Testimony of Randall R. Lenhoff
President
Seldin Company
Omaha, Nebraska

My name is Randy Lenhoff. I am President of Seldin Company, a Real Estate Management Company. I reside in Omaha, Nebraska; have been a Real Estate Property Manager of Multi-Family and Commercial Real Estate for over 20 years. I represent owners who are willing to stay in the Section 8 program.

Seldin Company manages 41 apartment complexes across both Iowa and Nebraska. Twenty-two of these apartment communities have project-based Section 8 contracts; sixteen, containing 1,117 apartment units, were designed and built for the elderly and handicapped. The other six are townhouse complexes designed and built for occupancy of families with children. A list of these Section 8 properties and the number of units in each is attached. On review, you will note that the apartment complexes are located in medium and small communities across Iowa and Nebraska. Locations include Muscatine, Harlan, and Council Bluffs in Iowa; and Wahoo, Columbus, Norfolk, and Grand Island in Nebraska. All these project-based Section 8 contracts are in jeopardy of not being renewed, either this year or next year, depending upon the date of contract expiration. These contracts are in jeopardy because the current process for renewing Section 8 contracts is cumbersome and not fair to the owners. The following changes need to be made to protect this Affordable Housing inventory.

Current legislation does not protect Elderly and handicapped residents, especially in rural communities. If an owner is forced to opt out, the residents are not protected because current legislation only requires HUD to provide a voucher or certificate at "Fair Market Rent "(FMR). In most rural rental markets, the Fair Market Rents as set by HUD are neither fair nor market. The entire Section 8 contract process needs to be at market rent, which is what I understand HR 1336 provides. If HR 1336 is passed, it will provide a safety net for the elderly and handicapped residents and keep them from being used as pawns by either owners or representatives of the Federal Government. The residents in the elderly properties are particularly vulnerable because of their age and fragile physical condition. In many instances they have lived in these properties for many years. We provide significant additional services to our elderly in these buildings. These are fully accessible elevator buildings with 24 hour emergency call buttons in each apartment, community rooms, and 24-hour, seven days a week staffing. A number of residents in our properties have lived there over 20 years since the buildings opened and are now frail as they have aged in place. Conventional apartments are predominantly occupied by transient younger people with a high amount of turnover in residents. An elderly person with a voucher or certificate moving into this kind of community would feel lonely after living in a building where all of the residents are of similar age and interests and where they give support to each other.

The owners find themselves in a position where they are torn. Do they renew their contract even though the current regulations require them to take less than market rent for their properties or do they opt out? As example, we manage a mid-rise elderly apartment community in Council Bluffs, Iowa containing 102 one and two bedroom apartments, 100% occupied by elderly and handicap residents. In May of 1998, we had a full appraisal completed on this property by an Iowa Certified MAI Appraiser. This appraiser informed us that based on comparable market rents, our rents on a one bedroom could be $530 and a two bedroom could be $620 per month. Current rents on this property are only $516 for a one bedroom and $613 for a two bedroom as allowed by HUD. The Section 8 contract expires October 1, 1999. Under current regulations, the owners will be offered only a one year renewal at current rents. Rents have gone up in the Council Bluffs area (Omaha MSA) at least 5% to 7% in the past year. 5% is a very conservative increase. Using 5%, a one bedroom would rent for at least $556 per month and a two bedroom at $651 per month. The owners at this time are forced to make a decision whether or not they are willing to take approximately between $35,000 to $40,000 less income per year to keep this property in the Section 8 program or receive the higher rent in the open market. There is no provision at this time for rent increases so this problem will get worse with each annual renewal. The owners I work for have indicated their willingness to continue to serve their elderly residents, whose incomes are predominantly very low. They would prefer not to remove this inventory of apartments from the Section 8 program. Their reason is that they feel this housing provides important benefits for these residents. At the same time, they are business people and they cannot afford to continue to take substantially less money for their apartments than they can get in the open market place. We have been attempting for over a year to get a fair rent from HUD and if something is not changed, North Avenue Tower will leave the program, as will most of the Section 8 inventory we manage, if not all.

We have another property in Harlan, Iowa. In 1998, our rents were found to be approximately $30 per month above the market. HUD immediately demanded that we lower the rents, which the owners agreed to do. We understand the mark to market concept and that was part of the deal if properties are to stay in the Section 8 program. My point is that HUD demands a write-down of rents in some locations, but has refused to recognize market rents in other locations.

We manage Sunset Ridge, 120 units, 2, 3 and 4 bedroom Family apartments in Omaha, in which over 300 children reside, many in single parent families. This property was originally built under the 236 Program. We had an approved Plan of Action under Title VI, but it was never funded so, in 1997, the owners opted out. Market rent in the area allowed us to raise the rents approximately $100 per month. The residents in this "preserved" property were provided enhanced "sticky vouchers". The transition to market was smooth and most of the residents have stayed in place, resulting in a successful mixed-income project.

HR1336 will protect the tenants through enhanced vouchers in case of an opt out. However, the provision setting rents upon renewal at the higher of current rent or 90% of market rent will end up shortchanging the residents and owners. That is why HR 1336 needs to be amended to mandate that renewals be at the market rent.

There are a number of administrative and regulatory barriers in the renewal process in addition to the simple fact that market rent should drive this program. First, and foremost is that HUD is woefully understaffed and they are having difficulty processing and getting the renewal proposals to the owners on a timely basis. Also, HUD appraisers have been very aggressive in challenges to rent comparability studies, and there is not a reasonable appeal process in the event the independent appraiser and HUD appraiser do not agree. There is uncertainty from year to year as to what the HUD renewal policy will be, and the required one year notices frankly scare our residents. The elderly are extremely vulnerable and are confused by the required notices. I really question whether these notices serve any worthwhile purpose. In view of the fact that the owners only get a one year contract, and we are required to give a one year notice to the residents, it guarantees that every year, as managers, we must send a notice out to our elderly residents which we know frightens them. Ongoing uncertainty about annual rent adjustments and no policy guidelines from HUD has certainly convinced many owners that the best thing to do is opt out. Also, uncertainty about the inspection process and enforcement is confusing. It has encouraged owners to move away from doing business in the Federal programs.

I would like to conclude my testimony by stating that I know HUD has many very good, dedicated employees who work very hard every day. However, at this time the Department is severely understaffed.

HR 1336 is certainly a positive step forward. Legislatively, we have seen a tendency to wait until there is a crisis before we fix housing programs. Well thought-out, consistent policies, fairly administered, would provide an environment in which owners will be willing to continue to do business with the Federal Government rather than opt out of Section 8 contracts. Rents must provide a fair return on the risk capital invested in these existing properties.

Thank you for allowing me to have time to discuss these important Housing Issues.