Developer Profile Paul Sween: Experience Pays Off for Midwest Developer
By Caitlin Jones
6 min read
“It was the best of times, it was the worst of times.” That opening line from Charles Dickens’ Tale of Two Cities pretty much sums up the present for multifamily housing developer Paul Sween, a managing partner of Dominium Development and Acquisition.
For the low-income housing tax credit industry, the period since early 2008 has been the worst of times. Tax credit equity for new deals has been in short supply and on more stringent terms. Many developers have had to scrounge for debt and gap financing. And the Community Reinvestment Act has been the prevailing mantra overarching just about everything.
Dominium hasn’t been spared the challenges. Indeed, Sween says his biggest challenge “continues to be consistent supply of equity capital.”
Still, Dominium has profited from the tough times. As a long-time successful developer with a strong balance sheet and substantial liquidity, the company has had a leg up in seeking equity for new deals. In addition, Dominium is a diversified company with a three-pronged approach of activities, including workouts of others’ troubled projects.
Leading Midwest Developer
Dominium Development and Acquisition is the development, acquisition, and ownership arm of Minneapolis area-based Dominium, one of the largest and fastest-growing apartment development and management companies in the Midwest. Dominium owns and/or manages 18,793 rental units in more than 170 properties in 18 states. Of the total units, 75% are affordable – Section 8 and LIHTC.
“Our core footprint is Colorado to Ohio, Texas to Minnesota,” says the fiftyish but youthful-looking Sween. The majority of units are in the Midwest with heavy concentrations in Minnesota and Wisconsin. In addition to its headquarters, Dominium, with 750 employees, has regional offices across the U.S.
Dominium develops and manages both market-rate and affordable rental properties. But, Sween notes, “Our newer projects are virtually 100 percent affordable.” The average size of affordable projects is roughly 80 units.
In the affordable arena, Dominium tends to specialize in developing acquisition/rehab (preservation) LIHTC projects, though it also does new construction. About 20% of its units are in major cities (e.g., Minneapolis-St. Paul, St. Louis, Houston); 65% in surburban areas; and 15% in rural areas.
Dominium’s acquisition/development activities today are of three types:
- New construction and substantial rehabilitation projects using housing tax credits – 9% credits or 4% credits with tax-exempt bond-financing;
- Acquisition of general partnership interests in existing projects from sponsors who approach Dominium; and,
- Workouts of troubled housing projects developed by others. Dominium is usually brought in by a large institution to take over property management or to serve as the replacement GP, to fix current problems and stabilize the asset. “We will come in often with expanded guarantees,” says Sween. “In that way these companies can basically take them off their list of troubled real estate assets.”
Opportunities from Downturn
Meanwhile, Dominium maintains a sterling performance in its portfolio of existing properties that the company has developed and owns. The company has a standard process under which surplus cash flow from all of its affordable projects is pooled and then allocated monthly to the 20 or so projects in need of some extra help. “That gives capital providers a lot of reassurance,” Sween says.
Dominium’s sizable LIHTC portfolio is also a garden of potential future opportunities. “We have roughly one-fifteenth of our Section 42 portfolio maturing each year,” says Sween. “That gives us a certain liquidity, whether it be to refinance those assets or to sell them off.”
For many affordable housing developers, the general shortage of tax credit equity since early 2008 combined with tougher debt underwriting standards and more conservative attitudes of lenders has spelled difficulty in trying to do new deals.
Dominium, though, has reaped some benefits. “We’ve had a lot of opportunities come to us because of the difficulties that have happened in the marketplace,” says Sween. “Fortunately, one of the things that has happened over the last two years is that experienced sponsors are given credit for their experience… We’ve been in the affordable housing business since 1972.”
Getting the Equity
Dominium’s long, successful development and management track record and its financial strength have enabled it to secure equity for new LIHTC projects throughout the downturn, even for tougher acquisition/rehab bond-financed deals.
Dominium obtains equity from both syndicators and direct investors.
During the boom five years ago, it tended to rely on one equity provider for more than 90% of the LIHTC equity that it would need for new projects over the next couple of years. Today, the company, with about 30 affordable projects in its pipeline, sends out an updated term sheet monthly to 25 large syndicators and investors, listing all of the projects it will need equity for during the next 12-15 months.
These term sheets are prepared by Paul Sween’s brother, Mark, who secures the capital for new projects. Mark, who joined Dominium within the past two years, was previously at a national tax credit syndication company.
The pairing of the brothers is a professional reunion of sorts. Paul and Mark both began their careers as CPAs, working for separate major national accounting firms until leaving in 1982 to form their own real estate development outfit. They went their separate ways in 1989, when Paul joined Dominium. But, as Paul notes, “As my brother and I were parting ways, we were working on one of the first low-income housing tax credit deals, in the state of Minnesota.” Twenty-one years later the brothers are building on their legacy, developing additional tax credit projects that will provide decent, affordable shelter to thousands of lower-income families in search of their own American dream.
Some Dominium Projects
Lakeshore Beach Apartments | Cleveland, Ohio
Completed in 2009, this project involved the substantial rehabilitation of a 100% project-based Section 8 development into 108 units of affordable tax credit rental housing for families. Originally built in 1982, the property is located six miles from downtown and consists of five buildings. A new community building was constructed as part of the project, which had a total development cost of $14 million and was renovated in accordance with the Enterprise Green Communities criteria.
The Wahkonsa Apartments | Fort Dodge, Iowa
The acquisition and rehabilitation of this property, utilizing federal historic and low-income housing tax credits, has turned a local landmark building into affordable apartments for low-income seniors 55 and older. Originally constructed in 1910 as the luxury Wahkonsa Hotel, the property was later converted to apartments before being purchased by Dominium in 2007.
Leather Trades Artist Lofts | St. Louis, Mo.
A vacant historic downtown building is being converted into 81 affordable loft-style apartments in a $23 million acquisition/rehab project that is using federal historic and housing tax credits. Originally built in 1913, the eight-story structure once housed a leather wholesaler business but went though different subsequent uses including as cheap artists’ studios. Dominium acquired the property from a creditor after a commercial developer failed trying to convert the property to luxury condos.
