Managing Your Affordable Housing Portfolio (A Brief Introduction)

Real estate development has slowed over the past years and the focus for developers and owners of Affordable Housing has turned to managing the assets that they do have. Frankly, the cost of managing projects was never contemplated as a Company cost and was never underwritten when the deal was put together. In the past, the Managing Member or General Partner just provided administrative support and the Company paid for its audit.

In the current environment of accounting regulation, it is clear that the management company financial information, while useful for determining cash flow, is not sufficient for producing GAAP financial information on a quarterly/annual basis. Additionally, there are important development milestones that are met during the course of the compliance periods which need to be monitored for both the Investor and the Manager and the Manager is charged with monitoring the management company and on-going operations.

When these duties are performed by qualified individuals, an additional cost to the Company is incurred, and then the negotiating begins. Who pays the costs to manage these properties? Is it really the Manager's job to fund this from their "Partnership Administration Fees", a cash-flow fee that they may never actually generate? Or do we need to budget in these costs the same as we budget in the organization's audit?

In light of the fact that many non-profit Community Development Corporations are scrambling to fund operations with no development fees, and many Investors are reluctant to take back the management and ownership of the Projects, it is becoming more commonplace to bill this work directly to the project. Fortunately, occupancy for most projects has been stable in the down economy and cash flow can cover these expenses. However, as mentioned above, these were not underwritten costs and cash flow for these costs may not be sustainable.

Further education, discussion and decisions are going to have to be made on how a Project is expected to pay for the costs of Asset Management by the Company during the compliance period and going forward.