It might seem too good to be true--upgrading from renting to ownership without choking on the down payment or being saddled with skyrocketing monthly payments. William Stratton suggests that he has a way around it. Stratton, whose background includes stints at Lehman Brothers and Morgan Stanley, is executive director of the Philadelphia-based nonprofit American Homeownership Initiative. With a focus on workforce housing, AHI plans to acquire rental assets—either fully or in JV with current ownership—upgrade them and sell the units to prospective occupants struggling with the upfront cash needed to buy a home. His slogan is Smart, Green and Affordable—three goals aided in large part by partnerships AHI is creating with the likes of Verizon Communications Inc., Lowe’s Home Centers, H&R Block and Whirlpool Corp. But the crux of the plan comes in an installment sales agreement that is designed to provide transfer of equity title without a deed. Stratton admits that he has yet to start renovations on any projects, and while he’s in final negotiations for startup capital, as we go to press, those funds are yet to be secured. Regardless, the plan is bulletproof, he says, and with the corporate support he’s gotten to date, he’s eying an ambitious 2,000 units within a year. Here’s the plan:

GlobeSt.com: How long has AHI been around?

Stratton: It was born in the past year, but the concept was actually first applied back in the ’90s in the days of the RTC, when values were dropping significantly. About three or four years ago, I got together with Sam Bradstreet, who ran the program back then and is our senior consultant, with the idea of trying to start this up again. The timing now, of course, is perfect because of the subprime fallout. Gone are the days when two kids making $40,000 each can go out and buy a $700,000 home with a five-year balloon and no documentation. The number-one reason why people can’t bridge the gap between renting and homeownership is the down payment.

GlobeSt.com: Map out your mission for us, please.

Stratton: Our job is to provide smart, green and affordable homeownership to renters in existing properties across the country. The project is predicated on existing rents, and we want to make sure there’s not too much of a spread between the resident’s rent payments and what they would pay for a mortgage.

GlobeSt.com: How?

Stratton: We’ve gone to the mat trying not to oversimplify, because this program is building-specific. But solely as a hypothetical, let’s say there’s a 600-unit building we purchase for $70 million. That works out to about $115,000 per unit. The average rent is $900. We might spend $15,000 to do the upgrades, bringing the cost to $130,000. To apply the technology—coordinating everything and making sure it’s seamless to the tenant, now the owner—we pay a fee similar to a real estate fee to an outside company, so now we’re at $140,000. The monthly obligation of the owner is around $900.

We’re not looking to gouge or to buy these at $115,000 and sell them at $225,000. That’s the nonprofit part of the story. But, again, each building is different, and that’s important. Yields, cap rates, vacancy rates, the demographics of the neighborhood—all of these factors come into play.

GlobeSt.com: How is the installment sales agreement supposed to help the process? Does it cost more in the long run in terms of interest or any hidden fees?

Stratton: The ISA is a very old concept, essentially providing equity title for a mortgage-like payment and allowing the owners to take the tax advantages a mortgage provides. Everything is based on a 30-year fixed rate.

GlobeSt.com: How does the building owner—not the occupant—with whom you might joint venture profit?

Stratton: An owner might typically realize a 5% to 6.5% yield on the sale of a property. Through this program, if it’s a joint venture, we can get this up into the double digits. The property is already performing. As we capture more tenants and those tenants become owners, there’s a value-add that equates to the increase in yield.

GlobeSt.com: The program isn’t focused solely on multifamily though, correct?

Stratton: We’re completely open and willing to implement the process in the single-family market. There’s a large portfolio of single-family homes we can apply this to, and if we find the right opportunity we will.

GlobeSt.com: How do the vendor relationships factor into the goal to make the properties “smart and green”?

Stratton: Our vendor-relations group is charged with obtaining these relationships with new vendors. Whirlpool was one of the first to raise its hand to help. Lowe’s will obviously help us with the renovation component of the project, and they have committed to using sustainable products in all their work. We might have the opportunity to make a 10% carbon impact or something significantly higher. Verizon is a significant player as well, providing the “smart” part of the strategy by providing potential unit owners opportunities they might not have had in the past—for instance, a new computer wired for FiOS (see sidebar). H&R Block will help the new owners navigate the tax advantages of the ISA.

GlobeSt.com: Where do you see your startup capital coming from?

Stratton: We’re hoping it will come through a banking relationship with one of the vendors I mentioned or from private sources. We’re in the 11th hour of negotiations on that right now.

GlobeSt.com: Have you actually installed anything to date?

Stratton: While we haven’t installed anything yet, we have a portfolio of 12 properties that we’ve already vetted and we hope to start work within the next 60 days on assets within 300 miles of Philadelphia. The projects we’re looking at now are as small as a 150-unit garden apartment and as large as a 700- or 800-unit community. Within the year, I’d like to be at 2,000 units nationally. There are 10 of us now at AHI, and I expect that figure to increase dramatically because we’ll have to ramp up our efforts in a number of different areas. We’re trying to make a difference in people’s life stories, and we hope to make a bigger difference than two buildings in Philadelphia.