Cristina Villalón, co-founder of Valora Ventures, shares on Punto Aparte how they apply the blended finance model to develop affordable housing in Puerto Rico.
Although there are challenges to creating affordable housing in Puerto Rico, the ingenuity of new firms like Valora Ventures has prioritized developing it to address the growing need for housing for working-class people and young adults.
The challenges and economic viability of these projects were among the topics discussed with Platea by the co-founder of the real estate development firm, Cristina Villalón Brito, on a recent episode of the podcast Punto Aparte.
The lack of affordable housing is increasingly evident in Puerto Rico, according to the most recent Affordable Housing Index, prepared by Estudios Técnicos Inc.
Despite the millions in federal funds allocated to develop these projects, bureaucracy and ineffective planning delay them, leaving thousands on waiting lists, with few options, or having to leave the archipelago.
But, drawing on their combined expertise in real estate development and finance, Villalón,together with Natalia Guzmán Pérez, co-founder of the firm,focuses on both effective design and the economic viability of each project. That way, they minimize delays so people can get housing as soon as possible.
"That's what we're trying to do at Valora Ventures: cut a lot of that time, speed up that early phase, make sure the numbers and the design are perfectly aligned to leave that cushion, so that when the unexpected comes, when the bottleneck hits, it flows and moves faster."
— Cristina Villalón Brito, co-founder of Valora Ventures
Finding answers in the absence of incentives
Real estate development, according to Villalón, is typically driven by government incentives and exemptions. Increasing affordable housing development would therefore require more public policy to encourage it.
"Right now, the incentives that exist are for tourism, hospitality, and that's why there are a lot of hotel projects happening, and so on. Development follows the incentives, traditionally. If there are affordable housing incentives, then developers will get into affordable housing projects," said the interior designer and developer.
Over the past 4 years, the government has awarded tax credits to tourism projects totaling over $500 million in investment. To stimulate affordable housing, Gov. Pedro Pierluisi signed House Bill 2172 in August.
The measure offers incentives to encourage developers to convert vacant buildings into affordable housing complexes, in order to address the housing need and reactivate economic activity in urban centers.
Mayors such as those of Bayamón and Villalba have supported the measure, while some legislators and economists have welcomed its intent but also raised concerns about its implementation.
Even so, and with few incentives, Valora Ventures is committed to developing affordable housing projects with minimal environmental impact, using a proven and effective strategy: the blended finance model.
Blended finance combines public and private funding for affordable housing development. Projects developed under this model typically offer units with a variety of bedroom counts, to serve a mixed-income population, meaning people at different income levels.
Villalón's prior experience at the architecture and design firm Álvarez-Díaz & Villalón shows this model in practice, currently, across three existing projects:
Renaissance Square, in San Juan
Bayshore Villas, in Puerta de Tierra
Emerald Vista, in Caguas
Using mixed financing reduces rental costs, making units more affordable for working-class residents. As an example, Villalón mentioned that a one-bedroom apartment in these types of complexes could run around $600, while a three-bedroom runs around $800 to $900. By contrast, the average rent in 2022 was $2,990.
A better Puerto Rico, despite the challenges
These mixed-financing projects take an average of about 5 years to develop and have waiting lists of thousands of families. Some of the challenges that persist, for Valora as well as other developers, are the following:
Construction in historic downtowns takes longer because of the complicated logistics. Permits also extend the process, making it cheaper to demolish buildings, which takes longer, than to rehabilitate them.
After the COVID-19 pandemic, construction material costs rose sharply.
There is high demand for construction workers but very few trained employees.
The permitting bureaucracy forces projects to pause and budgets to be reassessed, prolonging the construction process.
Villalón also pointed out that, with fewer regulations, small businesses can thrive and maximize the potential of these housing projects, some of which will focus on reviving the island's historic downtowns.
"I think there are a lot of public policy issues that, without meaning to, suffocate us a little: too much regulation, too much legislation. Everything is like a gridlock. And especially for a small business, those regulations make everything more complicated. I mean, I think we need to make doing business in Puerto Rico easier, in general, in order to strengthen the private sector", she said.
Still, the desire persists for a Puerto Rico where future generations can live and those who left can return.
"I want to leave this planet better for my daughters, for my granddaughters, someday, if I have them, better than I found it."
—Cristina Villalón Brito, co-founder of Valora Ventures
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This content was translated with the assistance of Artificial Intelligence (AI).
