Nov 05 What you can’t afford to do when preserving and developing affordable housing
Preserving and or delivering new affordable housing stock into the marketplace is a topic of conversation for many across the nation, particularly those holding some form of elected position. These individuals tend to be closer to the problems facing their constituents. This is especially true for the mayor of our great city, Keisha Lance-Bottoms, who has been diligently working to honor her campaign promise of allocating $1 billion towards affordable housing stock in metro Atlanta.
The necessity of introducing new housing stock into the marketplace and preserving what we have is not new to H. J. Russell & Company; indeed, it’s part of our DNA. Russell has been committed to providing affordable, safe, and quality housing to displaced families and individuals with low to zero income for well over sixty years. In fact, from 1968 to 1980, Herman J. Russell and various affiliates developed more than 4,000 units of project-based assisted housing, and we currently own and operate the largest number of affordable residential communities in the Southeast. Given the focus on providing and preserving affordable housing, H. J. Russell & Company has renewed our commitment to the industry as evidenced by our recent development projects.
As part of our current efforts to preserve the existing supply of affordable housing, Russell recently completed much needed substantive renovations at two of our Atlanta properties: Maggie Russell Tower, a 150-unit independent senior living community in the Old Fourth Ward neighborhood and Capitol Vanira, a 60-unit, family community in the Peoplestown community. We are also working to complete substantive renovations on Phase One of Villages of Castleberry, a 166-unit family community in the Castleberry Hill area of Atlanta in June 2019. All three of these projects are all primarily financed by the equity derived from the low-income housing credit program (“LIHTC”) and the U.S. Department of Housing and Urban Development’s 221(d) construction loan product.
However, prior to embarking on these renovation projects, Russell had not been actively participating in the development space, particularly the affordable housing development space, since the recession of 2008. It did not take long for us to be reminded of the challenges involved in completing these significant rehabilitation projects that are financed by private equity and debt through the utilization of various government programs. Chief amongst these challenges is obtaining the multiple sources of financing in an amount sufficient to ensure that all of the development costs are covered. In our zeal to refresh and preserve these affordable units so that our residents have a safe and quality apartment that they look forward to coming home to, we dived back into the development pool head-first and learned some hard lessons along the way.
Here are our top five lessons we can’t afford to forget and encourage other developers to heed when developing or rehabilitating their own properties:
- Know when to walk away – Sometimes, despite creative financing structures, and resourceful value engineering of construction costs—one of the chief areas of risk for a development project—the project just does not pencil out. Accordingly, you a development team has to be courageous enough to make the hard decision that despite the hard work, time, and money already spent, the project may just no longer work at this juncture. Such a decision certainly does not mean that you can’t revisit the project in the future, but at present the deal may need to be tabled.
- Take frequent temperature checks – A deal that may have penciled out very favorably at the onset, may change along the way. In fact, I would venture to say that this is almost inevitable. As such, it’s vitally important to regularly revisit your pro formas/financial models and check in with your financial partners, particularly at important milestones such as prior to rate locking on your construction loan.
- Sometimes you need a partner – There’s much to be said about the feeling of accomplishment when you single-handedly complete a project rather than bringing in a partner to help complete the deal. However, sometimes it’s important to recognize that the success of the project—preserving and or delivering new affordable units into the marketplace—supersedes that feeling of “I did it.” For various reasons, it may be necessary at the onset or become more apparent as you move further along towards a financial closing, that a partner is necessary to help complete the project. Don’t shy away from asking for help.
- Don’t force the project to fit a pre-determined budget – This is perhaps right up there with number one. Sometimes as developers we can be so single-minded about getting a project to the finish line, we begin chipping away at things and especially the scope of work, to try to “make the numbers work.” That is never, ever, a good idea!
- Having an Adequate Team is Critical – The very last place you want to cut corners or save on your budget is on your project staff. Quite frankly, I believe the success of your project is dependent, in very large part, on the quality and depth of your project team. Having one person wearing too many hats on a development project team is a recipe for disaster. It is imperative that the folks operating in various roles have the expertise to perform those functions. It is also equally important that project team members aren’t stretched beyond their bandwidth and skill set, by having them perform multiple functions. While these take-aways can apply to any type of development project, this is particularly true for affordable projects, because those projects tend to be extremely nuanced, complicated, and task-intensive.
Yasmine S. Murray, Esq.
Executive Vice President
Yasmine S. Murray, Esq. is Executive Vice President, General Counsel and Corporate Secretary of H. J. Russell & Company. As the company’s General Counsel, she manages Russell’s legal affairs and works diligently to mitigate risks company-wide.
Yasmine brings a strong commitment to the firm’s core values and a deep understanding of the unique legal issues it faces. She is a member of the American Bar Association, Association of Corporate Counsel, Atlanta Business League, Georgia Association of Black Women Attorneys, Minority Corporate Counsel Association, National Association of Professional Women, State Bar of Georgia, and the Urban Land Institute. Also, she serves on the Council for Quality Growth’s 2019 Government Affairs Task Force.