Jeremy Bronfman | Lincoln Avenue Communities

overall affordable housing, and I think the market's woken up to this most of the time has a very good risk adjusted returns because our rents are below market, and so it's a highly stable asset class. And more and more investors are realizing that because of the tax credit, it's a challenging business to put a ton of equity in it. So if you look at the overall amount of dollars being invested in affordable housing, a pretty small percentage of that is coming from traditional equity sources, I think continued focus from the institutional market and seeing that this really is an institutional asset class with good risk adjusted returns is great for the industry overall. Hi, this is Matt Sleppen. Welcome to leading voices in real estate. Today's episode recorded on October 30th is a conversation with Jeremy Bronfman, CEO and founder of Lincoln Avenue Communities, a company founded in 2016, which has grown rapidly to now be one of the top 10 owners of affordable housing, as well as one of the most active developers in the country. We've had many episodes on affordable housing on the show, and this episode continues that conversation. Several thoughts here. First, as I've said many times on the show, for most of my career and therefore most of my adult life, housing was a back page, not a front page issues. So when it did come up, the conversation was often about funding for government low-income housing programs like the old HUD programs, public housing, and now for a very long time, the tax credit, light tech, which is what this episode is all about. But when housing became a front page issue, the heated debate bifurcated to topics like housing supply rent control and housing affordability for middle modern income families at one end of the spectrum, and the intractable problem of homelessness at the other end of the spectrum. Government subsidy programs, what I used to call alphabet soup, are still on the back page, not the front page. And maybe this is good news since the major program, light tech, is highly functional and even expanded under Trump's big, beautiful bill. But this capital A affordable housing is still, even with today's focus on housing in our national conversation, still a back page topic. Two things for me in this conversation would Jeremy. First, listen in on how thoughtful a guy this is, and how thoughtfully he's built this company from scratch to be one of the leaders in this space in less than 10 years. Second, you've heard me say this on other episodes where the guests in my words built their business from Bupgis. Well, if Bupgis has any meaning, Jeremy from the Bronxman family is at the other end of that spectrum. And for sure, his discussion on the topic of family history is also hugely thoughtful. I admire the Bupgis stories, but I equally admire those who come from great wealth to also find their paths, build a great company and find ways for themselves to make a difference. That's Jeremy. I'm joined in this conversation by my colleague, Sarah Dunn, who came to ZRG with me from my prior firm, Tara Search Partners, and now leads our search practice in affordable housing as other areas of search. One of the great pleasures of my work and my moving next year into, as I've said before, semi, that great undefined word semi retirement from search, one of the great pleasures is to mentor and work with and ultimately pass the baton to phenomenals, colleagues like Sarah. If you're enjoying the show, please rate our show and your podcast app. And please follow and subscribe to the show and share your favorite episodes with colleagues and friends. If you have interest in the topic of today's discussion with Jeremy, go back to the archive and check out conversations with Jonathan Rose, Darrell Carter, Alice Carr, Ron to Williger, Robin Hughes, Ishmael Guerrero, and others on their affordable housing businesses. You can find these in other episodes from the archive on your podcast app or on the ZRG website. If you have comments on the show or would like to talk about how ZRG can help your business on the talent side, including search, consulting or advisory in the real estate space generally, or our work in affordable housing specifically. Please contact me at M. Sleppin at ZRG Partners, or Sarah Dunn at [email protected]. I hope that you enjoy this conversation with Jeremy Brompton. Jeremy Brompton, welcome to leading voices in real estate. I am thrilled to have you on the show to talk about your business Lincoln Avenue communities, which is that company that's in the affordable housing space. You're still relatively new in the space, but you've grown very quickly to become one of the leading owner operators in the business. And I want to hear all about how you've done that and what that means for you. I'm joined today in the conversation by my colleague Sarah Dunn, who leads the affordable housing practice for ZRG partners. And I know I was working with you as I have in the past. So we're looking for the her perspective on this as well. And we'll talk all about your company all about the affordable housing space a little bit about housing policy and a little bit about your background. So lots to talk about and Jeremy introduce yourself. Well, Matt, thanks for having me. I'm Jeremy Brompton, the founder and CEO of Lincoln Avenue communities. We're one of the leading developers of affordable housing in the country. We own about 30,000 units in in 31 states. And our primarily focused on low income housing tax credit development and preservation. And then we have some some other smaller divisions with workforce housing. Talk about what those differentials mean. What does development mean? What's preservation mean? Because you've bought most of your stuff, not developed it. And what does workforce housing mean? So we think about those different segments. Absolutely. So preservation is renovating and extending the affordability of tax credit properties using new tax credits. That's how we started our business was acquiring properties which have rent restrictions and no real natural incentive to do capex because you can't raise the rents by doing value add. And as a result, there's a subsidy available to renovate them as long as you also extend the rent restrictions. Development for us is new construction, building new affordable housing, also using low income housing tax credits. And we started our business focused on preservation. But starting in about 2019, we have dramatically expanded our new construction affordable housing development business to the point where that's probably about half of our production, if not more. And you said something I want to pick on it because we have a real estate audience and you see capex is hard to do and not incentivize. And if you do capex every 20 years or whatever, the period of the hold is that's not enough because you have to do capex all the time. So is that true? Like there's it's hard to put money in to keep these up. I'll talk about the tax credit program in general. So we can start with the new construction development, although that's a newer part of our business. You receive tax credits as part of the low income housing tax credit program. You build one of these communities and the rent restrictions are typically in place for 30 years. As a result, you need to do capex to maintain the building, but unlike a market rate community where you can also raise the rents when you do capex in a lie tech community, you can't because you have those 30 year rent restrictions. And so after year 15, you become eligible for a smaller subsidy, which enables you to renovate the building as long as you agree to extend the restrictions for 30 years from that point. And those renovations typically are enough to cover all the major building systems, which generally do last 15 years. Of course, you do need to do do capex along the way, but that really is the the primary part of preservation. And what happens around that year 15 period is you really have a competitive dynamic between developers like us who focus on preservation and then market rate groups who are buying those communities with the expectation that 15 years later, the rent restrictions will go away and they can be taken to market. And so from an impact perspective, you know, we believe that the preservation strategy is really, really important. And and creates really good incentives for the developers and really improves the communities. Yeah, and also as a taxpayer, taxes are not paid, which is what the tax credit does. So I can't say as a taxpayer, we put money into here, but we do. And as tax payers, we've created us, I think it's three and a half million units of low income housing tax credit housing, and you hate in 30 years that it all naturally runs off because all the incentives are for it to run off. This is a big investment by our country in these communities, in these properties, and for the stability that it brings. Yeah, it's a really important program. And in fact, the recent tax bill, which expanded the amount of credits available, makes it a lot more feasible for preservation to happen. Cool, but we'll talk more about that in a second. And then one other theme that you mentioned before is you do some work in non affordable, non subsidized affordable housing. We call that Noah, but what does that mean and what your work look like in that area? So Noah really is naturally occurring affordable housing. They're generally market rate buildings that were built in the 70s or 80s, where the rents are close to affordable levels. And when those properties are being sold, they're either sold to a value ad group that's going to invest significant capital, but try and take them from a class C plus to a B plus and raise the rent significantly. And what we've done is bought a number of those properties, the rents restricted, often in partnership with the local community through through real estate tax abatement, in order to maintain their affordability and enable the families that live there to remain. We bought a REIT in 2021 called housing partnership equity trust, which is in partnership with the 12 largest affordable housing nonprofits in the country, where they're the local operator and really the GP of Noah communities and housing partnership equity trust is is the equity provider and LP. We've also done a number of of Noah deals on our own, where we're the operator. And it's an important part of it's an important part of the housing stock, although it is probably about 5% of our business. So it's it's a lot less of our focus and it's become a little more challenging as interest rates have increased. One of the things that we talk about on the show a lot of statistics, someone gave me a couple of years ago, which I find fascinating, if we look at the subsidized housing, the number of subsidized housing units in the country is against low income people who need them within the income restrictions. I think about a the stock that we have houses about a third of low income people. So the other two thirds are in the housing that you just described. And it's actually a big part of the multi family space is this naturally occurring affordable housing, because that is half, I don't know what the number is of kind of the tenants in these buildings. And when you do this Noah acquisition, and then you put some use restrictions on it, you're still doing well financially while you're doing good things for stabilizing communities. But the numbers work out that you can buy in a competitive market. And then you can also make dollars as a for profit in the business. In some market conditions, when it works. But when it works, and the interesting thing from from an investment perspective is obviously the volatility is lower because you're not making a bet on raising the rents. And so the returns are lower as well, but but it's it's more stable because because the investment thesis isn't predicated on raising the rents and changing the tenant base, it's that one thing before I want to talk about housing and housing policy. But I do want to talk a little bit about your family like the Brompton family is a family we've heard of in the world. I've heard think I drink vodka or something. So Seagram's fortune was made there. But growing up in that family, what does that mean? And just a little bit about how that might have brought you here? Yeah, absolutely. So my family owned and controlled the Seagram Company, which is a large liquor company. They sold it in a in a merger with entertainment business in 1999. I grew up in New York City. And every Thursday night, I would have dinner with my grandfather Edgar Brompton senior. And he ran that business for a very long time, but also had a major impact on philanthropy. And he did that in two ways. One was through traditional philanthropy and donations, but what really inspired me was he used his business platform to really turbocharge his philanthropy through political and policy areas. Specifically, he was involved in in getting reparations from Swiss banks for Holocaust survivors. And just seeing how he was able to use his platform to have an impact that was orders of magnitude greater than he could have done, you know, just by writing checks is something that's really inspired my approach in terms of how we invest and in reality, probably over invest in policy at Lincoln Avenue. And we can go into that in a lot more detail. But it's been a real inspiration. And I think one of the things that gives me a huge amount of satisfaction in in leading the business is being able to try and help steer affordable housing policy to be more efficient and create more units and create the right incentive structures for developers to create more supply of housing and to do so efficiently. Was there any business that he had like your business that in the business itself you're influencing in a good way. So you're kidding the double bottom line here. That's a great question. And not that I'm aware of. But I think having a global business gave him that platform to have impact in that way, even though it wasn't a double bottom line business in the same way as ours is. Right. But there's values that come in the family tradition that really means something to you. And I appreciate that. And from the outside as a member of the Jewish community in our country, we watch that leadership and that leadership matters. And then you kind of when you emulate some of that in your own life and the only way in the only way that you do it. And I know I grow up with values that matter. It's one of the reasons I care about this part of the business a whole lot. So it's fascinating. Yeah, that makes sense. One other piece which isn't about the double bottom line, but was an inspiration for him was that Seagram, he really did have it was a public company, but it did feel a bit like a family. He had a tremendous team and many of them work there for decades and decades. And in a lot of ways that was a big focus of his in terms of running the business. And so that also shaped, you know, how I think about about our team and trying to create an exceptional place to work and recruit the best talent, but recruit the best talent that can stay at Lincoln Avenue and have have a whole career with us. That's awesome. That's awesome. It's funny. There are the affordable housing space has a lot of players. And I think about and we might think from the outside that government owns a bunch of it, but they don't. They own, you know, the public housing, which is a decreasing asset base within like five million units give or take of of low income housing. And within the tax credit world or the subsidized housing world, there's a lot of nonprofits, but I believe that they're they own 25 30% I've tried to run the numbers, but I can't add them up. But I think the nonprofit world is at about that amount. And you know, there's a really great community of developers who build this up. But I think one of the key points is the low income housing tax credit is arguably the most successful private public partnership we've had. And it's incentivized developers like us who are really able to take risk use our own capital, attract the best talent and develop housing efficiently. And and that's the reason that you know, we've been able to create three and a half million units, you know, over the past 30 years or so. It's the most stable program we ever had. So I totally agreed. I was a housing lobbyist back in the day when this program was becoming created. And I wasn't quite in the room where it happened. But I was maybe in the interim where it was happening. So I was fascinating when it did. And the thought was that we could create a more permanent program. If it's through the tax code versus through direct subsidies, it would get bipartisan support, which the tax credit certainly has. It certainly has, you know, part of our investment in policy last year was trying to make sure that this expansion of the of the lie tech was included in whatever taxable happened. And the interesting thing that you that became a big bill. But in the Senate version, which was a skinnier bill, other than the key priorities that the president talked about on the campaign trail, the only additional thing that was included was the expansion of the lie tech. And so that really shows what what bipartisan support it has. And that's largely due to the success and how overall it's an efficient program. And the way that we invested in that, our team did over a hundred congressional meetings, whether that was, you know, bringing bringing senators and Congress people to our sites or flying in and really just trying to demonstrate the value of the program and share stories about how the lie tech is able to create these sustainable communities in particular in a time where the housing crisis has become much more of a public issue, but also much more of a diverse issue in terms of geography, where now, you know, there's a housing crisis all over the country, not just in the high cost coastal cities. Let's talk about that context for a few minutes. And I want to think about it. And when I mentioned before, I was a housing lobbyist. I worked a little bit alongside the guy who works for you now, Tom Amder. And that was, that's been his job through his career. But I was one of them 20, 30 years ago, long, long time ago. And back then, housing policy was about this issue, which was, let's get more subsidies for low income housing. That was what housing policy was around. And the other issues were taken care of themselves in context of the world. And then housing, and it was a backdoor issue was maybe, you know, number 20 on the list of hot issues in the country, right? It was almost never discussed, except through this alphabet soup thing. And then over the last 10 years, affordability has become a massive issue. And I think it's bar build in that the housing issues that we read about in the newspaper kind of deal with affordability for middle moderate work, workforce housing, working people who can't afford the dam rent. So that's number one, or can't afford to buy a home. And those numbers are at an all time, I'll say an all time level of frustration. And then the other thing we read about his homelessness, and those two ends of the barbell seem to be the national discussion and low income housing, except for the tax credit, which is just accepted, has kind of disappeared as part of that ongoing dynamic. You don't read about it much in the New York Times, which I read every day. So kind of help me put that discussion in context. And then how you've been able to kind of as with your other compatriots, fought for the program to continue. Yeah, our real focus and belief is the solutions of the problem is supply. And and the lie tech does a really good job of more than any other program. And if you look across the country, the cities that have invited supply, like Austin, Texas, for example, you know, rents have come down and even though they've had fantastic job growth and income growth, and the cities and states that have made supply more challenging to create are the ones that have had sustained higher rent growth and therefore lower affordability. And the interesting thing about the lie tech is it also creates sort of a counter cyclical supply investment. So if you look at housing, new multifamily starts, they were at a 20 year high, you know, in 2021 and 2022 and interest rates and cap rates were really low. And now they've dropped off a cliff as construction costs went up, etc. But lie tech has been a lot more stable. And if you look over time, lie tech really is a stabilizing force of continuing to create new supply, even when the market rate world is developing less. And that really is a huge positive impact of the lie tech, because in our views, affordable housing specifically matters, but so does supply of any sort. And creating supply of any sort is important. And lie tech really is a big stable part of that. And specifically the 4% lie tech, which generally develops much larger buildings, you know, 200, 250, 300 units is the vast majority of that new supply. Talk about the differential between the 4% and the 9% listener, some of them will know this. And I'm always surprised that the 4% is contributing more to the supply, but just talk about the dynamics of that and how that works. Absolutely. So the 4% lie tech is a slightly less generous tax credit that provides 35 or 40% of the development cost in exchange for keeping the units restricted at 60% of area median income for 30 years. As a result, in most states that subsidy is effectively as of right, if you go through all the state housing regulations, you were able to receive that credit as long as there's enough bonds available. And they're relatively high fixed costs to doing these transactions. And as a result, you end up with much larger buildings and the total number of units is more significant. The 9% credit is also an important program. It's a much more generous subsidy where you receive about 70% of total development costs. But as a result, that means that that program is highly competitive. And it's highly competitive where there's a QAP. And this is where we get the much deeper housing affordability because the subsidies more generous. And so you can make the numbers pencil with 30% AMI units or more services. But it also means it becomes more competitive in terms of green standards and all sorts of other priorities that the housing authorities put into place. But because that's a limited and competitive resource, on average, those buildings are probably about 50 units. And so they're often in more more infill locations. And they solve an important problem. But in terms of total number of units, it's just a much, much smaller, much smaller number of units. And when you keep putting the additional wonderful things that you want to have happen to those properties, if you want to extra green it or put more use restrictions on it, I'm thinking of Ezra Klein's book on building. We're getting into a bad dynamic of not having the dollars go as far because we're putting on, I think of as Christmas tree ornaments, just a little bit too many. Maybe it's just like that. Exactly right. And generally that competition, the way the 9% works is you have a certain amount of dollars allocated per deal. And so the more ornaments that go into it, you just end up with fewer units. And that's really the outcome for the same amount of dollars. Whereas the 4% and that's really where we focus, but it does, it's a, the 4% from a developer's perspective is riskier. Because if the numbers don't work, the numbers don't work. Whereas with the 9% often, you have all the ornaments and costs come in high, instead of building 40 units, you just build 36. And you're able to make it work. But that is a real challenge in terms of the inclination on the 9% to create all those ornaments that do make it less efficient. That said, that is the primary way that these much lower set of sides or green programs get funded. We generally believe that the goal of housing should just be to solve the housing issue as opposed to solving all sorts of other important social issues through a housing subsidy. I'm going to quote something directly because I don't remember the number. I want to pull it up on my screen real quick. And as we're trying to quoted this in his book, but I'm going to make it up. I think it costs maybe three times as much to build a market rate unit in California as it does to build a market rate unit in Texas. So call it three times. But I think it's six times to build a tax credit unit in California as it is to build in Texas. And there's something and directionally that's what the quote is it from the Rand Institute. But that's a dangerous dynamic. It's also a dangerous dynamic. If we take our limited resources of subsidy and put it towards things that go so high in terms of cost. Because maybe the last comment I was going to say before is that the tax credit has lasted so long because we've had few headline articles about this being a bad program. So we've had very little abuse. You know, there are lots of fantastic 9% deals out there, but there certainly is a risk. I want Jeremy to sort of take a step back and talk a little bit about your decision to get into development when you really started the business more as an acquirer and how you've been able to grow that to such a significant part of your platform. Yeah, absolutely. You know, I have my background is in finance, not in development. And so when we started acquisitions and renovation was a lot more natural. It's also much quicker. You can scale much more quickly. And then there was an interesting dynamic in 2019 and 2020 when interest rates were extremely low. Institutional investors, large institutional investors, really started to pay attention. So I tech and buy it in very significant scale. Blackstone and Starwood and a number of other groups through their REITs were buying it. And there were a couple of specific dynamics there. They typically use interest only debt. And when interest rates were very low, that made a bigger difference interest only versus amortizing. Whereas when you do a tax credit deal, you're required to use amortizing debt. And as a result, after a couple of years of buying a lot of properties, we were winning very few deals. And I got nervous. We'd built a pretty large overhead. We'd built a great team. But I was worried that a market dynamic like that that was out of our control was threatening our volume and our ability to transact at the same level and have the impact we did. And simultaneously, I hired a couple of people at that time who'd worked at tax credit development companies that did do new construction affordable. And so that was when I decided to really build out a new construction affordable housing business. And last year, we were the largest developer of new construction affordable housing by units started. But it also was a time where I had to figure out the career path model for our company, or it certainly inspired me too. And we created a model. And this is how we recruited the best talent in terms of new construction affordable housing developers, where we created the platform model, where our developers are true partners in their developments, have real equity, have their own P&A. And that's really permeated our culture, where it really is this model of a full career. You can make partner and become one of the key developers in whatever region that is. And so, you know, I feel pretty lucky that it was sort of a competitive threat that nudged me in the direction of building new construction affordable housing. And now that's become a core part of our business. Let's play that out for a minute because it's multifamily development is a massively cyclical business. But I think tax credit development is a continuous business. And particularly with the 4% where you're not competing heavily, it's by right kind of if you have a site you can get it done, then that's a predictable business it goes on and on and on. It's a relatively predictable business. Obviously, changes in interest rates and construction costs because our rents are fixed and the subsidies are relatively fixed. And so, the two other than land costs, the key variables are interest rates and construction costs. But it's certainly as less cyclical than market rate development. And it is actually in some ways less cyclical than the acquisition business because the acquisition business, you know, can really change based on return dynamics, you know, from capital market factors. It's also less cyclical if someone says here's capital for 350,000 units a year to develop and that capital is always going to be there through the tax code, then that further keeps that engine going and the need will almost always be there, not everywhere, but the need will be there on a global basis. Yeah. And from an impact perspective, I think I mentioned this earlier, I think that's one of the reasons that the program is so important because it generates new supply of housing across the country in a pretty stable way, not just big spurts, you know, when when the market, when market rate housing is more profitable. So, you said before that you started your career in finance, let's go back to you and then how you chose this business to get into from whatever it was that you did in finance and invest your dollars to build this company. So, tell us your story a little bit. Yeah. So, I've been an entrepreneur from a very young age. I started working actually when I was 16 at a small merchant bank, hold calling public companies and trying to provide them with financing and I learned a lot through doing that. I worked at a number of hedge funds and private equity funds and then I actually ran an enterprise software business after business school. My grandfather who we talked about earlier passed away in 2013 and at that time I didn't want to go work for my family but I was helping my family with the generational transition after he passed away and during that time I got pitched a lie tech deal from a developer who needed capital. They were buying a deal or bidding on a deal that was a year 11 deal and I just found it fascinating. You know, the concept that there was this big positive impact, pretty stable financial returns and the capital markets were a lot less developed at that time. So, there weren't real sources of capital from groups that could both do tax credit development, had that expertise, had that overhead but also had traditional equity to buy properties without using tax credits and so that was really our initial thesis was I wanted to build a business that could be both. We could have traditional equity so that we could compete with the private equity firms and buy deals quickly, not need to have them under contract for two years while you set up the tax credit deal but then also build out the expertise and the team needed to do tax credit redevelopment and so that's how Lincoln Avenue came about. In fact, I bid on a number of deals as a financial investor unsuccessfully before deciding to start Lincoln Avenue and then in 2016 is when I founded Lincoln Avenue. Let's go back for minutes. So, you work at merchant banks when you're 16 and you work in private equity through college whatever through period of time and then you do a software enterprise company like that's a big shift and then your grandfather dies and something else happens so you just you get into this. What, how did those things prepare you for this and how did you go into software from kind of the finance world and then this the software was really a divergence everything I'd done before whether it was the merchant bank or the private equity wasn't in much more asset heavy industries real estate natural resources etc and those types of businesses for whatever reason I really enjoyed the financial complexity that that came with the software business was an opportunity right after business school actually with my best friend from childhood who who was a software engineer and started this business and he still runs it it's become it's become quite successful but in fact I actually didn't love it I didn't love like building that the products and running a big sales organization which is what enterprise software businesses are and so you know he matured a lot while we were running that business and it felt natural to go help the family out but all of those financial jobs I had before really were in more asset and financing heavy businesses and so there was a lot of alignment with if the capital structure I found the capital structure and the impact of affordable housing both fascinating and inspiring and it's a wildly complex industry which I enjoy I get to keep learning every day even though you know I know a fair amount about it and that is both on the financing side because there are so many layers but also on the regulatory side because each state is always changing their rules and regulations and the way that that financial and regulatory complexity comes together is a challenge but it's one of the things that I think can give us a competitive advantage by taking risk and trying to always be on on the cutting edge of of understanding the landscape in that area it's funny I'm thinking of Steve Ross from from related one of the founders in this business he was one of the early people who got into this and it was from the finance side hey there's there's this is complicated we could do the headache to get it together and we're going to learn this business and we're going to grow a big empire based on this he was that before he was the developer of the things we know about yeah I mean there there's certainly an inspiration for us and he built his business originally with section 8 development but it was it was similar and one of the interesting things that I certainly didn't realize when I started this company coming from a more financial background is how human capital intensive it is you know we now have 140 employees at the corporate level and that's without doing property management or or having a GC so really think of it as 140 person development company because these deals are highly highly labor intensive and require a ton of local expertise and that's you know a little different from from market rate development but it's something that I think means that the scaled developers like Lincoln Avenue are able to have a really big impact by making that investment in their team and you know that that's what enables us to sustainably create so many units so when you said a few minutes ago it's a wildly complex business and then you quoted finance and regulatory I was I was hoping that you were about to say but running a company is really complex as well so I want to go back but then I want to come to that point but going back when you you did a deal someone brought a deal to the family and then you looked at that you found it interesting you found that it could bind some social things along with investments but at a certain point you said I'm going to make this a business and the business is not just a collection of deals it's the knowledge that you're going to create an entity that has long legs when you first had that I'm going to create an entity with long legs what what was in your head and what did that look like and what were the goals yeah I think what was in my head I remember having a conversation with my father about it was we're probably going to do three to five preservation deals a year and I don't imagine we'll ever have more than 10 or 15 people supporting that and so we hired some people who knew what they were doing one of whom was from related and a couple of other industry shops but but that was the original plan was let's go do you know three or five acquisition rehabs a year and and that will be the business and as I got more and more involved I kept seeing more opportunity for us to grow obviously way beyond that both in scale but also in business lines and and opportunities to really scale up our talent and that's been you know required to get from that small start to where we are today something I've just observed from getting the chance to work with you is so much of the company success has been your ability has been your entrepreneurial drive and and compounding passion and interest in different aspects of the business as they come up and just drive to be competitive not necessarily drive to grow for growths sake but see opportunities where you can do more and build the platform to meet that yeah I think one thing that's been lucky is you know we've brought in real talent and expertise but because we were new there was enough curiosity to go always figure out new things I remember really early on I learned about the qualified contract which was sort of a quirk of the low income housing tax code which has largely been solved but a lot of the older deals after 15 years if they were put on the market and no one offered a particular price the rent restrictions would go way after 15 years and in Florida the offer needed to be what was called a bonafide offer and no one had defined what that meant and so I just learned about this and I said we're going to figure this out and we looked at every deal that was listed and tried to find the ones where we'd be willing to pay the price but not just that where we'd be willing to pay the price but also where the owner of the property was a group that we respected that we thought was not going to try and really fight and so we started making these offers and the first couple groups fought on and fought whether it was a bonafide offer and then we offered on this building called Logan Heights and the owner of Logan Heights is a group called Veskor they're really great guys allers and I called the CEO Veskor and I said well we're going to make an offer on this building if our restrictions are going to stay let's do a deal that sets the precedent for what a bonafide offer is and we did it and actually the contract that we negotiated became the form bonafide offer contract for the next couple of years and through those offers we bought about a thousand units but we preserved about 5,000 units and that was just what we did but once you know that once there was real legal definition on what qualified other groups did a lot as well and those are the types of you know opportunities that we always look for where we can have an impact but it takes a little risk and creativity that that others weren't doing and I think part of that is because we renewed the industry and and felt able to do it and through that we created a lot of interesting relationships and I think it really just shows through our culture our entrepreneurial culture which is relatively unique in the industry which is the unique part is it the entrepreneurial culture is unique what what I think it's the entrepreneurial culture I think a lot of and there are other developers that have it as well but in general there are a lot of local affordable housing developers that maybe are similar to what I imagined at the beginning for Lincoln Avenue where you know we do 39% deals a year in Texas and that is what they do and they're you know that business works pretty well and they have a real impact but they're not necessarily looking to figure out you know new new business strategies new business lines new edges etc and so our culture really is one where we'll turn over any stone try and figure out a new strategy and part of the platform now for me part of my job is figuring out new strategies or new business units that we can grow into because we have such exceptional talent and I really want there to be enough space and opportunity and business lines that we can promote our team as soon as they're ready and have the skills to take on a business unit yeah what one thing that may happen is that people do those five or six deals they surprise themselves by becoming wealthy and then they go this is cool and you sit on it and it's cool and you grow marginally along your way now you came from great wealth so maybe that that wouldn't be the motivator the motivator the motivator might be something more that that's comment number one comment number two is that twenty five million dollar deal that you did in Florida if someone was gonna buy it and take it out of use restrictions could they have paid twenty I mean what would have been was it the same number I think likely much more I think likely much more and that's one of the reasons that we actually you know did a deal with Veskor who still does a lot of affordable housing and they believe in preservation I don't remember exactly but a cool story about Logan Heights is we then preserved it so we made a major investment through the tax credit program and renovating it and extended the the restrictions by 30 years and so you know that's a community where instead of the restrictions going away in 2017 or or 2018 they're now in place to to 2048 I believe it's something I always worry about impact investors who have a fiduciary responsibility to do impact but also to make money and if you're facing okay I could sell it to these guys for 25 but I could sell it to those guys for 40 maybe I'll hold my nose and do it once because that differential is pretty good for me or my investors and I don't know how people make those decisions and I worry about the incentives of structure structure is what makes those decisions well I think that's right and that's why from our perspective policy is the way we can have the most impact because it's not sustainable to expect groups to you know sell deals for 26 million if they could get them for 40 and so trying to nudge the policy framework in such a way that you know it's a little more aligned in terms of preservation is really a big part of what we do and the preservation tax credit really does a relatively good job of that with with exceptions and so one thing I've worried about it's just sorry describe the preservation tax credit or is that just the tax credit used for preservation is that a separate tax credit used for preservation but they're you do get slightly less tax credits because you on most communities you get a higher amount of tax credits on the renovation piece than the acquisition piece and so if you look at the capital structure you get more tax credits on a new development than you do on an acquisition but it really is the same tax credit okay we have conflicting goals here because your first goal that you said the real problem with housing affordability is supply but we don't want to so let's go build but we also don't want to lose the supply that we've invested in so it is conflicting but only to the extent that there's a real limited supply of the tax credit and in most states at least after the tax bill passed that's not the case they're really doing as much new construction as they can using the tax credit and the remainder is going to preservation and so let's go back and forth talk about the big beautiful bill and what the tax credit expansion and extension look like and what it does I've heard people say it doesn't help that much because prices have tumbled that's one thing I've heard I don't know if that's true or not so help put that in some context and then I'm going to go back to your company the tax bill the big beautiful bill increased the amount of nine percent credits across the country by 12.5 percent but it also probably reduced increased the amount of 4 percent credits by about 50 percent and it was through a change in the requirement that you use municipal bonds to finance the 4 percent tax credit where that requirement went from 50 percent of the total development cost to 25 percent of the total development cost and you're absolutely right it has made every deal more challenging but it's made a lot more deals you know able to get done and the reason for that is these tax credits are generally purchased by banks and by increasing the supply of tax credits the pricing or the yield on those the yield has gone up and the pricing has gone down on the tax credits and so if you look at an individual deal it is more challenging post the bill but it means that a lot more deals can get done because there are a lot more total credits out there I am hopeful and this is actually our next big policy investment is leading the charge in terms of how to increase the demand for the credit and to lower that yield that banks are requiring to buy by the tax credits in order to close that gap and the take for example California where they were limited before and they were really maybe 90 or 95 percent of the tax credits were just for new construction post the the bill there's now enough credits available where you're also getting preservation done even though each deal is a little more challenging because the value of the credit has gone down. Let the challenges live especially for those of you who are set up to be sophisticated enough to deal with the challenges but also if that then allows us to preserve that stock instead of have a go away because then we have to build twice as much to get it back then that makes a ton of cents. Yeah overall I think it's a big win for housing and though certainly for deals that were already sort of in progress it makes them a lot more challenging because you'd underwritten them you know thinking that you're going to get 88 cents for the tax credit and it turns out you're only going to get 82 and so that creates real challenges in the short term but when I look at it from a long-term perspective I really expect that it's going to be really valuable for for housing production long-term. Cool so I want to go back to something that you were talking about before about the inception of the company and I want to think of two different stories at the same time so one story is building a business and we've talked a lot about that in the conversation and your depth of expertise in digging into this thing is obvious so I want to talk about what that means and how that goes forward but then also you're investing in a business so you're and you're an investor so you have a choice of where to put your capital and that's different than the business that you're building so talk a little bit about investing in this business because you have the options to put wealth into lots of places how does this land as a place to put wealth. Overall affordable housing and I think the market's woken up to this really has exceptional risk-adjusted returns or most of the time has very good risk-adjusted returns because our rents are below market and so it's a highly stable asset class and and more and more investors are realizing that it's also challenging because of the tax credit it's a challenging business to put a ton of equity in so if you look at the overall amount of dollars being invested in affordable housing a pretty small percentage of that is coming from traditional equity sources but but you know I think continued focus from the institutional market and seeing that this really is an institutional asset class with good risk-adjusted returns is great for the industry overall because it lowers the cost of capital and anytime you lower the cost of capital it means you can get more done with the same amount of resources and so I do think that that's a tailwind for both supply and for preservation over time is more and more investment and that's both on the equity and the debt side we've seen a lot of groups come into the market you know in terms of buying senior mortgages private market groups buying senior mortgages or buying tax credits or investing in more traditional equity on the affordable housing side and and that's something that I think some viewed as a threat and we viewed as a threat that's why we started the the new construction business but on net it's going to be a real positive for the industry to keep lowering the cost of capital for affordable housing big time and I think it's the holy grail for years for low income housing investment was can we find kind of permanent capital some of your competitors who are buying up deals are still doing it with close-end fund money and that needs an IRR versus a long-term hold return and so how does that help how do you either compete you've got to compete well with it because your crosscaples could be lower but how do those players do the thing they do and does that require them to then sell the property a massive portfolio and then sell to a couple five six tenures whatever the deal is it likely does but I don't view that as being a major problem as long as there's a real stable buyer for that and I think that's one of the key points of some of these reeds coming into the industry that they do create that stable exit another thing we've seen with some of these closed-end funds is that they they kind of are bridge-to-tax credits so it was one of the big positives of the big beautiful bill is a lot of these properties for example in California that we thought might never get credits to be preserved now can be and so we've actually bought some properties out of closed-end funds like that from our competitors that we're now preserving using tax credits and we view that as a really positive outcome and I think it's probably a positive outcome for the LPs of those funds as well I think that the majority of our key competitors really do have the right long-term view on how to preserve housing and do the right thing it well it's I'm back to the conversation it's interesting because part of what you're describing is stewardship and we as a kind society we want those who own this these kinds of properties to be stewards in some way and therefore we want the financial structure to foster stewardship versus either quick trades or you know slum lord say whatever that means I we have all those words for that stuff and most not all of the people who do own in your business I know a lot of your compatriots or competitors whatever the right word is is this business is infectious and they want to keep doing it in the right way and the enlightened self-interest is really to do with them it really is and you know this was a much less institutional business when we started in 2016 but we do have a number of peers you know that are close to similar scale as we are they don't all make the same policy investment we do because I think that's really you know a personal passion of mine but in general they really are focused on long-term long-term stewardship doing the right thing and as I mentioned from my perspective part of my job is trying to steer policies so that there there is less conflict between that stewardship and what is in even the short-term economic best interest but certainly the long-term two comments one is we had Alice Carr on the show and she did talk about stewardship we talked a lot about that because you think of Blackstone and I think of Blackstone in the olden days when it's a pure opportunity fund now there's different pools of capital but the pool of capital that she uses uses is aligned to low volatile in a longer term hold so the returns are just fine and that's a great business and I think that's one of the big things that change since we joined when you know I was looking at that year 11 deal probably in 2013 or 2014 the only source of capital was opportunity fund type of capital with much higher return expectations and that's exactly that's exactly the point to having more institutional capital in the industry that recognizes the stability creates an opportunity for more stewardship where you don't have to generate you know 20 plus percent returns which would potentially require taking things to market and so to the extent that your cost of capital is lower and recognizes that volatility that lack of volatility it you know makes sense to keep things affordable yeah and again as long as capital aligns in a well in a way that enables you to do that you may put bumpers around the policy laws that discourages the wrong behavior encourages the right and longer term behavior but I just love the thought of that stewardship we've often thought of in life interest but the policy work that you describe could kind of dig a little bit more into that are you I'm a DC at my home at DC right now so are you here a lot and what do what do the ears hear when you talk to them about this stuff yeah so there's a federal policy piece but there's also a state policy piece so for example on the federal side it is just there are a couple of pieces one is just making sure that the industry shows up in terms of contributing to senators and congresspeople that make housing one of their top issues not just an issue that they talk about but also demonstrating the value and the efficacy of the housing policy and and part of that is getting so our representatives out to see what a lie tech community actually looks like and that it's something that they're going to want in their communities the other piece some of it's just simple work like we comment on every state's QAP whether or not we do business in that state we have a list of best practices that we think are the most efficient policies and we will comment on every state's QAP just to try and guide them in the right direction or guide them to use more of their tax exempt bond allocation for housing they're a list of policies that we really think make a lot of sense and we advocate for them in a number of ways one would be through QAP comments but we also sponsor research independent research into what we think are the more efficient ways to get housing done and and use the limited resources available in order to create as much housing as possible with those limited resources and so sponsoring that research I think helps feed into to those best practices last comment I want to go to the discussion that we had before about you're being a leader in a business and the complexity of finance and the complexity of regulations and policy but talk about the complexity of running an organization what your surprises have been and where your successes are I think the surprises have been and I think a lot of this is natural for a rapidly growing business that the right leader for a particular division when we were 30 people is is a different thing a lot of our original managers were really exceptional individual contributors but struggled to make that that transition and so we've worked with Sarah and a number of others really to bring in exceptional talent but exceptional talent that fit with our culture and that fit is really a key point because although we're institutional we are very flexible we're very fast moving I control the company I'm very decisive I make quick decisions and we move quickly and so those were challenges in terms of really getting the right people our goal is to be best in class in every division and we think of our we have two types of clients or customers we have our tenants that are really important and it's really important that we take care of them but I also think of it as if our developers our our employees who are running the deals our customers and my job is to make sure that being a development partner at Lincoln Avenue communities is the best job you can have in the industry and you have the best resources available in every way so whether that's our construction management or our asset management or our origination or our capital market relationships or our culture just the day-to-day enjoyment of being in the office or the junior resources in terms of the analysts and associates and so that creates some discipline for me where I really view it as my job is to provide a best in class services in all of those ways so that our team has those resources available to compete and and create housing as efficiently as possible and I think that really really has permeated through the culture of the company I think if you talked to Ron Twilliger 30 years ago when he was running and creating Tramble Crow residential he was putting entrepreneurs into business and then his job was to support them I think he let them go a lot more than supportive them but you're talking about it but you know kind of what where that business has come to now which was their shared services that make that all sing well and work well absolutely and you know I mean he created a really inspiring business that I've learned a lot from our model is a lot more integrated than than the Tramble Crow model but I've also listened you know for example to the interview you did with the guys from Lincoln and and their other platforms that run similarly we are very integrated so our partners you know manage teams we have shared pools of analysts so we have analysts that can work with two different partners as opposed to being totally independent business units but that culture of just thinking of our developers as our customers creates or requirement or or pressure to really try and constantly be improving in every way that's true the conversation with Lincoln for our listeners go back it's about four or five episodes ago and it was the the two new generation leaders of Lincoln property company not Lincoln avenue community so you're not related to them to the best by knowledge but but they did update the model to do exactly what you're talking about because that run to willager model run wouldn't do it that way today right because there would be centralization of various functions that should be centralized and that's what they're trying to do there it's a cultural shift that's not that easy you're starting to know of us so you hire the right people into that and they know that's what they're getting yeah and it's a little more complex because it's in between you know the original run to willager model really was more of a financial arrangement you know ours is both a financial arrangement but it's really more of a compensation model and a culture than it is just a independent financial arrangement and I think that helps create a more cohesive culture across the company yeah um Sarah I'm gonna let you ask the last question on leading voices which is always the same last question we have a lot of younger listeners earlier in their career what is your advice for somebody getting started in this industry so I think my first piece of advice is learn what exceptional is and so work somewhere where they really are the best at whatever they do now for me finding a niche was pretty powerful so it could be niche but to the extent that you can find a mentor that really is one of the best or the best to have an understanding of what it takes and then that can go translate in other areas but whether that's if you're working for a broker or a mortgage lender or or an investment bank or whatever really understand what what talent is and what truly exceptional is and so that you can target that in terms of your skill development in your career that would be my recommendation Jeremy that's that's fantastic advice I remember 20 years ago having a light bulb moment of realizing like now know what really good looks like I can tell very specifically what good looks like and I think that's such an important thing for a young person to be able to do yeah and you said two things and we talk about this at GRG we just had a retreat this week and we talked about the same exact thing which is what does it mean to be exceptional and figure that out where whether through mentors or having the aspiration but I think equally important is what you've done which is let's find a niche where I can put that to work because you can't boil the ocean to do everything some people can but even you can't do that and then in this space you does dive dive dive dive dive dive which you've done to an exceptional extent so great story and thank you and thanks for being on the show thanks for having me as a real pleasure I hope that you enjoyed today's episode please remember if you're enjoying leading voices to share an episode with a friend or get them to subscribe if they're podcast wary and not sure how to find and subscribe on their phone go ahead and take their phone in your hand and subscribe for them and add another few of your favorite podcasts to their list to get them started they'll thank you for it you can also find episodes of the show on our website which you can find at zrgpartners.com/leadingvoices and if you have comments or discussion about this episode or leading voices in general if you're seeking help in real estate human capital solutions recruiting or consulting especially please contact me at [email protected] thanks for being a listener to leading voices