AN AVID BIKE RIDER, Midwest tax credit developer Rob McCready is pedaling faster than ever in his day job.
In addition to his usual task of securing the multiple funding sources needed for new low-income housing tax credit (LIHTC) projects, he’s also having to try to speed construction of a number of pending developments to meet looming deadlines imposed by the federal Tax Credit Assistance Program (TCAP) and credit exchange program.
“There’s this big push between now and the next four months to get under construction,” says McCready, one of three co-presidents and principals of
MetroPlains, LLC, along with Vern Hanson, Jr. and Randy Schold. MetroPlains has a handful of TCAP and credit exchange-assisted projects in five states in what McCready calls the “big push” phase. Developers must expend 75% of TCAP funds by 2/16/11 and 100% by 2/16/12. Credit exchange-assisted projects must generally be completed by 12/31/10, though a new policy change provides some leeway. Some of MetroPlains’ projects also have 2008 credits or the syndicators have closed with investors and want to place their equity by year-end.
St. Paul, Minn.-based MetroPlains, LLC is the development group that has evolved since doing its first project in 1978. Since then it has developed around 90 properties. MetroPlains LLC specializes in developing LIHTC projects, evenly split between new construction jobs and renovations of existing historic buildings with federal housing and historic rehabilitation credits.
The company is currently working on projects – rural, urban, suburban – in Minnesota, North Dakota, Iowa,Wisconsin, and Oklahoma, and Kansas.
“We try to do three or four projects a year throughout the Midwest,” says McCready. “The average size is between 30 and 40 units.”
New construction projects are typically infill developments. One example is Vantage Flats, a $7.8 million, 37-unit development completed in 2008. Located in Minneapolis and green-certified, the three-story structure with underground parking was financed by tax-exempt bonds, equity generated
by 4% housing credits syndicated by WNC & Associates Inc., a HUD Section 221(d) loan, and city and county funds.
The development abuts a stop on the regional light rail line. Authorities are building a new light rail section to extend the system from Minneapolis to St. Paul. “We’re looking for opportunities to build more transit-oriented development, affordable housing, on that section of the rail,” McCready notes.
Another project is Audubon Crossing, a $7.7 million green LIHTC deal in Minneapolis that will begin construction in October. The infill family housing project will contain 30 apartments, including four long-term homeless units. MetroPlains is developing the project with a local nonprofit. Funding sources include equity generated by 9% housing credits syndicated by WNC, soft funds from the state, federal CDBG and TCAP dollars, foundation assistance, and state rental assistance.
MetroPlains has traditionally obtained LIHTC equity from a regular stable of syndicators (WNC, Enterprise, National Equity Fund, MMA Financial, The Richman Group, Midwest Housing Equity Group), and a few direct investors (US Bank,Wells Fargo). US Bank and Wells each have a major presence in the Twin Cities.
“We’ve always been in the circumstance where we’ve had to work with multiple investors, because of their requirements, and because our deals are different from state to state,” says McCready.
McCready currently faces a number of other challenges, including finding interested equity providers for new projects. “It’s a little bit of a challenge with syndication in this market” because syndicators want projects that need more than $5 million in equity, he says. “Deals in the Midwest tend to be a little bit smaller than the average nationally.”
A related challenge is lower credit pricing. As a result, McCready is trying to line up enough other funding sources to plug gaps and make deals feasible – city and state dollars, historic credits, USDA Rural Development financing, etc.
Equity providers are also requiring more stringent guarantees from developers. McCready says this has forced MetroPlains to “tighten our belts” and improve its balance sheet.
Also challenging is finding permanent debt for new projects. “At the same time that investors want us to reduce our long-term debt on a per-unit basis, using more conservative rents and operating expenses, our perm loans are getting so small that it’s difficult to find a lender, because lenders want larger deals.”
McCready notes, “Rural is the most difficult project type to syndicate right now, and those are the ones we’re struggling with.We’re hoping that they’ll be delayed versus abandoned.”
Route to Affordable Housing
McCready took a circuitous route to become an affordable housing developer. After graduating from St. Thomas University in St. Paul and getting his MBA at the University of Wisconsin, Milwaukee, he joined the workforce as a commercial real estate tenant representative. As a partner in that business, he created a proprietary database of all commercial buildings and tenants in Milwaukee. He sold this to Trammell Crow, and, while working for the company for a year, “I was able to get some experience in the development business, building a commercial building.”
McCready joined MetroPlains in 1998 as its chief operating officer, and became a partner in 2002. In 2007, he – along with Hanson and Schold – assumed ownership of the development company. They took the reins from two of the founders of the parent company, Gary Stenson and Larry Olson, as they transitioned out of development and toward retirement. Stenson and Olson now focus their efforts running two affiliates, MetroPlains Management, LLC and MetroPlains Properties, Inc.
McCready says he’s still “excited” coming to work. “I’m a big biker and really believe in the infill developments, the green developments, we’re working on. It combines a lot of where I think we need to go as a country.” Every so often, there’s an emotional dividend as well.
McCready is looking forward to the fall 2010 grand opening of a new 45-unit senior project in Cedar Rapids, Iowa, a community devastated by flooding a while back. Seeing thousands of residents left homeless, MetroPlains decided to do its part to help, and received Midwest disaster housing tax credits to build a new LIHTC project, aided by TCAP dollars, which should begin construction in January. “When I’m standing there at the grand opening,” he says, “there’s going to be people moving in that I met after the flood at these open houses, where residents were coming up to us and saying, ‘I lost everything. When are you going to start construction?’ To see some of these people moving in next fall is going to be the most rewarding grand opening that I’ll ever have attended.”