PHILADELPHIA—Robert Greer still remembers the night police officers asked him to leave his own development meeting. Greer is a mild-mannered man but was also an outsider to the neighborhood, which is why the police ejected him when tempers flared. As local nonprofit developers continued to argue about their roles in a planned affordable housing project, Greer, the president of Michaels Development Co., walked to his car—only to realize that his headlights had been kicked out.

Many developers would have given up at that point. But Greer eventually hammered out a deal with three community groups to co-develop 71 new affordable apartments at Kings Ferry Square in south Philadelphia. Thirteen years have passed, and each of the three nonprofits still remains a full general partner in the project and shares space in its community center.

Forming lasting alliances like these is the secret to Michaels’ success, according to Greer. It’s helped Michaels become the largest owner of affordable housing in the country, with 31,418 units, according to a survey by Affordable Housing Finance magazine. The New Jersey-based firm is also one of the top developers, with 1,417 units started in 2006.

A business built one neighborhood at a time

“Every time I do a deal, I do it with a local partner,” Greer said. In projects subsidized by federal low-income housing tax credits, these local groups remain full general partners throughout the 15-year life of the deal. At projects like Kings Ferry Square, local partners help Michaels get soft loans from town or city officials, find qualified tenants to live at the property, and provide services at the property after it is completed.

Kings Ferry Square is still the nicest-looking set of buildings in its neighborhood, even after 13 years in operation. Unlike many aging affordable housing properties, this project has a budget that runs in the black, with several hundred thousand dollars in its reserves, Greer said.

The strong relationships Michaels builds with neighborhood groups and local officials can also lead to new opportunities. In December, Michaels finished 60 new apartments at Sharswood II in north Philadelphia. The company has a long relationship with the neighborhood and built its first project in Sharswood almost 10 years ago.

A record of working closely with residents and neighborhood groups also helped Michaels grow with the federal HOPE VI program. HOPE VI works to redevelop distressed public housing, and the program requires developers to work closely with public housing residents who have often lost all trust in the system.

In the late 1990s, when Michaels first became involved with HOPE VI, the developer was active in 10 states. Today, Michaels is developing affordable housing in 27 states, Washington D.C., and the U.S. Virgin Islands.

The company manages more than 41,000 affordable apartments. Michaels owns more than 31,000 of those and fee-manages another 9,963 units that it has purchased subject to final approvals. Michaels’ portfolio is continually growing.

A new direction

But the high cost of construction and harsh competition for affordable housing subsidy have slowed the growth of Michaels’ affordable housing business. Although the developer is continually applying for new subsidy, Michaels only expects to finish work on 1,417 new units of affordable housing in 2007. That’s a steep decline from the 4,296 units that the firm finished in 2005.

The HOPE VI program also has stalled as Congress argues about whether to fund the program, leaving Michaels looking for new ways to grow without it. Whatever Congress decides, the company plans to continue to redevelop public housing into mixed-income communities using a variety of new funding strategies. But these deals are likely to be smaller than the old HOPE VI deals, and Michaels is unlikely to find a new partner like the Chicago Housing Authority, with more than 4,000 ravaged apartments for Michaels to redevelop.

So Michaels has begun to compete for large contracts to redevelop and manage military housing for the U.S. Army. So far, Michaels has entered four competitions, spending an average of roughly $300,000 to prepare each application.

The company only won one of these contracts: the $250 million redevelopment of roughly 1,800 homes in Fort Leavenworth, Kan. Michaels Development will receive a development fee of between $6 million to $7 million for the job, Greer said. And Michaels also will manage the property, collecting fees from the U.S. Army for 50 years.

“Stand-alone tax credit deals are getting smaller and smaller. … HOPE VI is going away,” Greer said. “What’s next is military housing.”