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Property Management

PROPERTY MANAGEMENT

The management of unsubsidized affordable SMMF properties ensures the viability and livability of these properties once preserved. The key challenges associated with managing this property type are creating economies of scale for professional property management services and managing operating expenses. Unlike newly constructed housing, preserved unsubsidized affordable SMMF properties need ongoing attention to their expenses to keep cash flow consistent.

There are some key differences between managing an unsubsidized affordable SMMF property that was preserved using significant public resources and one preserved with limited or no public resources. For unsubsidized affordable SMMF properties preserved with limited or no subsidy, property managers need to focus on maintaining stable occupancy; ensuring on-time rent payments; and marketing and leasing these properties to prospective tenants who may be weighing various alternatives. For unsubsidized affordable SMMF properties preserved with significant subsidies, property managers’ largest focus should be on meeting all the requirements associated with them. Compliance at these properties creates a need for specialized experience and staff as part of the property management team.

CHALLENGES MANAGING PRESERVED SMMF PROPERTIES

CREATING ECONOMIES OF SCALE

Unsubsidized affordable SMMF properties often do not generate enough cash flow to hire a full-time property manager or maintenance person. One of the largest challenges associated with operating preserved SMMF properties are achieving economies of scale, without which there is little interest from professional management companies and higher indirect costs when an owner performs management functions in- house. Economies of scale for owning and operating affordable housing properties is typically reached by portfolios with 100 units or more and when properties in that portfolio are near one another. At this size, portfolios should be able to attract a third party to assist with operations.xlv

Diaz, M. (2004). Assessing Property Management for Affordable Housing. Paper prepared for the Joint Center for Housing Studies of Harvard University. Available at www.jchs.harvard.edu/sites/default/files/w04-9_diaz.pdf.

INDIRECT COSTS ASSOCIATED WITH PROPERTY SELF-MANAGEMENT

Due to SMMF properties’ small size (2 to 49 units), many nonprofit or mission-driven property owners may choose to self-manage. Self- management enables the property owner to focus on meeting residents’ needs and use management fees from the project budget to support property management functions. However, one of the most significant challenges associated with self-management is covering indirect costs (e.g., overhead, supervisory, and other “back office” costs).xlvi

LISC. (2001). Managing Small and Scattered Site Portfolios Workbook. Available at www.lisc.org/our-resources/resource/asset-and-property-management-workbooks.

MEETING COMPLIANCE REQUIREMENTS

SMMF properties preserved using public subsidies, such as HOME or the Low-Income Housing Tax Credit, requires reporting and compliance with all regulatory requirements and federal fair housing laws, in addition to more traditional property management functions. While requirements vary by funder, meeting them requires a strong administrative infrastructure. Property owners will need the expertise, staff capacity and systems to effectively administer and comply with these requirements.

MANAGING EXPENSES

Managing expenses is one of the most important aspects of managing preserved SMMF properties. SMMF properties preserved through light or modest rehabilitation often need ongoing investment to maintain their livability. Typically, SMMF properties preserved through light or modest rehabilitation have limited operating reserves to cover escalating expenses, such as higher utility costs and property taxes (this may be a particular issue in stronger or emerging housing markets where these properties are at risk of losing their affordability). They also may or may not have enough replacement reserves to cover large-scale needs, making “repair, not replace” an important strategy when managing expenses.

PROPERTY INSURANCE IN AREAS PRONE TO ENVIRONMENTAL DISASTERS

As disasters become increasingly common, insurance costs are also rising. For instance, developers in Miami noted the high costs associated with insuring buildings prone to hurricanes. Often, these cost increases are passed onto building tenants. Property owners will need to anticipate any changes and ensure they have enough cash flow to cover an increase in insurance costs while keeping rents stable for tenants. Alternatively, incorporating resilience measures into your rehabilitation plan can help lower insurance premiums, helping you both maintain affordability and protect your property and the people that live there from future disasters. See the Rehabilitation section of the toolkit for additional information about disaster resilience for this property type.

PROJECT SPOTLIGHT: PARTNERSHIPS FOR PROPERTY MANAGEMENT

oaksATL, a developer and owner of affordable SMMF properties in Atlanta, is developing a property management model that works for this property type. Efficient division of labor is a core tenant of this strategy. oaksATL manages financial tasks in-house (e.g., paying debts, taxes and insurance). The organization delegates all tasks related to interacting with tenants (e.g., collecting rents, mitigating disturbances or complaints, addressing maintenance issues or screening tenants) to a local nonprofit with experience working directly with community members. This division of labor allows both organizations to play to their strengths and leverage existing systems and relationships. The partnership between oaksATL and the local nonprofit has attracted new streams of capital, including philanthropic investment, which has enabled the nonprofit to reduce administrative fees.

For more information on oaksATL, see www.oaksatl.com.

Ways to minimize operating expenses

  • Work with funders to develop a “compliance light” approach. Many developers and lenders with experience preserving unsubsidized affordable SMMF properties recommend looking for opportunities to fit compliance requirements into owner- operators’ existing property management practices and minimize overall requirements when possible. For instance, the NOAH Impact Fund, a social impact fund serving the Twin Cities region, allows its property owners to use a simple formula to verify tenants’ incomes and only requires income recertification when a unit turns over.

  • Invest in materials that will be cost-efficient over the project lifecycle, including energy efficiency, green building and disaster resilience measures where possible.xlvii Using more durable materials that need to be replaced less often and upgrading the building structure and systems to improve energy efficiency are two ways to lower operating and maintenance costs and increase affordability. In many cases these measures can also support the building’s resilience to natural disasters, which further helps lower operating costs by reducing insurance premiums.

    For more information about how to account for the full costs of maintaining a property over its lifecycle (i.e., a “lifecycle cost analysis” or “lifecycle underwriting”) see The Lifecycle Cost Adjustment Methodology: An Exploration of the Baseline and Alternative Assumptions by the National Housing Conference: www.nhc.org/publication/the-lifecycle-cost-adjustment-methodology-an-exp...
  • Build capacity to scale key operating functions in-house. Owners of smaller portfolios would benefit from building their capacity to perform key property management functions. Owners can seek out property and asset management trainings to build their in-house capacity or solicit for assistance to understand different approaches and clarify the roles they should play. They can also explore lighter service models, such as the resident/circuit- rider model offered by Community Housing Improvement Systems and Planning Association (CHISPA) in Salinas, CA. In this model, a manager oversees multiple, clustered properties and visits a property during set office hours to address residents’ needs.xlviii

    Diaz, M. (2004). Assessing Property Management for Affordable Housing. Paper prepared for the Joint Center for Housing Studies of Harvard University. Available at www.jchs.harvard.edu/sites/default/files/w04-9_diaz.pdf.
  • Centralize key operating functions with nearby property owners. Owners of smaller properties can work with other small-scale or mission-driven property owners located in the same neighborhood to create a larger portfolio and advertise it to professional management companies. These owners could also explore partnerships with larger property owners located in the same neighborhood to understand opportunities for shared management services, including a la carte assistance with specific functions such as tenant screening.

OPERATING COSTS IN ATLANTA

As part of its preservation efforts, stakeholders in Atlanta have identified modest, well-managed and predictable operating costs as one of three conditions necessary to preserve the city’s unsubsidized affordable housing inventory. By Atlanta’s definition, modest, well-managed and predictable operating costs mean that:

  • The physical structure is in good condition.
  • Systems improvements lower utility costs (e.g., water and energy).
  • Property taxes are manageable.
  • Developers have the right capacity and skillset for property management.
  • Paperwork associated with compliance is minimal.