12 QUESTIONS: James E. Dyal, Vice President, American Realty Development Tampa
TAMPA, Fla. --- James E. Dyal is vice president of American Realty Development in Tampa, which develops affordable multi-family rental communities. A member of the Florida Housing Coalition Board of Directors, he will present a workshop on affordable housing finance and development at Florida Housing's 20th Annual Statewide Affordable Housing Conference Sept. 5-7 in Orlando.Mr. Dyal volunteers as guest lecturer at the University of South Florida Collaborative for Children, Families and Communities' summer Community Real Estate Development (CRED) certificate course and currently serves as project mentor for one course participant who is developing single-family ownership and rental housing units for workforce families in Lake County.
We asked him 12 QUESTIONS:
1. How long have you been developing affordable housing, where and what have you developed?
I moved to the development side of the business in 2000. I have personally developed affordable developments in Jacksonville, Kissimmee, North Port, Tampa, and Ft. Pierce. These developments total a little more than 1,000 units. All of these were targeted to families except the Tampa development.
2. What motivated you to leave banking and finance and take up development?
I felt like I had learned all I could working within the credit underwriting environment at First Housing and wanted to apply what I knew to the development side of the business. It also presented a greater challenge.
3. How long have you specialized in LIHTC-financed development?
I have been working on Housing Credit transactions since 1995.
4. Does American Realty Development, LLC specialize in adult-restricted communities exclusively?
We prefer elderly communities for a few reasons. First, our product fits on smaller sites that would not easily accommodate a garden-style development.
These sites are generally less expensive, and because we have specific locational criteria, it makes it easier to locate acceptable sites.
Second, obtaining government approvals is somewhat easier regarding zoning, variances, permits, and the like. Senior housing is a widely desired form of housing. Third, we have lower vacancy rates and a much higher rate of on-time payments with seniors. So, senior deals are superior from a management perspective.
We do also develop family deals, but that portion of the business is about 25% of the total volume.
5. You have argued that multi-family rental is the most efficient allocation of community housing resources. That would seem obvious for adult restricted communities. For younger families with children, isn't home ownership and wealth-generation an important social value?
I think it is a mistake to view home-ownership as a vehicle for wealth generation. It certainly accomplishes that, but I believe owning a home is more about providing an environment for raising a family in a quality community, near good schools, and near other families so the children reap the rewards of living in a family community. A lot of pundits put the wealth generation at the top of the list, and I think that needs to be a side benefit.
The fact is that you can accomplish everything I said in a rental community. Everyone is not cut out to be a homeowner. Sometimes homeownership is an overwhelming experience. New homeowners face the prospect of maintenance of all of the mechanical systems of the home, the roof, the yard, and so forth. It is the "hidden costs" of homeownership that sometimes lead to foreclosure.
Further, it is my personal belief that underwriting guidelines approve families for mortgage amounts well beyond the capacity to pay, and certainly beyond the capacity to create any monthly savings from earnings.
I also believe there is a mismatch between family income and home pricing. By that I mean that there is a popular notion that everyone deserves to live in at least a median-priced home. This would mean that families at 80% median income would require significant subsidies and that few families would be served. Perhaps we should look to our past a little when families bought more affordable homes, put a lot of sweat-equity into them and created wealth in that fashion.
6. Do you foresee continued decreases in funding levels for LIHTC-financed multi-family rental communities?
If anything, funding will continue to increase on a per transaction basis. The costs of construction and operation will force that. There will be fewer units built in the future using more subsidy.
7. Do you see any decrease in the need for such housing?
There is certainly an adequate supply of units targeted to 60% median families in many markets. Florida Housing has recognized this for some time and created the "Location A" areas where development is discouraged.
There will probably never be an adequate supply of units for families earning less than 50% of median. The problem is that the rents collected will not cover the expenses. So, we need to find new ways of financing developments which target Extremely Low Income (ELI) families. This may have to include operating subsidies.
Also, as has been widely discussed, there is not an adequate supply of housing for families at 80% median. I could foresee the day when the Housing Credit program is expanded to include those families.
We have to remember that the Housing Credit program was never designed to serve families below 60% median. It has been forced to do so, but with the consequences of fewer units developed.
The ELI units really require a different financing vehicle which is currently not available.
8. How many finished units per year do you anticipate American Realty Development, LLC, will deliver over the next 3-5 years, what's your target? How many American Realty Developments would Florida need to meet demand for affordable rental communities?
We try to develop 2-3 new communities per year totaling 250-350 units. For senior housing, we could never fill the demand in the foreseeable future.
9. How many developers specialize in LIHTC-financed multi-family communities in Florida? Do you ever 'compete' with other developers over a specific site? What are the most common errors you've seen other developers make?
There are probably 6-7 large development companies that specialize in affordable housing. There are many others that will do a deal here and there, perhaps 20 or more.
We sometimes compete for sites, but many of the developers specialize in certain markets, like South Florida, for example. We don't develop in Miami-Dade, so we don't compete with the developers that are in that market.
I think a common error is failing to properly understand the market. By that I mean that they will develop, for example, an elderly development in a location that is unsuitable for elderly.
They also become focused on the economics of the transaction forgetting that the project actually has to be leased and managed.
10. You must rank among the most experienced three or four Florida developers in choosing and acquiring appropriate sites to develop multi-family communities. Many of the site selection factors you value are quantifiable, with data available online via GIS and city and county web sites, and many of them, such as LIHTC requirements, are already quantified. Is there an opportunity for enterprising commercial real estate brokers to specialize in multi-family
affordable housing site selection?
Absolutely, and there a few that do specialize in that. Those brokers understand the process, requirements, timeline, etc. and have already briefed the owner on those things. That way, in essence, the site has been "pre-qualified" as an affordable site because the owner already is ready to accept the extended timelines.
That being said, the closing times are extended, so the time between contract execution and closing could be two years. A broker would have to have other business going to generate fee income while they were waiting for the deals to close.
11. You devote substantial energies to teaching development skills to practitioners, and you're a very 'giving' teacher. Are you ever tempted hold anything back for a competitive advantage? What seminars will you be giving this year?
I primarily give workshops for the Florida Housing Coalition. I usually do two workshops per year, one in the Spring and one in December, and then also at the Coalition's conference in September.
I share pretty much everything I know. The only things I don't get into are the specifics of how we structure our partnership agreements and the specifics of our real estate contracts.
12. More and more Florida home builders are talking up 'affordable' homes. In Tampa, Lennar is building a HOPE VI Restoration community, Morrison, Lennar and Park Square are all building town homes priced from the $140's-$160's in Brandon and Pasco county, and Morrison is offering 30-year fixed-rate mortgages at a buy-down rate. If momentum builds---and new home pricing drops appreciably---how will that effect development of multi-family rental communities?
For affordable rental, it will have no impact at all. We target families and elderly residents at 60% or less of median income. Those folks will not normally qualify for a mortgage of that size in any case.
For market-rate rental it may not have much of an impact either. I would suggest that a developer cannot develop a new market-rate community and get "Class B" rents, or rents that may be commensurate with residents at 80-100% of median income. It simply costs too much to develop and operate to have rents at that level.
Consequently, a lot of new rental development is extremely upscale, targeted to residents who could own a home, but choose not to for whatever reason.
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