Breaking Ground

National Housing & Rehabilitation Association’s 2024 Summer Institute in California presented a series of one-on-one conversations with key executives from NH&RA member companies – the Developers’ Perspectives on Markets, Opportunities and Challenges.

Peter Bell, president and CEO, National Housing & Rehabilitation Association spoke with Russ Condas, senior vice president of development at Lincoln Avenue Communities, about key opportunities for Lincoln Avenue, implementing Solar for All and dealing with insurance challenges.

Condas is responsible for the management and oversight of a growing department of talented development professionals with a focus on the creation and preservation of affordable and workforce housing throughout the U.S. He has experience working with various federal, state and local programs to help creatively address the national shortage of affordable housing.

This interview has been edited for length.

Peter Bell: Can you tell us a little bit about the origins of the company?

Russ Condas: My partners Jeremy Bronfman, Eli Bronfman and Neal Schore started the company in 2016.

Initially, the goal was to focus on four percent acquisition, rehab deals in Florida as they grew the company and got to understand the business. They brought me on board in 2020 with the goal of institutionalizing our group, getting into new construction and working to effectively become a leader in the industry.

When I joined the company, we only did acquisition rehab deals.

Now we do approximately 60 percent ground-up, new construction. We have become active in the space, working heavily on the policy side, and continuing to make an impact.

PB: How about your background? You’ve been in the affordable housing business a bit longer than you’ve been with Lincoln Avenue.

RC: Prior to joining Lincoln Avenue, I was a partner at Dominion for about ten years.

Lincoln Avenue was a startup. Eli and Jeremy started the company and built a huge team for a new company in a relatively short time, acquiring a lot of units and all.

PB: What was it like building a team like that from scratch? Can you tell us about the efforts to build, and how you identified the different needs and positions?

RC: We grew our company a lot during COVID. And people often ask, “What’s your secret sauce? What are you guys doing that is fueling your growth, etc.?”

Truthfully, it’s very simple, we have an awesome team!

When I joined the company in 2020, we had just over 40 employees. Now we’re around 120.

We don’t own a construction or a management company. We’re effectively a 120-person development company that works on our new pipeline and oversees our existing portfolio.

We focus on our culture, valuing our employees, making sure that they feel part of the mission and that we’re going in the same direction. All our senior developers have real equity ownership in the projects they develop. This gives us an opportunity to be aligned on long-term decisions.

PB: Can you explain the Housing Partnership Network (HPN), how you guys came to them and what that transaction looks like?

RC: That was a couple of years ago. It’s maybe our coolest acquisition.

Within HPN, there was a subset of nonprofits that started a non-traded private real estate investment trust (REIT) called HPET.

The general partners within this REIT were nonprofits throughout the country. The goal of HPET was to create a format for nonprofits to enter the workforce housing space. We purchased the limited partnership position within HPET and the existing nonprofits. Many of them are real leaders within the industry.

Now we’re truly partners with many of them in a capacity that’s different than how we interacted with nonprofits previously, which oftentimes was working together to obtain a real estate tax exemption or something along those lines.

Building real partnerships in a way that feels meaningful has been great for us in terms of maturing our organization.

PB: Can you talk about what’s involved when you’re doing a portfolio deal? How do you assess the assets, multiple deals all at once? Do you go outside the company for assistance? Do you go through every deal one by one?

RC: Portfolio acquisitions are great in theory, but they take a lot of time.

We do high-level surface underwriting to see if it’s even going to pass the smell test for us or not. Assuming it does, we do a deep dive. We underrate each asset individually.

It depends on the type of transaction whether we’re going to bring in outside help or not. We do all the underwriting in-house. That’s our general approach.

PB: Let’s talk about the current development activity at Lincoln Avenue. What do you have underway right now? What kind of new construction activities?

RC: My team is super busy. We’re close to 30 tax credit deals this year. With about 6,700 units of tax credit closings. Sixty percent of that will be new construction.

Within those markets, we’ll have active construction in about 15 states across that portfolio.

PB: I understand that you are looking to push forward on the utility side and that Solar for All is something that you guys are working on implementing. Is that correct?

Yes. We’re doing solar on just about every single new tax order deal we can. I think everybody should be doing it, honestly.

One tweak within the Inflation Reduction Act is that we can effectively double-dip on the Low Income Housing Tax Credits and the Investment Tax Credits.

When you can maximize the credits and the basis you can get from an operational level and increase the debt at the property, it makes too much sense not to.

It’s checking both the financial box and the mission box.

We’re in the process of, and I think this is a neat thing that large portfolio owners should look at as well, effectively creating a capital transaction where the only asset in that capital stack is solar. You’re effectively leasing the rooftops from your own portfolio to a financial closing at an upper-tier solar entity.

We’re working to raise equity to put solar on our portfolio. It will generate a little bit of revenue for those assets, but primarily it’s a mission goal for us.

PB: Can you talk about the effort being made to deal with the insurance challenges that we’re facing?

RC: We took the initiative of working to be the voice in the industry to lead policy change. I think a lot of it is raising awareness and presenting potential solutions. We’re spending a lot of time with the government-sponsored enterprises (GSEs) working towards federal backstops.

We’re also spending time with Federal Home Loan Bank to tweak their mission with more of a commitment towards housing. There’s potential to create a CRA-type goal towards investing in insurance.

To the extent that we can make an impact on the federal level, we hope that it benefits all our peers in the industry and is good for housing.

PB: What do you see as key opportunities for Lincoln Avenue? For the industry overall?

RC: I think we’re buying more assets than we did two years ago. And with the equilibrium, we’re in between cap rates and credit pricing, interest rates, construction costs, etc. I’m looking for stability in the market.

We’re focusing on buying deals with great assets so they can take that capital and solve their issues with maturing debt or deferred maintenance.

In the next year or so, I see us doing more acquisition rehabs. And we’re going to continue to sign up for new construction. I see our portfolios swinging back towards those rehabs in the short term.

PB: What do you see as the headwinds, the key concerns that need to be faced as we go forward?

RC: I am most concerned about policy changes.

Insurance is definitely a cost that feels unpredictable in some ways.

Rent increases, the Federal Housing Finance Board has put out its policy for the GSEs (Fannie and Freddie) that would require any rent increases to be limited to no more than five percent a year on new loans originated by the GSEs.

This is an issue we’re going to be facing as an industry as we go forward.

To listen to the full interview and following Q&A visit NH&RA’s On-Demand Learning Center.