by Dan Rafter
Paul Davis founded Southfield, Michigan-based Affordable Housing Advisors in 1987. Today, the company, a division of Marcus & Millichap, represents for-profit and nonprofit owners of government-subsidized multi-family housing who are selling one or more of their properties. The company’s goal for 2015 is a big one: Davis says that Affordable Housing Advisors should notch sales of $1 billion.
Midwest Real Estate News recently spoke with Davis about the rewards and challenges of working with government-sponsored housing and the steps he and his company have taken to succeed in this business.
And, we couldn’t resist asking Davis about his daughter, Meryl, the 2014 Olympic gold medal winner for the United States in ice dancing and a recent winner of the TV show Dancing with the Stars.
A long career in commercial real estate: I’ve been involved in commercial real estate since 1985. I was a law student, and I was always intrigued by real estate. I was taking as many real estate-related courses as I could while also studying law. Then I decided that instead of just understanding the academic side of the business, it would be smart of me to learn the street-level aspect of commercial real estate. I went to work as a broker at a small firm that specialized in selling income-producing real estate. I began working in the brokerage of apartment buildings, and I enjoyed the work. That was the very beginning of my real estate career.
I was really focused on real estate syndication under the old tax code. I figured that I would either be a lawyer specializing in commercial real estate syndications or a broker specializing in it. Then the tax code was rewritten in the Tax Reform Act of 1986. I saw that my business plan to take advantage of the real estate syndications allowed under the old tax code was going to be foiled by the new tax code. The new code limited the passive-loss rules. It curtailed other aspects of commercial real estate syndication.
Section 42, though, created the Low Income Housing Tax credit. I decided to study what type of existing apartment complexes would be best suited to being acquired and rehabbed using Section 42 of the code. The ideal properties, I found, would be the HUD rent-subsidized properties that had been built in the 1960s and ‘70s.
Opportunity calls: In 1987, the old HUD inventory started hitting the point where the properties were 20 years old. That opened the opportunity for developers to refinance and/or sell those old HUD properties. I was right there when a complete change came in the way HUD rent-assisted properties, primarily under the Section 8 program, could be redeveloped and preserved. I keyed into that niche and never deviated from it.
Enjoying the intricacies: I’ll be honest. I was attracted to the intricacies of the deals. The loan programs and rent-subsidy contracts involved created so many complex issues. I’ll steal an expression from an old client: Every transaction is a snowflake. Every transaction is different. I am one of those people, maybe it’s a positive or a negative, who is more fascinated by something the more complex it is. That complexity is what draws me to this part of the business.
The details matter: To succeed in this business you need a combination of very detail-oriented types and left-brain academic types. We have a diverse set of people working with Affordable Housing Advisors. We have people who are very left-brain-oriented reading the HUD regulations complemented by tenacious, hard-driving sales people who are optimistic and relentless. We have to work together. We wouldn’t be successful without both personality types.
An attractive asset class: HUD-subsidized multifamily housing has definitely become a more attractive asset class. It has become quite competitive to buy project-based Section 8 properties. This industry used to be dominated by a smaller group of buyers. Now there is a more diverse buyer base. There are both private and institutional investors involved now. There is even capital coming from overseas to acquire these properties, usually in partnership with American developers. But there is foreign capital pursuing the HUD rent-subsidized inventory.
Solid benefits: There are many benefits in HUD rent-subsidized properties. The properties in general are fully occupied. And there is minimal rent-collection risk because HUD pays most of the rent on Section 8 properties.
A changing work world: In the late 1990s, probably in 1999, the level of activity that Affordable Housing Advisors was enjoying started to grow precipitously. My wife, though, was still working. Our daughter, Meryl, and her skating partner Charlie White had just hit the international scene. Two or three times a year they competed overseas, with my wife and I taking turns going with them on these trips. I once went on a trip to what had been East Germany not that long after the Iron Curtain had fallen. I was in a hotel that had one computer in the lobby that everyone had to share. We had to take turns, working 10 minutes at a time. Then we had to go to the back of the line, work 10 more minutes and then start over again. It was terrible. I came home and told my family that I couldn’t make those trips. Fortunately, my wife was able to retire at that time. She accompanied our daughter and Charlie on all of their trips.
We know how lucky we are that our daughter and Charlie had the talent to go all the way. That was when business was really starting to boom for Affordable Housing Advisors. It was a gamble when I asked my wife to retire. I am a straight-commission real estate broker. My wife had a steady income. We just had to risk it, had to take a shot at building up Affordable Housing Advisors. Now it’s 15 years later, and we are on track to have a billion dollars in sales this year.