Room to Grow
Former HUD Secretary Henry Cisneros Speaks About Emerging Markets in California
Interview by Danielle Kando-Kaiser
Photography by Deb Rasmussen 
After a lengthy and distinguished political career, Henry Cisneros now is chairman of Los Angeles-based CityView — the company he formed in 2000 to create ownership opportunities for working families. The first Hispanic person to lead a major American city, Cisneros was elected to four terms as mayor of San Antonio, and went on to serve as Secretary of the U.S. Department of Housing and Urban Development from 1993 through 1997.
Cisneros recently spoke with California Builder about the ways in which the development of affordable workforce housing and the revitalization of our inner cities will shape and invigorate California’s building industry.
CB: What is the mission of CityView?
HC: CityView’s mission is to team up with the best home builders/developers in the country to provide institutional capital that helps produce homeownership opportunities for America’s working families. CityView primarily strives to create “workforce housing” by identifying entitled/unentitled land deals in the nation’s urban core areas, as opposed to suburban areas. We work to create entry level homes that working families (nurses/teachers/firefighters etc.) can afford.
We choose the best builders in the country who have an intimate knowledge of the cities and communities in which we have developments. We look at their product, their experience, and commitment to our vision. As a result of this approach (to leverage the knowledge and understanding of our builders in various markets), we have created more than 43 projects across 13 states. We have built and produced, with our builder partners, about $2 billion in housing product across this country, and the future is even brighter.
CB: You have spoken about the forces that are drawing people back into cities. What are those forces?
HC: This is an amazing time for Americans. What you see is a whole series of forces that are making our urban areas stronger.
In the 1990s, we saw the changes that occurred in the economy, creating jobs, and building businesses that were good for our cities. The economy went from an urban manufacturing economy to a new economy of healthcare and higher education, business and professional services, tourism and international trade, the biosciences and new media to name a few. All of these things were focused in cities so it appears that the new American economy is a more city-friendly economy.
Add to that the effect of entrepreneurial elected officials who are creating public/private partnerships, community development corporations that are investing in the neighborhoods, and large institutions like universities and medical centers that are creating thousands of jobs.
There is also the demographic reality of empty nesters coming into the city, the creative class of young professionals who want to be near the stimulation/opportunities of city life, and the immigrants who are changing the landscape of cities spanning our nation from New York to Los Angeles.
Lastly, you then add into that mix high gas prices that persuade people that the commute is just too long and too expensive, and suddenly you see all of these forces converging to potentially make this the golden era of American cities.
CB: How do you see these trends effecting California’s building industry?
HC: A lot of our cities have emerged as the building blocks for the national economy. The Brookings Institution, for example, just finished a study that showed that approximately 75 percent of the nation’s gross domestic product is generated in just the 100 largest metropolitan areas of the United States. A similar percentage of the nation’s research that results in new products and services also is centered in those areas, and there is a similar percentage of people who hold degrees in higher education. We really have come to the reality of American progress as being an urban phenomenon and a metropolitan phenomenon.
All of these forces are converging to create an all-time high demand for more housing in these areas. There is a demand for workforce-priced housing (above 80 percent AMI), for denser housing, and for the amenities that support this kind of housing. It really is an interesting and exciting time for our industry.
CB: CityView has had significant success with infill projects. How have you navigated through California’s regulatory parameters?
HC: As the source of capital for builders, CityView has worked with builders who have proven themselves adept at working in urban areas. We have a pretty rigorous test of whether or not a developer can build that kind of project because we know what it takes to sell it, and we know from experience what works and what doesn’t work.
We will continue to define the best builder in any given metropolitan area for the kind of product we believe needs to be built. A combination of what they can do and what we can bring beyond the capital is what makes the synergy and defines our collective success.
I like to say the new math is “two plus two equals five.” We call what we bring “Beyond Capital” because it does just that. We have the capability of putting together equity or mezzanine debt, or any other number of combinations of capital, but we also bring a team that understands the local government entitlement process, insurance for builders, marketing of the project, positioning in the community versus local opposition, etc. So, it’s a combination that in the aggregate produces a desirable outcome.
CB: You have spoken about the two-tiered system of housing affordability. What do you think California needs to do to avoid that?
HC: Across California today, one sees many communities where affordable housing is under construction with the government involved or where non-profits are subsidizing projects ranging from public housing to low-income rentals. And one sees the market responding to this centripetal force by putting million-dollar condominiums in high rises.
But in many places, what is glaringly absent is housing for the middle class and the workforce — housing for firemen, policemen, teachers, nurses, municipal workers, college professors, and young families. If that gap persists, it’s dangerous for our cities because they will become segmented by income, with working people having to travel immense distances to be able to afford their homes. And this creates serious dysfunctions.
CB: Can you give an example of this?
HC: In Seattle, a few years ago, a serious flood and the heavy rains broke a lot of the tree branches which tore down power lines. The city was paralyzed for days because the power workers, who lived in the surrounding areas and were needed to come in and reinstall energy in the center of the city, couldn’t get in through the blocked streets.
There are other communities that have had to go to great lengths to retain teachers or restructure the hours of police officers because of the distances that they travel to get to work. There are all kinds of things that communities will have to do for the working class if we don’t create the housing that is so desperately needed for them.
It’s imperative that the building industry work with local government to identify the things that need to be done to build homes for working families. And among those things are the role of government in assembling land — surplus land and reclaiming land from unpaid taxes to assemble residential spaces — working on fees and on rental restrictions, expediting approvals, putting in place local revenues like housing trust funds that can be matched up with a private initiative, and rezoning in order to make smaller-scale housing possible. There’re a whole lot of things that can be done.
CB: How can the building industry benefit from the increasing market presence of minority and immigrant groups?
HC: I think it’s increasingly clear that much of the growth in our society is going to be driven by the growth of minority families and by immigrants. Some estimates suggest that as much as one half of these household formations will fuel homeownership. Between now and 2020, one half of the emerging market for homeownership will be minority groups. This amounts to roughly five million candidates for homeownership, which says to me that builders who understand this trend will be able to grow. They will be providing essential housing for a growth of population.
They may have to tailor the new products that they offer. They may have to choose their sites more carefully. They may even have to think more about how they offer their financial services, mortgage assistance, etc., but there is a growing market there.
This is a market that will be the backbone of the country’s next middle class. So it has absolutely everything to do with core business strategy. This is not a sideshow. This is not peripheral to the main business. This is the distinction between those that will grow and those that will not. And home building should absolutely remain in the center of the bulls-eye for our nation.
CB: Do you see this sector of the market becoming more involved in BIAs and HBAs?
HC: We’re early in the process of ethnic minorities becoming major forces in the building industry. They have been, to this point, workers, but we know that workers come together to see what their skills are and then become subcontractors. Some become general contractors and in time more and more will own building and development companies, and become homebuilders.
The new president of the Texas Association of Home Builders is a second-generation homebuilder named Rick Montelongo. His story is exactly what I just described. It is a story of generations of work. I expect that this trend will happen naturally, but it may take a little time.
CB: How can associations increase interaction with these businesses?
HC: If we want it to happen faster then we have to reach out and identify who these people are, where their concentrations are, and then after they’re identified make them feel that their short-term interest of growing their businesses are served by belonging to organizations like the BIA. They may be in need of capital. They may be in need of marketing. They may be in need of some general knowledge, but there should be a concerted effort to reach out to them as it is not just for their sake, but to grow the entire industry.
CB: Would you speak about Housing for Hardhats?
HC: This is an idea that’s been percolating with me and I’m now looking for the right place and the right time. Basically the idea came to me when I was out on homebuilding sites and talked to minority workers. They were hard workers and they had skills which made them valuable. This trend is not going to go away and minority workers are here in this country to stay. But when I asked them about their own living conditions, their families were all renters. Most of them had just a lack of knowledge about how to get into the homebuying process even though they spend their entire days building homes for other people to live in and to own.
It occurred to me that we ought to bring knowledge of home buying to the construction site — hold some forums and meetings. I would begin to identify which of these people among the framers and roofers and masonry workers and subcontractors might be candidates for homeownership. And I can see that some of the subcontractors and contractors would view this as a positive thing because it would help to stabilize their lives and some of the transient nature of that business would be reduced. It would create incentives for workers to stay with the firm by giving some assistance.
The idea resonates with people and we’re looking to find a way to execute it.