Knowing What Makes a Property Unique, Distinct is Vital in the Preservation of Affordable Housing

Published by Nick DeCicco on Tuesday, May 3, 2022
Journal Cover Thumb May 2022

Preserving affordable housing is a malleable pursuit that can change on a case-by-case basis. Each development carries its own distinct challenges and advantages.

Knowing how best to pursue preservation properly is a mix of art, data and due diligence, according to industry experts.

“There’s not one solution. We can’t afford to lose a single unit from the inventory of affordable housing,” said Russell Ginise, president of Alliant Strategic Investments (ASI).

ASI, a Walker & Dunlop company, is a for-profit affordable and workforce housing owner and fund manager that specializes in acquiring, investing in and operating properties, with more than $500 million in assets under management in 16 developments spread across nine states. The firm specializes primarily in light to moderate renovations of existing properties.

“Developers need to do what they do well in furthering their commitment to affordable housing,” said Ginise. “In our case, that’s taking existing properties and investing in them, enhancing them and keeping them affordable.”

C’mon, C’mon, Let’s Work Together

Ginise said ASI works primarily in three types of transactions:

  • Properties that were originally constructed with low-income housing tax credits (LIHTCs) and are now past the initial compliance period.
  • Developments that are “at-risk,” properties that are in danger of slipping out of affordability or out of the program in the near term.
  • Developments that were never part of the tax credit program, including naturally occurring affordable housing.

“The LIHTC program is easily the most successful public-private partnership ever established to produce quality, affordable housing on a broad, national scale,” said Ginise. “It’s produced or preserved approximately 3.6 million units since the enactment of the 1986 tax act. That’s something that hopefully continues to expand, but new production alone hasn’t kept up with the huge demand for affordable housing. … From both a policy and a practical perspective, it is important that we not lose any existing affordable housing stock even while we try to build new.”

Another vehicle in preservation is the U.S. Department of Housing and Urban Development Rental Assistance Demonstration program. Stockton Williams, executive director of the National Council of State Housing Agencies, said this avenue is especially popular in approximately one dozen states, allowing public housing agencies to convert public housing to Section 8 funding with private ownership by leveraging private and public debt and equity to rehabilitate properties. This process can, although not necessarily, secure a LIHTC allocation for the rehabilitation.

“Preservation is not a new concern or priority for state housing agencies,” Williams said, underlining that new construction and preservation are both valuable. “The challenge is how do you do enough of each when there’s not enough resources to do either. That challenge is not new.”

But there are new wrinkles, he said: Higher construction costs, labor shortages and longer project approval times at the local level, all of which drive up costs.

“There’s more need for both then there’s ever been,” Williams said. “There are not nearly enough resources. We have not grown in commensurate with need in a long time.”

One important factor for potential developers or buyers is to look at how points are scored in a given state or area since some states explicitly prioritize rehabilitation in their allocation of credits. Williams said a qualified allocation plan will help outline what the various states and areas are hungry for with regard to affordable housing preservation.

“When developers can quantify preservation need, but, more broadly, the benefit to the residents and to the community, the importance of the property in context, that is more often than not also really going to matter in a competitive scoring process,” Williams said. “In a zero-sum resource environment with not enough to go around, the case can be made that preservation can be a more cost-effective way to get more units from leaving the inventory.”

Other, additional, new, creative solutions abound, too: Amazon, among other tech companies, is pouring capital into affordable housing with its Amazon Equity Fund. Programs are in place, too, for financing via Fannie Mae and Freddie Mac. Ginise said working with local authorities is vital.

“It can be the difference between a deal working economically or not,” Ginise said. “You need to avail yourselves of all the opportunities to source capital to address the critical housing shortage.”

Speed, Certainty and Transparency

Most transactions take place in a window of approximately 60 days, Ginise said. Sellers are looking especially for speed and certainty, wanting developers to deliver what they outline in an offer and do so in a reasonable amount of time. Having a vision for the final product is paramount, Ginise said.

On the investor side, Ginise said, “investors desire transparency, access to information, collaboration and, frankly, expertise. When you bring an investment partner into a deal, they’re going to expect you to do your own due diligence, that you’re sophisticated, that you’ve done your own work. They’re expecting us to be the experts, so you need to have a compelling case for why it’s best for them and us to make the investment.”

Being in frequent communication with investors is key. “Everything we see, our investors see–every bit of information, every bit of revelatory material, our investors see it as well,” Ginise said. “We have a good relationship with our investment partners who are able to be nimble and move with us as we look through opportunities and make decisions fairly quickly.”

After 30-day diligence period, a lender has to be ready in 30 to 45 days to close.

Due Diligence

Williams and Ginise emphasized the importance of due diligence. Ginise said ASI takes “a thorough and programmatic approach” to due diligence. ASI visits every apartment, speaks with engineers, the property management company and contractors.

“I see every property before we make a commitment to purchase,” Ginise said. “We perform a detailed market analysis, consider historic property performance data, develop a plan for capital improvements and property operations and resident services in order to get our hands around the deal and [have] the economic projections. … Being able to marshal those resources within the short period to get on site, perform our analysis and be able to synthesize that information, to digest it and make sure it supports our business objectives and make a decision about moving forward.”

Jill Cromartie, former division director of housing finance and development for the Georgia Department of Community Affairs, strongly underscored the value of due diligence, particularly its potential for mitigating potential future costs. She gave one example of a developer who failed to account for the fact that 23 of 60 apartments were over income in a property that the new owner had already decided to convert into a tax credit regime.

“I don’t understand how the developer didn’t know this until they got this far into the project,” said Cromartie, who left her post at the end of March.

The example demonstrates something Cromartie stressed, which is understanding the factors that make each potential preservation transaction carry its own distinct challenges and advantages, chief among them familiarity with the residents.

“My first recommendation is for any developer to survey the income for existing residents so they know how to build an application,” Cromartie said. “That will tell them what they need to know and how to project revenue.”

Cromartie emphasized site visits and doing the best to plan for contingencies and intangibles, saying many developers max out their reserves for contingencies when unanticipated secondary and tertiary problems arise.

“Once they start peeling back older walls, they discover all kinds of things they hadn’t anticipated, which leads to running through contingencies quickly,” Cromartie said. “Then they’ve eaten into their contingency and their developers fee and they come to us, but it’s not our job to save them.”

Knowing the tenant profile and the building itself are crucial, but understanding market conditions is helpful as well. She cited an out-of-state developer who took over a property in Clarkston, Georgia, home of the largest refugee area in the country. Few of the residents spoke English, which meant a number relocated out of fear and misunderstanding. Nearly half of the new owner’s ongoing revenue was lost within a few months. “If they knew this was the largest refugee area in the country, they might have engaged liaisons to work with residents to know what was about to happen,” Cromartie said.


ASI hasn’t done many relocations, which Ginise said have been restricted during the past two years due to the COVID-19 pandemic.

Cromartie and Ginise differed in their approach to relocations. Ginise said, in an effort to minimize the impact of rehabilitations and renovations to residents, ASI tries to keep tenants in place as much as possible.

Cromartie recommended rolling rehabilitations due to unanticipated consequences and possibilities such as dust and paint flying. She also expressed hope for “light-touch rehabs,” something a step down from a full-gut rehab, but a tool or mechanism to allow for small changes such as upgrading appliances, lighting and other, smaller needs.

‘We All Need to Work Together’

Looking toward the future of preservation and affordable housing in general, Williams pointed to the advocacy side of things, noting efforts to expand and improve tax credit program.

Ginise said he has “admiration and respect” for other developers and individuals working in the preservation space.

“Some of them go about it a slightly different way [than us],” Ginise said. “I don’t know that there’s any single ‘right’ way. We’re a for-profit organization. Investors expect us to make a profit and earn a return on their money but they also value the impact of preserving affordable housing.”

Nancy Que, ASI vice president and director of operations, said new developments are not more important than preserving existing housing.

“It’s not more important,” Que said. “We all need to work together.”

Ginise nodded in agreement. “It takes every piece of it,” he said.