COVER STORY

View From the Top

AFFORDABLE HOUSING FINANCE • May 2008

BY DONNA KIMURA

Developers making the AHF Top 50 list this year started an impressive 30,957 affordable housing units in 2007. That’s 32 percent more than the number of starts produced by last year’s top developers.

In a strong show of consistency, The NRP Group, LLC, held onto the No. 1 spot for the second consecutive year, starting 1,765 affordable housing units in 2007. The number is an increase from the 1,580 units that the company started in 2006. But, perhaps in a sign of how tough the real estate capital markets are getting to navigate, the Ohio-based firm anticipates starting fewer affordable housing units—1,327—this year. The NRP Group is also expanding its market- rate housing business. “We were needing to diversify,” said J. David Heller, managing member.

Other firms that have focused on affordable housing, including AMCAL Multi-Housing, Inc., in Agoura Hills, Calif., and Herman & Kittle Properties, Inc., in Indianapolis, also noted plans to begin or expand their efforts in building market-rate apartments.

“We are not slowing down on the affordable side,” said Jeff Kittle, executive vice president at Herman & Kittle. “The market-rate side is an extension of our business.”

In some markets, an affordable deal may not work because of land or construction costs, he said. The best product might be a market-rate development. “We view it as an opportunity,” Kittle said.

AFFORDABLE HOUSING FINANCE’s list of leading developers is made up of 36 forprofit companies, 14 nonprofits, and one public housing authority. Two companies tied for the No. 17 spot, resulting in an extra firm making the list. Twenty-two of the developers are new to the AHF 50.

“AFFORDABLE HOUSING FINANCE is really pleased to present the AHF 50 top owners and developers lists for a second year in a row. Industry response increased this year to give us a better look at the nation’s affordable housing figures, which exemplifies the depth and activity level of owners and developers today,” said Christine Serlin, executive editor of AFFORDABLE HOUSING FINANCE.

The only list of its kind in the industry, the AHF 50 shows how many units are under development by the leading companies. The results are compiled from a voluntary survey. This year, AFFORDABLE HOUSING FINANCE received responses from 130 national and regional companies from around the country, a notable 35 percent increase from last year, creating an even more comprehensive list of the top firms.

The AHF 50 is based on the number of affordable units started in 2007. The vast majority of the units are financed with lowincome housing tax credits and/or taxexempt bonds, but this year’s list also includes affordable units that did not use credits or bonds.

“Bigger” best describes this year’s list.

The average number of affordable housing units started by the Top 50 in 2007 was 607, and the median, 489. That’s a sharp increase from last year’s group, which started an average of 469 units. Five companies remain in the Top 10 from last year. The Park Cos. made the most dramatic move, vaulting to the No. 3 spot from 34 last year. This is because the Jackson, Miss.-based company, which has been very active in rebuilding efforts along the Gulf Coast, started 1,316 affordable housing units last year compared to just 306 in 2006.

Three of the Top 10 developers are nonprofit organizations.

In addition to the list of top developers, a list of the Top 50 owners is presented. Again, “bigger” is an apt description.

This year’s list of top owners possess a hefty 406,294 affordable units, a 44 percent jump from what last year’s group owned. The increase is attributable to steady growth by some companies and the addition of several large companies to the list, including Aimco, a real estate investment trust with a sizable affordable housing portfolio, and BRIDGE Housing, a longtime San Francisco-based nonprofit owner and developer.

The average number of affordable housing units owned by the Top 50 owners is 8,126, and the median, 5,611. The Top 50 owners list features 35 for-profit companies and 15 nonprofits.

The AHF 50 focuses on affordable housing developers and owners who are general partners.

If your firm was not represented this year, we urge you to take part in the survey next year. Watch for the survey in January 2009 or contact Donna Kimura, deputy editor, at dkimura@hanleywood.com.

Developers expect as much as a 7-cent drop in low-income housing tax credit (LIHTC) prices from last year.

That may not sound like a lot, but it’s a potentially huge obstacle for developers putting together affordable housing deals.

Developers on average received 96 cents per LIHTC dollar for deals closed in 2007, according to a new survey by AFFORDABLE HOUSING FINANCE. For a developer awarded $1 million in tax credits, that price would yield $960,000 in equity investment.

This year, developers said they expected to get only about 88 cents on the dollar for the same types of deals. The projection reflects the low pricing seen in the market as a result of cutbacks by several major investors. A developer awarded $1 million in LIHTCs would reap $880,000 in equity based on the projected prices this year.

Conducted in the first quarter, the survey drew responses from 130 large and small, urban and rural, for-profit and nonprofit affordable housing owners and developers from across the country. The findings paint a vivid portrait of today’s development climate.

The survey also found that:

• Affordable housing owners spend an average of $4,633 per unit per year on operating costs. That’s a 2 percent increase from the average reported a year ago.

• A large majority of the developers, 86 percent, expect operating costs to increase between 0 and 9 percent in the next 12 months. Thirteen percent project increases of between 10 percent and 19 percent.

• The construction cost per square foot is $112.09, on average, for an affordable housing garden- style project; for a mid-rise, $159.08; and for townhomes, $124.59.

• About 57 percent of the respondents said construction costs increased between 0 percent and 9 percent from a year ago. Thirty-three percent said costs increased between 10 percent and 19 percent, and 9 percent said they increased even more. One respondent said costs decreased.

• Looking ahead at construction costs, a large majority—more than 77 percent—expect increases of between 0 percent and 9 percent in the next 12 months. Twenty-two percent think the increases will be even larger.

• Owners spend an average of $37,056 on rehabbing each unit. This is nearly 8 percent lower than the amount reported last year. However, the median amount spent on rehab was slightly higher, at $31,425, than last year.