unit prototypical. That means I have to charge $6,000 a month to cover my mortgage. So there is no affordability and this is a major issue throughout the United States.

So New York State launched a program for the first time

Where they create a momentum fund to assist the developer to bring down 30 to 40% of their subsidy to grant. As the builder has to build an apartment complex that stays with the AMI. AMI is more medium household income in the county average. So Westchester is $2,700 for two-bedroom. We cannot charge more than that. And my county is $2,500 for two-bedroom. We cannot charge more than that.

For me to stay with the AMI, the government is willing to subsidize. And the icing on the cake for the first time in the federal step in called Litech financing. Lite tech is a tax credit where super wealthy individual they sell stock or they sell something for 1031, they’re gonna pay capital gain. They can invest into this type of structure, and then we pay them the interest rate of six or seven percent, no definite in the bank.

However, that money comes in to help subsidize even further. So allow a developer like me to get up to 80% of the capital to subsidy and to local and state grant. Now I can go out for the first time in history when New York State launched its massive program where the governor came in four years ago to implement a 1 million unit affordability housing.

and passed the legislation in twenty fifteen of April to build eight hundred thousand unit. Out of the eight hundred thousand unit, 160,000 has been built in New York State. Her goal is to build 800,000 unit, which helped about three million people for affordability to stay home instead of leaving the states.

Dylan Silver (08:39)
Now, when we talk specifically about development, is this gonna replace existing structures? That’s what immediately my mind goes to. Is this gonna replace current, you know, older buildings?

Nick Khamsopa (08:50)
Maggie asked that question. Now her mission program is that land is the hardest issues. So in the Northeast, back in the industrial age, a lot of town and communities built around a banded industrial warehouse or building, right? It used to be a mill or old warehouse where a lot of these facilities now fast forward today, they are abandoned ISO toxic piece of property.

So it’s giving get grant initiative to say, take what it is, and I will help you rezone, upzone, and change with the village where if they need a water, there’s grant for the water, you need sewer, there’s grant to expand the sewer, and you need fire ladder because you up zone is to get the maximum units, she is willing to work with the municipality to even buy them a fire ladder because the massive issue of the housing crisis that we have in the state.

My county itself was short 30,000 units and it’s 2% vacancy throughout New York State. So there is no place for these people to live. So how can you call, you know, this is a great state and make it economic reliable if the government doesn’t step in? The first thing you gotta do is assist the public on building a housing that they can afford to live.

Dylan Silver (10:42)
Now, when we talk about gaining access to these grants and these subsidies, is this information which is you know now publicly available and are they rolling out these grants or is this something that is still almost, you know, a a trickle in a faucet and y the the floodgates haven’t opened quite yet?

Nick Khamsopa (11:02)
It’s great question. As implemented four years ago, you know, it’s it’s the plan was done by Governor Cromwell, the new governor came in to implement his master plan. like I say, 100 sixty thousand units already built by the elite of the Manhattan. So you can’t step foot in Long Island, Brooklyn, Queen, or New York or Westchester. So there’s a gap between Westchester and Albany. And I’m the guy that’s picking up this you know, little tiny

a plot or plan along the expand you know extend the village or expansion of the village because orange county and Hudson Valley is a great place to live. It’s too far away yet to New York for like an hour, hour and a half train ride to and bus ride to the city. But Westchester, big institutions already coming in, cabbo this up and sort of doing two, three hundred million dollar portfolio all over the place. So they are banded warehouse, they are

They’re upzoning it to like 10, 11, 12-story building. And for the first time in history, AFL CIO Union Pension Fund create a division for funding mechanism to purchase this long-term mortgage. So now you have now only a grant in place and federal and local to support the subsidy. And then you have a bank only giving you know 20, 30% LTV of the loan.

And the bank is accessing this thing to the union pension fund. So for the first time in very long time that I had structured the finance to put in place to play with the big boys. So I’m just implementing five thousand unit out of eight hundred thousand for the governor just in the Hudson Valley.

Dylan Silver (12:42)
Now, when we talk about developing anywhere in New York, I can imagine that there’s maybe some longer project timelines than of course in some other areas of the country. A as someone who’s doing this, what are some of the hurdles that you may face in New York that you won’t face elsewhere?

Nick Khamsopa (13:01)
Hold the hold in New York is that if you’re not political connected, right? If you tell me, hey Nick, can you do this in Jersey? Can you go to California? No, because the relationship, even though I’ve been doing this is 35 years in the making, is the hardest thing about developer is that you can’t be a national developer like Toll Brothers or US Home. the the development end is easy.

entitlement and its political network. The larger developer is related, right? Related company does about 60 billion a year in revenue. They do they develop Hunting Yard. Related would not go into this type of development because they know that the prejudice of the local community in the township, they want local developer. They want to see that you’re going to do for the community. You’re not going to come and gouge. And the trust of the local community is the hardest thing to gain.

And does I want to get on a podcast, explain it, market it myself to these public and say, listen, I’m a local guy, I want to build here. If I go to California or go to Texas, I’m gonna be house. But however, I can take the structure to partner with a local developer. Does related construction development company formally formally name related for their purposes? They come in and related to local developer to bring in the structure so they can.

develop the project. But the r local development have to be spareheaded by local developer because of the municipality and the local

Dylan Silver (15:09)
Yeah, and I I know of course, you know, East Coast, I’m I’m from northern New Jersey originally, you know, people are also going to want to make sure that their, you know.

subcontractors and the the people that are doing the trades are from their area, right? And so they they want to make sure that if a developer is coming in that they’re gonna be using, you know, local people like you you mentioned. One of the the trickier things when we talk about any type of development is of course managing those relationships and those crews so that, you know, timelines are met, more so than anything else, right? Because holding costs can eat up any project.

When you’re working with projects and municipalities across New York, right, are you working with the same crews or are you working with folks that are from maybe that local area?

Nick Khamsopa (16:02)
Excellent question because I like to touch base on that. Most people don’t understand structured finance is that you have the exit in place, the new and pension funds buying the market, you have merchant bank that’s going to put and do underly the construction financing, and then you have the the pre-development and the engagement is the the local, state and federal subsidy. So the whole structural finance in place, but however.

The finance structure must match structural development. So the reason I was delayed launching it in the last four years was that my background is union construction in Manhattan. I’m a union guy, diehard union because I believe in safety. Safety create, you know, value in the company by insurance purpose, because the hardest thing is insurance in segment, right? Financial insurance have to reflect

structure insurance. So it’s structured development insurance that four years ago my wife, five years ago, my wife took over the construction company 100% and managed it and processed the application for the Federal Register woman certified own. And then she got the application and then she went for New York State Federal Register. Took her three years of audit statement to show that she is woman. She’s in charge.

They’ll order her email, they’re ordering her bank account, they order all the contract and negotiation of the contract with everyone else. That three and a half years was like a nightmare to get her registered as bona fide, certified construction management to keep the book clean, keep everything clean. Now that she is bona fide, certified federal and state to be the construction and understand construction from A to C.

being married for 21 years, she took as a leader. Now the bank, when she said I’m certified woman owned, they open their ear up and said, Come on in. So the construction bank that’s going to write this budget must have a construction management that is leading to create the budget and identify where all the grant for each segment is.

So there’s so many different grants that’s available from TIFFA, which is transportation because the TOD. And you have the local IDA, you have the local partnership with the municipality, then we’ll also have the tax abatement. And then you the biggest thing is New York Momentum Fund, which is huge for the first time that she launched. So taking this grant and stack it on top of each other with Litech financing, submitting to the bank to create a budget.

It’s six months, two and a half to three million dollar in paperwork. While she’s doing this thing, it’s called pre-development. So I’m for purchasing this property between ten to twenty thousand per unit. We spent two and a half, three million dollars to pre-develop this thing in six months because she’s now fast tracking these entitlement because it’s it’s dilapidated building. I’m not cutting a tree, I’m not running water and sewer. Water and sewer in recording is there, I have this upgraded, and she mandated this village.

And this town and this city to hurry up and help us. And all the town wants this type of housing because it’s a needed for uplift or the economy. So it’s win-win for everyone. So entitlement now, when it’s full entitlement in six months, the value of the asset goes from you know 30,000 per unit to 120,000 per unit. If I’m buying at three million, this value at you know twelve million. So I I’m gaining equity there. And then I I’m getting all this subsidy. Now, when she created this budget, she has to hire

And she just partnered with one of the biggest construction companies in the Hudson Valley that have been around for hundreds of years. And they’re a multi-billion dollar company can bond the project to guarantee on time budget. So therefore, there’s no bid. So the construction management invites local general contract to bond the project, and local contract already have relationship with the local electrician, subcontractor, you know, mechanical to

carpentry to plumbing to along with sprinkler company and even the mason. So it’s a prototypical of the same company that is like building a big donor, right? From one town to another town. It’s just like that’s why we create a prototypical as a plugin for allow us to fast track 5,000 units for the next four, five years.

Dylan Silver (20:25)
we are coming up on time here, Nick. anything you’d like to mention directly to our audience?

Nick Khamsopa (20:30)
Yeah, I think that I would like to mention that this type of affordability, I do not want to confuse the people when you hear the word for affordable. A lot of time I go into municipality, they like they want no voucher, meaning they don’t want no section eight, right? But however, if we can put you know percent percentage in like even eight to twelve percent of this unit to give those vouchers because everyone needs housing. My my biggest problem is that I’m not saying that.

You all of it is affordability in the form of market rate and that’s what kind of people we want. But we all I believe in taking the have not, certain percentages with the have and sooner or later you integrate them, the have not will work twice as hard to change the mindset to have something, and that’s what makes America great. So if you s you subjugate the people with the voucher, which I don’t support, it you should be at least eight to ten units per location with the voucher to help them.

give them opportunity to live in the facility because we’re building this with a with a sex appeal that we want to call a lifestyle because of the type of building we put in. We’re not just putting a shoebox up because this a portfolio that I own and ⁓ my partner and I own. And you know, we have investors that put a lot of money in. So we want to keep this for long term. 5,000 units, it seemed like a lot, but 800,000, I give so much credit to the government who are really stepping in to help.

New York State to become, you know, affordability again.

Dylan Silver (22:00)
Nick, thank you so much for your time today. Thanks for joining us.

Nick Khamsopa (22:03)
You’re welcome.