Meet Carr Hagan, president of LHP Development, a Knoxville, Tenn.-based firm focused on the acquisition and development of affordable housing.
The business is part of LHP Capital, led by Phil Lawson and launched in 2015 after operating as Lawler Wood Housing Partners for many years. The company owns more than 9,400 affordable housing units.
Hagan discusses what’s in store for LHP's development arm.
How did you get started in affordable housing?
After graduating from college and completing a three-year, in-house credit training program within First Tennessee Bank in Memphis in the late '90s, I accepted a placement within the bank’s direct investment department that worked with affordable housing developer clients. In 2002, one of those clients, Lawler Wood Housing offered me a role to join them as vice president of development. I’ve been here ever since.
What does LHP Development have planned for 2016?
We strive to maintain a better balance of 4% low-income housing tax credit (LIHTC) and bond transactions with 9% LIHTC deals. The timing, competitive uncertainty, and often scoring-incentivized design mandates that come with the pursuit of 9% LIHTC often negate some of the additional equity windfall that comes with that deeper capital subsidy. We are finding 4% LIHTC working quite well for larger existing properties in bigger markets with strong rents so long as the capital needs of these properties haven’t been neglected for too long. We’ve executed 4% LIHTC funded rehabiltations in these type markets over the last couple of years in the $40,000, $50,000,even as high as $60,000 per unit construction budget when other factors work out favorably. However, that is not to say that there still aren’t many older existing affordable housing developments where 9% credits are an absolute necessity to ensure future viability.
How is the firm changing?
It’s a challenging time to be a preservation-focused affordable housing developer. While preservation opportunities abound, we often face intense competition from other potential buyers who have aggressive and patient capital primed to move very quickly and arguably take on a higher, long-range risk profile in owning and operating Sec. 8 assets.
If that dynamic weren’t daunting enough, every affordable housing developer can appreciate the competitive and predevelopment risks in seeking LIHTCs and the financial market risks associated about the potential for changing tides in equity demand and interest rates.
Lastly, with the pace of growth in the multifamily subsector, construction costs have been very volatile as of late particularly as to labor and show no signs of cooling off. A host of these factors and other challenges keep our development shop on our collective toes and force us to think creatively every day about how we create an advantage.
When you visit a property, what do you look for?
Kind of simple, but probably the most telling statement is whether there’s a noticeable amount of trash on the site. It’s bad enough if you see litter on the grounds of an affordable multifamily community on an unannounced visit- but if a site – either in our portfolio or a potential acquisition- has not gone to the trouble to pick up the grounds and parking areas of trash prior to an announced site visit- it’s a pretty good barometer that there are issues deeper than that worth exploring.
If you could add any amenity or feature to a development, what would it be?
There is no one-size-fits-all needed amenity that suits all properties. We have several instances of very fancy pot and pan storage cabinets sometimes known as “dishwashers” that prove this point. In all seriousness, we really strive to focus attention on updates and amenity additions that suit the particular needs of that specific property.
We want the residents to see, use and benefit from the capital investment we are making in these existing properties. There are obviously varying degrees to which we have success in seeing that goal met, but the bottom line is that we try not to ever lose focus that we are in the business of updating and extending the life of people’s homes in what we do. Often what makes sense for a particular property may not be 100% aligned with the amenity requirements and preferences put forth by an allocating agency- not much we can really do about that but it’s a balance with which we remain mindful.
Favorite part of your job:
It sounds like a cliché, but the favorite part of my job is that I truly feel like I learn something nearly every day. Our team reverse-engineers a lot of solutions from a set of variables over which we often have little or no control, and it’s fun when a puzzle like this comes together to help make a deal work, and it’s particularly rewarding that this is helping make better housing for folks who face few other options. Having said that, I wouldn’t recommend this field for anyone who doesn’t have a great degree of patience because the ground game is won over a period measured under best circumstances in months- sometimes years!
Describe the town you grew up in:
I grew up in Kingsport, Tenn., a small city of about 40,000 on the Tennessee/Virginia border. Despite its relatively small size, the presence of a major chemical manufacturer’s headquarters (Eastman Chemical Co.) sort of translated into bit different (better) socio-economic environment than what one might traditionally ascribe to Appalachia. I feel truly fortunate to have spent my formative years in a town where you might literally know every person on not just your street, but your whole neighborhood- that’s a reality that I know my kids don’t have today. It’s actually a little bit sad for me to think that even Kingsport isn’t like this anymore- but that’s just the victim of 30-plus years of technology and unfortunately, a more insular society.
“I’d rather be lucky than good.” Lefty Gomez