The 2012 AHF Top 50

2011 project starts slip for developers from 2010 levels, but still show gains from 2009 lows

By Donna Kimura

The nation's top affordable housing developers continue to push projects through their pipelines despite a combination of new and lingering challenges.

The firms on Affordable Housing Finance's latest Top 50 developers list broke ground on 232 new construction projects featuring 19,053 affordable housing units last year.

That's a 17 percent drop from the 22,978 units started by the same developers in 2010, a big rebound year as a backlog of projects got under way with the help of federal stimulus funds.

However, the 2011 levels still show gains over the production lows seen in 2009 when many deals were crippled by a weak economy and sinking low-income housing tax credit (LIHTC) prices. Affordable Housing Finance's top developers from that year started just 182 projects with 16,711 units.

This year's developers list features 53 companies because of several ties. There are 33 for-profit and 20 nonprofit companies. Eighteen firms are headquartered or have a significant presence in California.

In another good sign of their health, 44 of the 53 companies reported increasing their staffs in 2011. Together, they employ more than 19,000 people.

The only list of its kind, the AHF 50 reveals how many units are under development by the leading national and regional developers. The ranking is based on the number of new units started in 2011.

Separate lists reveal the top owners and the top firms involved in the preservation of existing affordable housing through acquisitions. Also, for the first time, Affordable Housing Finance is debuting a list of top developers who completed substantial rehabilitations of their own properties. This year's Top 50 owners hold 5,605 projects with more than 536,000 affordable housing units. The Michaels Organization in Marlton, N.J., continues to be the nation's largest affordable housing owner, with more than 300 properties and 45,000 units.

Although the lists present only the tip of the iceberg of all affordable housing activity, they still provide a vivid look into the health and mood of the industry.

The results are compiled from a voluntary survey. This year, 111 firms participated. All developers and owners with general partner interests are encouraged to take part in next year's survey.

State of the industry

The NRP Group claimed the No. 1 spot on the developers list this year based on starting 2,278 units in 19 developments in 2011. The Cleveland-based company moved up from the second spot on last year's list.

McCormack Baron Salazar, Inc., headquartered in St. Louis, and Miami-based Carlisle Development Group were No. 2 and No. 3, respectively.

The majority of developers surveyed (53 percent) feel the return of LIHTC capital was the most significant event in 2011. That was followed by the availability of low debt (19 percent) and the availability of federal stimulus money (15 percent).

The resurgence of the LIHTC market was key in 2011, agrees Tracy Doran, president of Humanities Foundation in Mount Pleasant, S.C. The nonprofit ranks No. 38 on the list.

“Last year was a stronger year,” she says. “We saw banks coming back into the equity market. Pricing was going up, and we saw a good demand for our credits.”

Overall, there was more confidence from investors, developers, and others in the industry, according to Doran.

The return of LIHTC capital can be seen in the higher prices being paid for housing credits. Developers reported receiving $0.87 per dollar of tax credit on their 2011 deals, an increase from the $0.77 average reported in last year's poll.

Developers were also asked what changes they would like to see in LIHTC qualified allocation plans. Coming from many of the largest and most veteran affordable housing builders, it's not surprising that the top answer was increased emphasis on developer experience followed by an increase in maximum award size. Also receiving strong support was the awarding of more credits to preservation projects.

The Top 50 developers expect to do even more work this year, projecting to start 301 projects with about 23,800 units. However, the outlook grows uncertain when looking further out.

A year ago, most developers were confident that finance conditions were improving. Today, they feel that conditions will remain about the same or be worse a year from now. These more measured expectations are fueled by a number of game-changing issues that loom over the industry.

Asked to select their biggest concern for 2012, 39 percent of all developers surveyed said fewer local and state resources. Many of these developers work in California, where the state recently killed hundreds of local redevelopment agencies that funded affordable housing development. A number of other states also face severe budget deficits or other significant housing-related battles.

The potential elimination or changes to the LIHTC program by Congress (27 percent) was the next biggest concern, followed by the potential elimination or changes to other housing programs by Congress (15 percent).

Jim Grauley, president and COO of Columbia Residential in Atlanta, is among those who think finance conditions will remain about the same.

“Equity investors and constructions lenders are back in the market in a big way,” he says. “However, there is greater uncertainty about the Department of Housing and Urban Development and state and local resources for housing. These two effects balance out the position we were in in 2009 and 2010 with more stimulus resources but less private-sector appetite.”

Chris Dischinger, a principal of LDG Development in Louisville, Ky., says the issue that is concerning him the most is that the cost per tax credit unit as an industry has become high. “I worry about the reflection of that on the program as a whole,” he says.

While developers have their 2012 projects set to go, the outlook beyond this year gets hazy.

The real issue is going to be 2013, after the November elections have been determined and the direction of the new Congress comes into focus, says Richard Baron, co-founder and chairman of McCormack Baron Salazar.

“I think we are all concerned in the industry about the political environment and to what extent that environment leads to paralysis on the affordable housing development side because Congress doesn't seem to be able to come to agreement,” adds Kevin McCormack, president of the firm. “Our concern is that could be disruptive. On the other side, there are a lot of opportunities out there.”