Affordable Housing Finance

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The AHF 50

Declining Numbers

AFFORDABLE HOUSING FINANCE • April/May 2010

Developers see falloff in production

BY DONNA KIMURA

Affordable housing starts were way below prior years in 2009, according to AFFORDABLE HOUSING FINANCE’s survey of developers.

The dropoff is steep and hard. The one thing that it isn’t is a surprise, but that doesn’t make it any less painful.

Everyone in the affordable housing industry knew that projects were stalling last year as the economy sputtered and the low-income housing tax credit (LIHTC) market struggled to find capital.

The depth of those troubles can be seen in this year’s list of Top 50 developers.

The number of affordable housing units started in 2009 fell by nearly 29 percent over the prior year. This year’s group reported starting just 16,711 affordable units last year compared with the 23,428 units started in 2008 by the previous Top 50 firms.

The picture is really even worse when you consider that the total comes from 54 firms on the new list because of several ties.

The average number of units started by AFFORDABLE HOUSING FINANCE’s list of top developers is 309, notably less than the 469 posted the prior year.

Completions also fell in 2009 albeit much less sharply. The group delivered 20,382 affordable units, about a 5 percent falloff from the 21,385 units delivered the year before.

The only list of its kind, the AHF 50 reveals how many units are under development by the leading national and regional developers. The ranking is based on the number of units started in 2009. Separate lists reveal the Top 50 owners and the Top 10 firms completing acquisitions.

The results are compiled from a voluntary survey, so not all developers take part each time. This year, 95 firms participated. All developers and owners with general partner interests are encouraged to take part in next year’s survey.

2010 outlook

Overall, developers are hopeful that they’ve seen the worst of the storm, and they expect their 2010 numbers to improve. They plan to start as many as 27,551 affordable units this year, which would be a big 65 percent improvement over last year. They expect to deliver 21,532 units, a 6 percent increase.

Forty of the 54 developers on the list report receiving funding through the Tax Credit Assistance Program or credit exchange, which were created under the American Recovery and Reinvestment Act last year to help stalled LIHTC deals.

These developers have received stimulus funds for 155 projects.

Despite the projected uptick in starts, survey participants don’t expect to get higher LIHTC prices this year. After receiving an average of $0.76 per dollar of credit for deals closed in 2009, they predict prices to be about $0.73 this year.

Top firms

Several of the top firms showed their strength with their stability during a tumultuous year.

The Michaels Organization in Marlton, N.J., comes in at No. 1 on both the owners and developers lists this year, holding 44,916 units and starting 1,699 units last year. The firm is a big player in HOPE VI developments across the country.

To cope with the economic downturn, Michaels is self-syndicating its 9 percent LIHTCs, says President Robert Greer. The company is also stepping up its acquisition activity.

The NRP Group in Cleveland, which has held the top developers’ spot for the past three years, drops to No. 2 on the latest list, but continues its strong production activity with 1,411 affordable unit starts.

NRP has focused on establishing direct investor and banking relationships to secure financing. A developer of market-rate apartments in addition to affordable housing, the firm is minimizing its market-rate exposure with plans to start just one large conventional development this year.

Both companies reported increasing their staffs even in a down economy. Many others weren’t so fortunate and had to fight just to maintain staffing levels or had layoffs.

Pennrose Properties in Philadelphia moves to the No. 3 spot after being No. 7 last year. It started nearly 700 new units in 2009. The firm “worked harder, squeezed budgets, and identified alternative sources” to keep deals alive, says President Mark H. Dambly. In addition to accessing federal stimulus funds, Pennrose worked to manage expenses and was more selective when it came to pursuing projects, he says.

The Phipps Houses Group in New York City moves from No. 12 to No. 4 on this year’s list based on its start of three projects with 642 units last year. It’s the highest ranking nonprofit this year.

What now?

To weather the lean economic times, developers are making a number of strategic moves to overcome the shortage in LIHTC equity and to keep deals alive.

Officials at Carlisle Development Group in Miami report focusing on developing in areas with the highest demand for affordable housing. They’ve also concentrated on stabilizing construction projects, maintaining occupancy, and decreasing expenses.

At Rochester, N.Y.-based Conifer Realty, officials say they have been more selective in the deals they pursue and have adjusted their underwriting to address lender and investor requirements.

Forging relationships with project partners and searching for new sources of financing are also more important than ever.

“The downturn forced us to get creative, to revise capital structures, and to learn new regulations for new sources of financing,” says Laura Archuleta, president of Jamboree Housing Corp. in Irvine, Calif. “We worked more closely with our city and county partners to ensure that our deals remain viable and moving.”