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3 Effective High Level Development Strategies

3 Effective High Level Development Strategies

3 Effective High Level Development Strategies
3 Effective High Level Development Strategies

Nick Earls

3 Effective High Level Development Strategies

Nick Earls

3 Effective High Level Real Estate Development Strategies

3 Effective High Level Development Strategies

Nick Earls

There are many proven strategies you can employ as a developer to build a niche for your company that you can come back to for years.  Most developers get their start building single family and smaller multi-family properties that they sell or rent upon completion. 

With volume, this type of business can make the development team great returns, but there are more complicated models that you may begin to employ as your company grows. 

Remember that you can often find development consultant companies that you can hire can assist your team in transitioning into these new sectors. 

1. Senior Housing Development

3 Effective High Level Development Strategies
The population of seniors in the United States is larger than ever before and will continue to rise in the coming decade.  With our own greater understanding of the needs of seniors as a society, different types of senior housing have arisen to meet the demand from those with a variety of living situations. 
 
From the assisted living model, for people who need supplemental assistance on a daily basis, the more familiar nursing home, or even independent living communities, which usually carry deed restrictions for sale or rent to individuals over a certain age.
 
You’ll need to target what type of community is in demand in your market and fits with the objectives of your municipality. An independent living community usually would not include a medical component, whereas a nursing home most certainly would, in most cases increasing construction costs, depending on the type of facilities required. 
 
Remember, of course, that all types of senior housing are generally designed with limited mobility resident in mind.
 
 

2. Affordable Housing Development

3 Effective High Level Development Strategies
Affordable housing comes in many forms, with different regulations on the federal, state, and local levels in the United States.  Most affordable housing in the US includes a blend of subsidies from different government or non-profit agencies. 
 
The backbone of affordable housing today is the low income housing tax credit, issued by the federal government.   These provide an annual credit to your investors over a ten year period equal to either 9% or 4% of your project’s qualified costs.  Qualified costs are essentially your total development costs less land costs and grant subsidies you received for the project. 
 
If your project included a non-affordable component, the costs for construction of that component would also be reduced.  The 9% option is more competitive, given that it provides a larger credit, and projects are selected from a pool of potential applicants. 
 
There are qualifications stipulating the percent of low income tenants, who are broken into different brackets based on the area median income (AMI).  For example, an individual whose annual income is 50% of the median for his geographical area would fall into the 50% AMI bracket.  From what we’ve seen, given the competitiveness of the 9% program, you will probably need to exceed the minimum required amounts of affordable housing to receive subsidy anyways, so we won’t get into them too deeply here. Once awarded the credit, the developer then locates an investor for the credit, sometimes through a broker. 
 
The total value of the credit is then usually discounted by some amount at purchase, with the discount varying over time based on the tax rate and other factors.  They then maintain an equity position in the project for the next 10 years to claim the credit, while you now have the funds needed to develop in the near term. 
 
Once the credit period expires, they relinquish ownership and you or your investors claim full ownership.  You typically need to raise additional funds in the forms of grants or low interest loans from the local government and non profit agencies, of which there are countless. 
 
The affordable housing funding scene is different depending on where you’re developing.  Developers make money through their development fee, which is a percentage of the total project costs, as well as in the long term once their tax credit investor relinquishes their ownership stake. 
 
We’ll explore this topic in more depth in its own dedicated article.  

3. Historic Tax Credit Development

3 Effective High Level Development Strategies

Provided by the federal government and many state governments, the historic tax credit program was designed to help preserve and rehabilitate structures that are considered important historical landmarks in their community. 

To be eligible for federal historic credits, your project must be listed in the National Register of Historic Places or be deemed a defining feature of a historic district listed in the National Register.  While similar to low income housing tax credits, there are some key differences. 

Offered in the form of 20% tax credits, which are again calculated by multiplying the qualified total project costs by 20%, these credits are applied only for one year, once the property is put into operation. 

Another difference from low income credits is these credits cannot be directly sold.  The way to functionally “sell” the credits is to use a structure with an investor where they have a 99% stake in the ownership entity, allowing them to receive the credit. 

As with low income credits, your investor will purchase these rights at some discounted amount, depending on market conditions.  Functionally, however, low income credit deals also often have the investor taking a majority stake, so as to ensure compliance with affordable housing deed restrictions over the 10 year term. 

As you can probably imagine, there are strict regulations to ensure developers maintain the character that made these structures historic in the first place.  These are laid out in the National Park Standards for Rehabilitation. 

Most states offer their own historic tax credits which work similarly, but have more flexible standards than being listed in the National Register.

One important thing to point out is that these development strategies are often used in combination with one another, making even more complicated, but hopefully also more profitable deals. 

For example, many buildings listed on the National Register that have fallen into disrepair are located in lower income areas with a need for affordable housing.  There are a large segment of low income seniors who need subsidized housing that fits their needs. 

Learning these individual forms of development and using them in combination, depending on the circumstances, can lead you to envisioning deals where other may not be capable of seeing them.Affordable Housing Development:

Affordable housing comes in many forms, with different regulations on the federal, state, and local levels in the United States.  Most affordable housing in the US includes a blend of subsidies from different government or non-profit agencies. 
 
The backbone of affordable housing today is the low income housing tax credit, issued by the federal government.   These provide an annual credit to your investors over a ten year period equal to either 9% or 4% of your project’s qualified costs.  Qualified costs are essentially your total development costs less land costs and grant subsidies you received for the project. 
 
If your project included a non-affordable component, the costs for construction of that component would also be reduced.  The 9% option is more competitive, given that it provides a larger credit, and projects are selected from a pool of potential applicants. 
 
There are qualifications stipulating the percent of low income tenants, who are broken into different brackets based on the area median income (AMI).  For example, an individual whose annual income is 50% of the median for his geographical area would fall into the 50% AMI bracket.  From what we’ve seen, given the competitiveness of the 9% program, you will probably need to exceed the minimum required amounts of affordable housing to receive subsidy anyways, so we won’t get into them too deeply here. Once awarded the credit, the developer then locates an investor for the credit, sometimes through a broker. 
 
The total value of the credit is then usually discounted by some amount at purchase, with the discount varying over time based on the tax rate and other factors.  They then maintain an equity position in the project for the next 10 years to claim the credit, while you now have the funds needed to develop in the near term. 
 
Once the credit period expires, they relinquish ownership and you or your investors claim full ownership.  You typically need to raise additional funds in the forms of grants or low interest loans from the local government and non profit agencies, of which there are countless. 
 
The affordable housing funding scene is different depending on where you’re developing.  Developers make money through their development fee, which is a percentage of the total project costs, as well as in the long term once their tax credit investor relinquishes their ownership stake. 
 
We’ll explore this topic in more depth in its own dedicated article.  

Invest with Winterspring

3 Effective High Level Development Strategies
3 Effective High Level Development Strategies
3 Effective High Level Development Strategies
3 Effective High Level Development Strategies
Invest with Winterspring

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