In this issue: Theobald’s top 10 tactics to tangible tax credit triumph: 10 ideas to rescue a failing tax credit project before the end of the first year of the credit period.
Lease-up is still not going as well as we expected. We saw last month’s article and realized where we had gone wrong. Now what? It’s one month later and we have 40 units left to lease before the end of December. We’re still worried. Can you give us some more specific tools to work with?
– Desperate, Demoralized, and Despondent
Dear Desperate: Yes, but first we need to administer a little TCR (tax credit resuscitation). It sounds like you are reaching panic stage and there’s nothing worse for a challenging lease-up than a person who can’t think clearly, much less imaginatively. The most important thing is to slow down and give your brain a chance to catch up.
Here’s where you stand: It’s July. You’ve got five months to lease units, and with the ideas we are going to give you below (plus your own inspiration) you can make it. You just have to believe it. If you don’t, neither will the people you hired to get the job done.
The following is a list of some possible solutions to the 10 problems we identified last month. Caution: If you approach the challenge thinking that nothing will fix the problem, you are right. In the final analysis, attitude is just about everything.
Top 10 tactics to tangible tax credit triumph (in the first year)
1. Bring in a consultant to handle final approval of files for compliance purposes so that the staff can concentrate on lease-up and marketing efforts. If your staff is trying to learn about Sec. 42 while trying to lease apartments, you run the risk of too little and too late.
Owners sometimes forget how much work is involved in the first year, and how much the first year of the credit period impacts future years. Anticipate spending about $50 per file to get an experienced company to protect your files. It will be the best $2,000 you have ever spent. Let your staff focus on doing what they do best. You will save money in the long run and your files will be compliant.
2. Make certain the lease-up team knows exactly what needs to be accomplished and by when. Then break the tasks down into small, manageable pieces, even as small as a unit-by-unit target. If you are feeling overwhelmed, send someone else in to work with the group.
Example: You’ve got 40 units left to lease. That can sound like an overwhelming number, so think small. Think five months and 40 units. Think eight units a month. Now think even smaller. Think two units each week. Now think even smaller. One unit.
3. Study the current market conditions and consider the reasons people might not be renting. Ask your management team why they think units are not filling up. What’s your advertising budget? Please don’t pull out the market study that was completed a couple of years ago and try to apply it now. Look at the market today. Do what you can about the reasons you think renters are choosing to rent at other locations. Hint: It might be fun to create ways to make your property outshine others. If you just said, “Yeah, right, like that will happen,” you just identified part of the problem. Congratulations!
Here’s the most important question: How do you perceive the apartments and the management agent you have hired? What you think will be sensed by the people doing the work as if you were wearing a flashing neon sign.
4. Now look at what you have left to rent. List units by type, location, square footage, and any amenity differences. Design incentives based on the least desirable units or the units that have been sitting vacant and never occupied the longest. Remember, one unit at a time.
In particular, look at each building. How many units are left to rent in each? Credits are awarded by building, and a building with all its tax credit units leased in the first year is a good thing.
Example: Let’s say that your 40 vacant units are in four buildings. One building has three vacant and never-occupied units; one has seven, one has 11, and the last one has 19 never-occupied units. Put your deeper incentives on the building with only three vacant units left first. Then move to the next building and so on.
Remember, just take on one unit at a time and fix your attention on it. As you go to sleep at night, imagine it occupied by a happy, qualified family. When you wake up, take time to imagine it again. Just do it.
There are those who believe that incentives are a bad idea. But when a deadline is staring you in the face, if you must use an incentive, make it work to your advantage.
- Tie the incentive only to units that have not been occupied.
- Give incentives a time-based benefit. The sooner you can get a qualified family into a tax credit unit the better. Offer more for earlier occupancy.
- Do not give the entire incentive all at once, but do not spread it over the entire lease term.
- If you prefer to use other people’s money, lower the security deposit or offer a rebate based on length of occupancy.
5. Celebrate each lease – reward staff for meeting goals. It’s a team effort. If you don’t want to give cash rewards for renting units, give something else, like time off or a gift certificate to a nice restaurant. Promise and deliver a party when lease-up is complete. Do something. Give the staff something to work toward.
6. Create a Web site for the apartment community. Show pictures of units and advertise events – whether it’s an open house, a charitable fund-raiser, a bake-off, a dance, an art exhibition, a craft fair – something that attracts public interest.
7. Offer one thing that other properties do not. Make it unique and something that stands out – that sets your property apart. It does not have to be big; it does not need to be expensive. You will not regret the extra attention you give others.
8. Go home. Take an afternoon off and spend it with children. Take your kids to a movie. Ask a child what they would do with your problem. You’ll be amazed at how much more positive energy you have when you take care of yourself and spend time with children.
9. Visit the historical society or a local museum in the area where the property is located. We are not kidding. Pay attention to the history of the community—get involved in what the community cares about. It will work wonders.
10. One last thing if you’re not making progress, give something away to someone in need. It helps to remember that there are others who are in more desperate circumstances than we are. Even when we think we stand on the brink of disaster—perhaps especially then, remembering to take care of someone else can give us an entirely new perspective.
Whatever you do, take small and manageable steps. Pick one idea and one apartment. It’s one thing to look at 40 apartments that must be occupied by the end of the year; it’s quite another to just focus on the next unit.
The above list is just a start. The rest is up to your imagination. Good luck! Oh, and if you’re going to pick up the phone to call the management agent for the umpteenth time today, either put the phone down, or make sure you’re calling to tell them how extraordinary they are and how you are glad you hired them. Unless that is not the truth. Then you know where the real problem lies.
Have you got a compliance question that is keeping you up at night? Contact email@example.com and get it answered. All questions presented in this column and in TheoPRO’s Weekly On-Line Compliance Advisor are real questions, and all are answered by Ruth personally. See www.icomply42.com for more information.