The competition for acquisition-rehabilitation deals of tax-credit properties is more intense than ever, according to panelists from “The Nuts and Bolts of Acquisition Rehab,” at the recent AHF Live conference.
Sellers are dictating terms, “and a lot of those terms deal with how quickly you can close,” said Mark Ragsdale of PNC MultiFamily Capital.
A strong transaction team featuring a financial adviser and attorney experienced in Department of Housing and Urban Development (HUD) programs is essential for quick transactions, panelists said. “You could hold up a deal if you don’t understand the HUD process for the transfer and renewal of Sec. 8 contracts,” said Ragsdale.
Market-rate developers looking to add value and mark-up rents are squeezing out affordable housing developers in strong markets, according to panelists. Panel moderator Stephen O’Connor, senior vice president with affordable housing REIT Community Development Trust, was recently involved in a heated bidding process where the seller eliminated anyone using tax credits or bonds.
In such an environment, “free money” may not be the best way to go, said Michael McGovern of Associated Bank. Developers could wait for more than a year to procure funds from the Federal Home Loan Bank’s Affordable Housing Program, for instance, testing a seller’s patience
Knowing the HUD programs that apply to the property is the most important consideration. “Look at what HUD Sec. 8 rules apply. Can I get a rent increase?” said Laura Burns of Eagle Point Enterprises. “If we were marking up to market, we wouldn’t close a deal unless we had HUD approval.”