Affordable Housing - Developer vs Lender

Could anyone familiar with the LIHTC space comment on the differences in dynamic of being a developer vs lender in this space?

Anything would be helpful in terms of comparison of interesting scope of work, pay progression, culture, etc.

I have been hearing conflicting things about affordable developers. For example, I heard that Related Affordable might not have the best culture.

Comments ( 9 )

Most Helpful
  • Analyst 2 in RE - Comm
1d

I'm familiar with Related Affordable. They're very demanding of their lenders but still respectful. Not sure what comp is. But they definitely have to be in office 5 days a week if that sort of thing matters to you. Their deals are more so about acquiring Class C/D multi, rehabbing them by using tax credits, and knowing how to leverage subsidies offered by municipalities + using complex/creative financing structures. They also typically are able to get Section 8 contracts for their properties. Objectively, the formula works and it is pretty lucrative. They're also great at property management. Personally, I find it boring because the deals I have seen with them only make sense because of their ability to secure Sec 8 contract . Without the Sec 8, a lot of their properties are not high-quality assets in terms of location, condition, and long-term potential.

On the lending side, a lot more players are entering the space because of the long-term fundamentals. Nonbank players like Berkada and W&D are powerhouses. There are also strong bank agency lenders like Wells Fargo and KeyBank. PGIM is pretty good too from the lifeco side.

If you do acquisitions at a shop like Related, you'll learn a ton on A to Z on how to get deals done. In affordable housing, the barrier to entry is high because you need to know A LOT about esoteric topic such as bond caps, bond financing, tax compliance, regulatory agreements, etc. So if you learn the right info, you could start your own shop with very minimal capital (relatively speaking).

On the lending side, you'll see a lot of volume and interesting structures. You can make comfortable money and it's more easy going. It won't teach you A to Z on how to go out on your own though.

  • Associate 1 in IB - Gen
1d

Thanks a ton for the detailed response, super helpful.

It makes sense that they're demanding of lenders. Have you heard the culture to be generally good with that in mind? It seems like likely pretty buttoned up, but I've heard bad things about the culture at Related, but not specifically Related Affordable.

So it seems like you would learn more at a developer as you're doing the entire process, versus a lender who really is just caring about the financing/construction. I guess development has a higher pay ceiling, assuming you start your own shop. Curious what the pay comparison is if you were to just work at a good developer (not on your own) versus working at a good lender (like you said wells, key, citi , etc.)

  • Investment Analyst in CB
1d

I work in affordable lending

It's a good gig I think - the deals are always pretty unique and come with their own challenges. I've worked with Related - they're all nice. Maybe more serious than others?

You can definitely learn a ton doing lending for LIHTC, but you won't have the same depth as a developer who has to be on the ground floor securing S8 contracts, working with the local gov, etc.

I haven't heard anything positive about working for Related on this forum to be honest. There's tons of small to large LIHTC developers so I don't really see a reason to focus on them.

2 YOE at LIHTC Lender like $115k all in I'd say? Lot of growth, pay cap is lower but you won't be working as much as a developer.

  • Analyst 2 in RE - Comm
1d

From what I have seen/heard, I don't think any LIHTC developer pays well. There is not really a promote/carry component to LIHTC development since you typically make most of your money from the fees. The idea is to learn enough to start out on your own.

I have also heard Related has a cutthroat environment and it is not friendly but that was for the development team at Related, not the affordable.

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  • Analyst 2 in RE - Comm
1d

I mean money is definitely made in LIHTC from fees but it's not trickling down to the analyst/associate level the same way it would at say an acquisitions shop. I think that's just a function of development as a whole though. Remember for development, you have 0 cash flow until tenants occupy the space and even then it's not a substantial amount of cash until the property stabilizes. So basically you're surviving off borrowed money + equity for 3-4 years (breaking ground to stabilization). LIHTC dev has no long-term upside but you can charge a hefty dev fee (think as much as 15% in some states). On market dev, your dev fee (no more than 5% from what I know) is not a whole lot but you can realize multiples of your equity in promote.

  • 2
19h
Ozymandia , what's your opinion? Comment below:

I mean money is definitely made in LIHTC from fees but it's not trickling down to the analyst/associate level the same way it would at say an acquisitions shop.

I think this is a little reductive.  How many analysts at acquisitions firms get actual carry?  LIHTC developers pay bonuses, or have profit-sharing structures.

I think that's just a function of development as a whole though. Remember for development, you have 0 cash flow until tenants occupy the space and even then it's not a substantial amount of cash until the property stabilizes. So basically you're surviving off borrowed money + equity for 3-4 years (breaking ground to stabilization). LIHTC dev has no long-term upside but you can charge a hefty dev fee (think as much as 15% in some states). On market dev, your dev fee (no more than 5% from what I know) is not a whole lot but you can realize multiples of your equity in promote.

LIHTC developers also can get paid fees at construction closing, which helps with the cash flow situation.  And 15% is about the middle range, not the high end - fees can go up to 25% in some states.

At the end of the day, it's a question of risk tolerance .  LIHTC developers make a 10-15% fee without putting any equity in; no one hits a home run, but assuming a reasonably competent development team/GC, the low risk profile and nonexistent equity requirement means you can churn out singles and doubles all day without sinking equity into deals for years at a time.  Market rate developers put their own money at play and take a lot of market and lease-up risk, and in return have the possibility to make multiples on their investment.  One isn't better or worse than the other; if I manage to get land at an awesome basis, obviously it makes more sense to build luxury rental/condo.

  • 2
19h
Ozymandia , what's your opinion? Comment below:

From what I have seen/heard, I don't think any LIHTC developer pays well. There is not really a promote/carry component to LIHTC development since you typically make most of your money from the fees. The idea is to learn enough to start out on your own.

What are you comparing it to?  Junior project managers (like... 1-2 years of experience) seem to be making 100-150k with a 10-20% bonus at LIHTC developers.  I don't know what regular market rate firms pay, so maybe that is below market... but it seems competitive.

And while there is no traditional "promote" affordable developers proxy it by assigning proxy profits interest.  Ends up being similar in effect

21h
Ozymandia , what's your opinion? Comment below:

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