Talking Heads Debra Koehler, Sage Partners, LLC
By Darryl Hicks
9 min read
Small developer with large local impact
Despite having only four employees, Deb Koehler has achieved considerable success expanding access to affordable housing for seniors and working families in the Tampa Bay market.
Koehler founded Sage Partners in 2007 just as the economic crisis was unfolding. Undeterred, she has adhered to a simple strategy of acquiring 1970s era high-rise apartment buildings housing mostly elderly Section 8 tenants and modernizing the often rundown properties into more age-friendly housing that allows residents to remain active and independent.
Thus far, she has completed four projects involving 700 units. Her crowning achievement, however, involved something completely different—the rehabilitation of the historic St. Paul African Methodist Episcopal Church. For over 100 years, St. Paul AME served as a focal point for the African American community and specifically the civil rights movement in Tampa. By 2010, the once-mighty congregation dwindled to fewer than 20 active members, and the building fell into disrepair.
Sage Partners preserved the landmark by converting it into offices and a 15,000 square foot community space, with the main sanctuary transformed into a play area for children.
Her career in real estate began in the mid-1980s as an accountant at The Wilson Company, one of Florida’s major commercial developers. When the real estate market tanked in the early 90s, she learned everything she could about Low-Income Housing Tax Credits and convinced her mentor, owner Jack Wilson, to focus his attention on building affordable housing. Over the next decade, The Wilson Company would build over 10,000 units of affordable housing throughout Florida, much of it under Koehler’s supervision.
Tax Credit Advisor sat down with Koehler to discuss her career and strategies for success.
Tax Credit Advisor: Tell us about yourself.
Debra Koehler: I grew up in a very small rural town in Virginia called South Boston, which is only 20 miles from the North Carolina border. I attended Virginia Tech, initially for veterinary science, but then I changed to accounting after I realized a large animal veterinary practice was not for me. My first job out of college was working for the Virginia Auditor of Public Accounts. One year later I joined KPMG and moved to Florida. While at KPMG, I was an auditor with a concentration in government, real estate and banking, which provided valuable experience when I transitioned to affordable housing.
TCA: What was your path into affordable housing?
Koehler: I left KPMG in early 1987 and joined The Wilson Company, which at that time was focused on Class A commercial real estate development. In 1993, office development came to a halt. We needed to find new lines of business and that’s when I discovered Low-Income Housing Tax Credits. I redirected my energies and learned as much as possible about tax credits. NH&RA deserves credit since most of my education and connections came from attending its conferences. When we closed on our first deal in Tampa, I didn’t know what the average project size was, but it turns out that ours was fairly large, 450 units. It became the first project financed through the Florida Affordable Housing Guarantee Program and we sold our tax credits to Sun America for 45 cents on the dollar, which was the market at the time. It was a learning curve for us, because we had never developed residential housing or used tax credits, but we quickly decided it was a line of business that we wanted to focus on. During the next 10 years, we developed over 10,000 units of affordable housing in 34 communities throughout Florida.
TCA: Eventually you started your own company, Sage Partners. How has that worked out?
Koehler: When I left The Wilson Company in 2003, I spent the next three years acquiring well located 80’s vintage apartments and converting them to condominiums with another local partner. In 2007, I formed Sage Partners with Todd Turner, which in hindsight was not the best timing on my part because the market crashed the following year. My first deal was under contract when the LIHTC investor backed out. Twelve months later, in June 2009, we closed on the partnership, which was a Section 8 acquisition/rehab. It was not a deal for the faint of heart, but we ended up creating a niche for ourselves. Not all, but most of our communities involve acquisitions of senior high-rises built in the early 70s with Section 8 contracts. After acquiring the properties, we use either 4% bonds or 9% credits to rehab them.
TCA: The restoration of the St. Paul African Methodist Episcopal Church must have been very rewarding. Tell us more about that project.
Koehler: It was a once-in-a-lifetime opportunity. Martin Luther King, Jr. gave one of his first speeches there. Other guest speakers included Jackie Robinson and Thurgood Marshall. It was decaying before our eyes with trees growing out of the roof. Its restoration has received national recognition and many awards. We created a history walk featuring medallions that tell different stories about the church and information about every pastor since inception. Along the same entryway, we documented 150 of the most significant church members, engraving their names in the pavement. We also restored a neon sign that was used by the church beginning in the 1930s but hadn’t worked in years. Every night the neon sign is lit, along with the lights inside, to showcase the stain-glassed windows. When you drive or walk by you see a beautiful piece of public art. The church was repurposed and is now called The Life Center that houses management offices and community space with a computer center and fitness facility. The sanctuary serves as an after-school space for children.
TCA: Being a small developer, how many tax credit investors do you work with?
Koehler: We have two primary investors, both banks. Our strategy is to build a relationship with the investor because the closing of the transaction is just the beginning of the marriage, which can last for 15+ years. Through that relationship building we are able to obtain competitive pricing and terms.
TCA: How do you know which investor to use when a new project comes along?
Koehler: We typically talk to both investors to find out what their needs are, especially their CRA (Community Reinvestment Act) objectives. Once we evaluate their needs, then we select the investor that we feel fits the project best and try to negotiate a final partnership agreement. We do not shop our deals with multiple investors. We would rather negotiate the terms with the investor. We believe we understand their needs and vice versa.
TCA: What do you look for in a new investor?
Koehler: We look for a track record with other developers who we respect. We look at the investor’s approval process. Also, it is important to understand the investor’s actions during the last recession. Did they stand behind their commitments? We perform due diligence in this area because we want to know if they are going to be there to support us during the good times and the rough times.
TCA: What if you encounter a Tampa-based community bank that has never been involved in a tax credit transaction, but is looking for new business opportunities to revitalize local neighborhoods and approaches you about the merits of becoming a LIHTC investor. How would you respond?
Koehler: I would recommend to the community bank that it become involved in our local lender consortium, which provides construction loans and permanent loans for our projects. The banks who belong to the consortium receive CRA credits, but they are not involved on the tax credit investor side. I feel if we can help them meet their CRA needs on the lending side, that is a win-win. We are a lean operation, so I am not the best person to educate someone who is unfamiliar with the roles and responsibilities of being a LIHTC investor.
TCA: How does the developer-investor relationship evolve as Year 15 approaches?
Koehler: Once construction commences and tax credits are being delivered, there is a constant communication to keep everyone apprised of our progress. Once stabilization occurs, it becomes more of an asset management function. As long as everything goes according to expectations we typically see the investor once a year during the asset management inspection. The hottest topic right now at NH&RA meetings is what happens in Year 15. Developers are realizing that they need to have conversations with the investor sooner so that they understand what the investor’s needs are and whether they are seeking to exit the partnership, remain as an investor, or sell the property. Because Sage was formed in 2007, we haven’t reached Year 15 on any of our projects, but we do keep in touch with the decision makers so that everyone understands the exit strategies.
TCA: That’s a good strategy considering that the people you negotiated with may be gone.
Koehler: Exactly and it’s also worth noting that the individuals who negotiated the partnership agreement on the front-end are typically on the production side whereas the individuals who are involved in Year 15 decision-making are in asset management. Fortunately, our investors are committed to affordable housing and they understand who we serve and why we do it. That’s why we prefer to work with financial institutions that have a long history with the tax credit program. In some states, especially Florida, the allocation of tax credits requires that the property remain affordable for 50 years. Your tax credit investor understands that restriction so really their question in Year 15 is, do they want to remain an investor or do they wish to exit?
TCA: Do you have a favorite project that you’d like to share with our readers?
Koehler: I would have to say Aqua Apartments, which we completed late last year. It’s a senior high-rise located on the Hillsborough River. It’s special because we have a vibrant community there. The residents are so active which in turn keeps them healthy. We have one resident who is in her mid-90s and lives on the sixth floor. I asked her what her secret for longevity was and she said “I never take the elevator.” We have a World War II veteran who displays a picture of himself with Jimmy Carter when he was President. There is so much rich history in our communities. Aqua gives them the opportunity to age in a healthy environment and remain independent.
TCA: If you weren’t an affordable housing developer, what would you be?
Koehler: We have a farm in Alabama. I love farming. We have community gardens at all of our properties, so there is a connection with my other interests. We are producing honey and starting a cattle operation. So I guess you could consider me a farmer as well. You can start humming the theme from Green Acres.
