A Q&A with Cliff McDaniel, head of Lument’s Affordable Housing Investment Sales team
- Lument has decades of expertise in affordable housing investment sales, successfully completing the most complex transactions.
- We use our knowledge to craft compelling stories for each of our properties that end with a simple message for the buyer: this property has tremendous potential.
- We save sellers’ time by finding the right buyers for each property, those with the best cost of capital.
- As part of Lument, we can help buyers find the most efficient debt funding.
- We show up, guiding potential buyers through the property and reinforcing the story.
- We operate as a team and stay on top of the process. Sellers can always reach someone who will address their questions and concerns.
There’s an old adage that says knowledge is power. How do you apply your knowledge to benefit your affordable housing sellers?
McDaniel: One of the most important things we do is share the knowledge we’ve gained over the years. Because we are always out in the market, we are in an ideal place to track the impact of market dynamics and economic forces on buyer behavior. As a result, we can provide sellers who may only be in the market periodically with information that can help shape their sales decisions and their expectations.
Our knowledge is also critical in assessing the value of a community. Because of restrictions that may be placed on affordable properties, accurate valuations require an investment sales team that specializes in affordable housing.
As an example, if the property has a HAP [Housing Assistance Payments] contract, you need to understand the options available for raising rents if you are to value the property properly. You also must be aware of specific state and local regulations and how they might affect valuations. For instance, if you are a nonprofit in Wisconsin or North Carolina, you don’t pay real estate taxes. If the property is in Texas and you have a CHDO [Community Housing Development Organization] partner, you will get a 50% tax abatement but only after completing a $5,000 rehab per unit. In addition, the value you put on a property can vary, depending on whether buyers view it as a resyndication or a yield purchase.
How do you translate this knowledge into a sale?
McDaniel: Once we factor in all the relevant information needed to understand a property, we organize that information into a compelling story that we will take to potential buyers. Getting that storyline right is critical. But while every community has its own story, they all have the same happy ending: you, the buyer, can potentially make a lot of money if you purchase the property.
That’s the story that we tell buyers to get them interested in a property—and that’s the story we reinforce during their visit to the property. For us, inspection day is game day, and we always show up. Our job is to guide their perceptions and help that story come to life, but to do so, all the elements supporting that story must be in place. From the moment buyers get out of their cars, all the story elements must be in place—and that takes preparation.
Before the first buyer comes to view a property, we work with owners to help them see it through the eyes of potential buyers and make adjustments. If there’s a downspout held together with duct tape, replace it. If there’s a bare spot, plant flowers and mulch them. We want to make sure a seller’s property makes a great first impression and that every new impression builds on the first.
How do you find buyers who might find that story compelling?
McDaniel: We value our sellers’ time. Accordingly, our job is to make sure the seller is talking to the right people. There are many ways to find the right buyers. We can draw a radius around a property large enough to identify a solid subset of prospects. I tell my sellers that their best buyer is the one with the cheapest form of capital. That may be a buyer looking for a 1031 exchange or one with social impact equity who will accept a smaller return. It might be the owner of a nearby property who can realize economies of scale.
The right buyer may also be one who can source debt at favorable terms and therefore make a higher bid. That’s why being part of Lument—the top-ranked FHA lender in the country—is an advantage for our sellers. When we underwrite a property, we pass the information to the debt team so that they can generate a quote. This process not only helps us get better deals for sellers but also accelerates our transactions, an important consideration with interest rates rising.
Are there other ways you ensure a speedy close?
McDaniel: We take a team approach to managing each transaction, which is easy for us because we’ve all been together for more than 10 years and we work together smoothly as a result. There is a seamless sharing of responsibilities. It doesn’t matter who picks up the phone, you can count on them to be knowledgeable about your sale.
Another reason things don’t drop through the cracks is that we understand our capacity. We are not a volume business. Because we always want to make sure we have the bandwidth to do an outstanding job for each of our sellers, we take on around 50 transactions every year. When you work with Lument, you can be sure you have our undivided attention.
And finally, we always try to be a step ahead, finding creative solutions for issues before they can derail the process. We are extremely proud of having closed almost every deal that we put under contract.