Acquisition-rehabs can often be a fruitful, rewarding process. In attempt to preserve housing, developers will transform a building from an outdated design to something new and fresh.
And some buildings that are naturally entitled are easier to get tax credits, said Patricia Belden, COO of the Preservation of Affordable Housing, at AHF Live in November.
“You had project-based Sec. 8, you knew you were going to close your deal,” she said.
But getting the deal is not as easy as it used to be. Now, it requires more accessibility and more ADA compliance, and those additions are more costly and difficult on an older building and can jeopardize budgets.
“It costs a lot to do certain preservations,” said Josie Kotsioris, senior manager at Baker Tilly Virchow Krause. “Some construction is more streamlined. Retrofitting an older preservation project is expensive.” Some for-profit developers may not have easy access to soft funds like nonprofits do, she added.
It’s imperative to choose the right project and question whether the building is even worth saving.
“It has to be something someone wants to sell, at the right price,” said Tom Capp, COO of Gorman & Co. “We’re always looking for preservation opportunities, and, for the most part, folks want to sell it.”
Ideally for Capp, the building is located in a neighborhood where they’re already doing other work. And a perfect project, as he described, is something that’s resolved to the point where a developer can come in to take the liability and turn it into an asset.
But the time and effort it takes into getting these deals are rough, as Belden described–she’s worked with teams for six or seven years before completing a deal. And it can be difficult rehabbing a building that’s not already empty.
“In special circumstances it’s perfect if the building is empty,” Capp said. “Or if it has significant vacancy.”
The lower occupancy will allow developers to draw down occupancy as construction reaches completion, and it helps with the issues that come with relocating residents.
Perhaps the best way to frame your project to receive funding is in presentation.
“To the syndicator, the presentation of [the project] goes a long way to the investor, syndicator, lender … it helps,” Jeffrey Weiss, vice president of investor relations at Hunt Capital Partners, said. “It helps the syndicator understand what’s happening.”
Some tips include doing a team analysis of buildings, which include a structural engineer and environmental and historical consultants, if necessary. This due diligence approach is a funding appeal–having a strong team formed before commitment is made to the project saves money and can secure better financing.
“Worst thing to do is go down the line, spending tons of money,” said Capp. “You want to identify deal-stoppers early.”