Last week, USC Marshall Brittingham Social Enterprise Lab (BSEL) convened speakers at the forefront of this work: Founder and CEO of RxLA, Andi Israel, and Head of Real Estate Development at SoLa Impact, Ekta Naik, for its first in a series of six lectures on topics at the intersection of social impact and business. The panel, “How Entrepreneurs are Reinventing the Affordable Housing Market in Los Angeles,” is part of the Jacobson Family Sustainable Lecture Series hosted annually by BSEL.Moderator Richard K. Green, director of the USC Lusk Center for Real Estate and professor at the USC Sol Price School of Policy, set the stage, saying, “It is ubiquitous in Los Angeles that there isn’t enough housing. We need to build more stuff, and we need people who have the imagination.”

Both RxLA and SoLa Impact have done exactly that, moving beyond conventional approaches, for example government subsidies, to funding affordable housing. Specifically, Israel worked initially with a downtown non-profit, which built permanent supportive housing using traditional financial models, including tax credits from local, state and federal governments.While she said their work produced quality housing, their financial model created a lot of complexity, mainly given that each source of funding came with a different set of parameters, from the communities it could support to different deadlines and regulations. Additionally, she noted, funds would doften come in very slowly. “Those models are incredibly important and should be ultilized as much as possible,” she said, “But I thought, there has to be a better solution. We can do it faster, more efficiently and more cost-effectively.”This led Israel to explore private financing models. “Instead of layering government funding, it would be structured more like a market deal. Instead of regular investors, we would work with impact investors,” she said. “Our big success was we came in at half the cost.” RxLA just completed its first project—a 56 unit building in South LA, that is 90 percent fully funded.

Similarly, Naik said SoLa Impact relies on private equity. “We’re a family of funds, so we raise the capital and then deploy it to build high-quality, much needed affordable housing in Los Angeles and San Diego Valley,” she said. In SoLa Impact’s case, investors are provided with returns while the communities it serves gain access to cost-effective housing, as well as wraparound services.

The problem with sticking to only conventional solutions, Naik said, is we’re already too deep in the hole in Los Angeles County. “We might deliver 10 to 12 thousand units a year—of all kinds, not just affordable housing—but there’s a gap of 468,000 affordable units. We could all keep building over our lifetimes and never fill the gap. So we know more is needed. The best way to address this is to bring private capital to the table,” she said.

That private capital is sourced from individuals, organizations and also debt—banks. Currently, a lot of factors are increasing the cost of construction, from rising interest rates, increases in supply and labor costs, skyrocketing land costs and zoning issues. This private equity allows a way forward, Naik said.

Is it really better to build more?

In the post-pandemic environment, there are tons of office spaces sitting empty throughout Los Angeles. So would it be beneficial to convert existing buildings into residential spaces, instead of building completely new properties?

“Converting office to residential becomes unaffordable. A lot of offices are concrete buildings and you have to go to a contractor to break them up,” Israel said. “There’s also the issue of the floor plan.”

Essentially, office buildings are simply not designed with residential needs in mind. They are especially not created with a sense of what a specific community might need, for example the mostly single parent or young families that SoLa Impact serves.

Said Naik: “We serve a majority of single parents with a child, or sometimes young couples with a child, who are working monthly jobs. The best floor plans for them is a one-bedroom floor plan with an open kitchen, living and dining area. Many of them have the same needs.”

She added: “Our units look pretty much the same. It’s the same white cabinets with the soft pulls, the same refrigerator that gets recreated over and over again and gives us economies of scale.”

More than a shelter. Building a home.

For Israel, it was essential for her to vet every property. “Every time I got brokers involved, they weren’t able to meet my needs,” she said. Ultimately, she found a metal warehouse at the edge of a cul-de-sac of a residential street. It was also adjacent to the metro blue line, which, though it proved challenging at times, was a great perk for her residents.

Meanwhile, Naik said it was important for SoLa Impact’s founders to ensure their residents didn’t just have shelter, but a supportive underlying community. SoLa Impact’s Sola Beehive is a 92,000 square foot commercial space and the nation’s first Opportunity Zone business campus.

“The Sola Beehive was right within the community. People who were home were able to learn different skills. We have a welding school. We have a women-run yoga studio. We have the SoLa Tech Center, where residents and the greater community can come to learn,” Naik said.

Naik added, “Our motto is to give a hand up, not a hand out. The Beehive is our love letter to South Los Angeles.”