Talking Heads: Geoff Brown, USA Properties, Inc.: Advocate and Innovator
By Darryl Hicks
11 min read
Geoff Brown is one of California’s most successful affordable housing developers for two key reasons:
Brown is an innovator who utilizes creative financing solutions to overcome funding gaps and complete projects. He is a firm believer in the green building movement and incorporating solar power in almost every property he develops.
He is also an advocate who believes there is a dangerous shortage of affordable housing in California and that public officials should allocate greater resources to increase supply. And he’s exploring new ways to improve access to social services in his properties.
Brown became an affordable housing developer quite by accident. After graduating from college, Brown worked in commercial banking and real estate lending for six years before joining his father’s construction company, USA Properties, Inc., in 1989. As 1989 drew to a close, USA Properties was selling a newly constructed apartment building to a buyer that had received an allocation of low-income housing tax credits. The deal almost fell through when the buyer couldn’t close on escrow. USA Properties quickly took over the LIHTC allocation even though it was foreign territory, found an investor and closed what would become the last real estate transaction in Riverside County in 1989. “And that’s how we got into affordable housing,” recalls Brown.
In Geoff’s 26 years, USA Properties has grown from seven employees to 400 and developed, through construction or acquisition and rehabilitation, over 11,000 units of affordable housing for families and seniors throughout California and Nevada. In addition, its subsidiary, USA Multifamily Management, manages its own projects in a portfolio consisting of over 10,600 units—two-thirds of it senior housing. Tax Credit Advisor sat down with Brown to discuss his passions and priorities.
Tax Credit Advisor: You devote an entire section of your web site to the “green” building movement. Why did you move in that direction?
Brown: We incorporate energy efficient practices in both new construction and acquisition rehabs. How much we incorporate depends on how much subsidies we have and extra money in the budget. California established a goal of becoming energy self-sufficient by 2020. Developers must follow standards mandated by Title 24 and points are also awarded for energy efficiency when the state allocates tax credits and bonds. Because we are a rent-restricted industry, one way developers can create value is by engineering expenses and saving on energy costs. Part of our motivation is creating more cash flow by reducing energy costs. On almost all of our new construction and rehabs we incorporate solar technology in the common areas. Because of drought conditions in California, we are working with local water companies and looking at zero-based landscaping that incorporates more drought tolerant grasses, without sacrificing on the look and feel of the property.
TCA: As baby boomers retire, there is a concern that competition will drive up construction costs for senior housing and negatively impact people who are living on fixed incomes. What steps can developers take to ensure units remain affordable?
Brown: It’s not just senior housing. We have a big problem where demand is outstripping supply. Deals are harder to get done and we need to do better as an industry. In terms of costs going up, the costs are the market, whether we’re talking Davis-Bacon, or a locality charging a fee, or competitive bidding for materials. That’s an ongoing problem that we’ll always have, which is why we always try to find ways to be more efficient through the use of technology. With our senior projects right now, we are running 99 percent occupancy. My big mission is advocating to the state for more resources, so that we can meet the demand.
TCA: You are a leading housing advocate in California. What are your current priorities and what are you doing to ensure affordable housing gets the resources it deserves?
Brown: At the federal level, we must ensure that tax credit and bond programs are maintained as is and we don’t lose them. I am adamantly opposed to GSE reform. You can solve this problem by incorporating risk-sharing in the single-family program and keeping Fannie Mae and Freddie Mac intact. If lawmakers have their way, there will be just one entity and without any competition between Freddie and Fannie it will hurt the housing industry, both market-rate and affordable because pricing will increase. On the state side, the Treasurer and the Speaker of the Assembly introduced a bill that would increase annual allocations of state tax credits by $300 million and create a permanent source of affordable housing funds by creating a new $75 document transfer tax on refinancings. These initiatives are huge, which is why we’ll be spending a lot of time advocating for them.
TCA: USA Properties works with a non-profit called LifeSteps. Why has this relationship proven so beneficial to your residents?
Brown: For 20 years, LifeSteps has provided social services to our communities. I like to say that we don’t just build apartments, we build communities. We pay for the services out of our own expense budget. We have a lot of single-parent households, so one of the important services provided by LifeSteps is after school activities for kids. Another important project that has morphed out of our partnership is the J.B. Brown Fund, which is named after my father. Over the past four years, we’ve raised over $300,000 for college scholarships, youth sports programs, and services for special-needs seniors. We’re trying to create a culture within our communities that there is a big world out there but you can accomplish a lot if you just have some support.
TCA: Under the Affordable Care Act, hospitals can be fined if they have to readmit patients who had been released prematurely. What services do you offer to your elderly residents to ensure they receive access to the best possible healthcare, so that hospital revisits can be avoided?
Brown: The big challenge in senior housing, at least in the affordable space, is going to be aging in place. If residents are paying $800 to $900 in rent, and they have to go into assisted living, the rent quadruples and they can’t afford it. Today, their only options are to move into a skilled nursing facility or back with their children, neither of which is desirable. LifeSteps and USA Properties are developing a model for home healthcare. Currently, access to services is largely dependent on income, but we think all elderly residents should receive some level of in-home care. We’re not there yet, but we’re hoping to unveil a pilot program sometime in the fall. One option is to have licensed healthcare specialists working in the common areas around the clock to help people as they need assistance. We must figure out what works and then who pays for it. It may be the state, the hospitals, or a third option may be the insurance companies. By the time we go to the hospitals and insurance companies, we want to say, ‘Listen, we need your help, and you need our help.’ While part of the solution will be home healthcare, I also see technology playing a role, perhaps tele-medicine. I told Thom Amdur (Executive Director of NH&RA) that the association should take the lead on this issue.
TCA: One of the financing structures that you utilize to be competitive in acquisitions is monetizing future cash flow through a “B” bond structure. How does this work?
Brown: We lost a valuable source of funds from the California redevelopment authority three years ago and there’s generally less soft money available. How do we fill these funding gaps? There is the proposed tax credit legislation that I mentioned. On some partner deals with a lot of cash flow we created a “B” bond that is subordinate cash flow debt. When you apply for a bond allocation, you not only get it for your first trust deed, you get it for your second trust deed. In California, we have more bond allocation than we know what to do with. We did a deal two years ago where we had $2 billion worth of B Bonds, so friends and family purchased the bonds and received an interest rate of 9 percent, tax exempt, which is pretty good. I think we can get the B bonds to 7 or 8 percent tax exempt, but from an investor standpoint, depending on the rate, that can be a 12 to 14 percent yield. Californians pay a lot of taxes, so it was not hard to market the B bonds, but it needs to be somebody who doesn’t need their money to be paid back quickly. We produce a projected cash flow showing when you’ll get the money back over 10 to 12 years. But the way the B bonds work is that they are subordinated to the permanent loan so they don’t have a call date for 35 years. You’re basically leaving the money in as equity. You’re getting a percentage of the cash flow to help service the B bonds. We only involve family members because there is a threshold that we don’t want to exceed before we need a securities license.
TCA: New leaders have just been appointed to the California Tax Credit Allocation Committee, California Debt Limit Allocation Committee and California Housing Finance Agency. What issues would you like to see them take on? What are you concerned about?
Brown: Let’s start with CAL-HFA. The agency is working through an issue with the U.S. Treasury to pay back a line of credit, which I think they can do by year-end.
CAL-HFA is also developing a Ginnie Mae execution on a preservation product. Hopefully, they can develop a competitive structure that developers will want to use, because this is what they do best. On the CTCAC and CDLAC side, the big thing we keep saying is that we need more production, especially when we have all of this unused bond allocation. We’re pushing them hard to make the regulations more user-friendly so that more deals get done. An example of that is removing the cap on developer fees, like a lot of other states have done, because that creates more cash credit equity, which helps improve project feasibility. On the energy side,
I’d like to think there won’t be any additional energy requirements above Title 24. While I support energy efficiency, I don’t think green building guidelines should exceed Title 24, which is a very high standard to begin with. Affordable units should be allowed to be only restricted to 60 percent of area median income on 4 percent projects. I don’t think that with state credits you should have to further reduce rents. People tend to forget that a couple making minimum wage in Los Angeles, the Bay Area or Seattle, which I’m okay with, can become overqualified for tax credit units. We shouldn’t create policies that make it harder for working people to utilize affordable housing.
TCA: This may be a sensitive issue, but how concerned are you about a trend we are seeing where HFAs are trying to restrict the ability of private owners to make a profit on the sale or refinance of Year 15 affordable housing properties?
Brown: CTCAC and CDLAC should be doing everything they can to ensure developers can re-syndicate a project or buy someone else’s by making their programs as user-friendly as possible. On existing deals, we have a fiduciary responsibility to our investors to sell a property for a fair-market value. I don’t think that CTCAC and CDLAC can stand in the way of doing that, but what they can do is motivate current owners as much as possible to sell properties to developers who are going to want to use 4 percent credits and bonds, because that achieves a greater public benefit. You get more money into the community on a rehab and extend its affordability. That’s how they should be addressing this issue, not trying to hamper current owners.
TCA: What is a recent project that you are most proud of?
Brown: We have a new construction project in San Jose, 93 units, mid-rise building, that I’m proud of because we could have leased it five or six times over. We had a 500-person wait list. It shows how much need there is in the state for affordable housing. On the rehab side, we completed a project in Huntington Park, on the south side of Los Angeles, involving an old institutional building that looked like a hospital. We installed solar panels on the roof, solar thermal, solar voltaic, and we engineered the common area to be way more functional than it used to be. It’s a completely transformed community from what it was.
