Talking Heads Jenny Netzer, TCAM
By Darryl Hicks
11 min read
Asset management best practices
Asset managers make sure affordable housing produces the expected benefits. It’s the job of the asset manager to maximize the performance of affordable housing assets by delivering tax credits to investors, debt service to lenders, cash flow to owners and equity partners, compliance to regulators and quality housing to residents.
Meeting all these goals is not easy and is one of the reasons why investors, lenders, developers, public agencies and others frequently contact TCAM for advice. In 2009, Jenny Netzer co-founded TCAM, based in Boston, MA, one of the most respected asset managers in the affordable housing industry nationwide.
TCAM works with clients on a total portfolio of 1,635 properties comprising 169,390 units spread across 47 states, Puerto Rico and the District of Columbia.
Before TCAM, Netzer spent 21 years at MMA Financial and its predecessor organizations, Lend Lease Housing and Community Investing and Boston Financial, overseeing the company’s affordable housing tax credit business, including capital-raising, investment and asset management.
Tax Credit Advisor sat down with Netzer to learn about asset managing affordable housing assets and best practices she has learned over the years.
Tax Credit Advisor: Asset management means different things to different people. How do you define it?
Jenny Netzer: Asset management is what an organization needs to make the most of its assets and to minimize risk. The reasons asset management means different things to different people is that (1) the assets may be different—ownership interests vs loans—and (2) the goals and risks of the organizations can be different. For example, “making the most of its assets” may mean earning the expected tax credits to an investor, and may mean ensuring long-term affordability and property viability to a regulator. The goals of a developer/owner may be maximizing cash flow, or positioning a property for redevelopment, providing services to residents or transforming a distressed community. When portfolios were newer and smaller, organizations tended to view asset management as compliance and reporting. Now most organizations realize that asset management is critical to the performance of their growing portfolios.
TCA: You oversee quite a large portfolio. How frequently do you review each client’s portfolio?
Netzer: For the portfolios we manage for investors and owners/developers, we perform analyses on a monthly or quarterly basis, including portfolio reviews with clients. If a property is still under construction or in lease-up, then we monitor progress on a weekly or monthly basis. We also monitor portfolios for lenders, public agencies and financial guarantors. The frequency of reviews for those clients depends on the nature of their exposure and reporting cycles.
TCA: Why do companies hire TCAM rather than manage affordable housing assets in-house?
Netzer: Most of our clients use TCAM to supplement, not replace, their asset management efforts or to expand capacity, so they can grow more cost-effectively. Companies find it difficult to maintain the right level of staffing with the right level of skills for the sustained focus necessary to meet their goals for their portfolios over time. TCAM can fill gaps in staffing or skills and leverage the time of the asset management team members at the client organization. TCAM also has economies of scale and operational efficiencies that many organizations cannot achieve on their own. We can also help companies build or strengthen their asset management teams, so that they need to outsource fewer functions.
TCA: How do you asset manage a portfolio of a few hundred units as opposed to a few thousand?
Netzer: This is a tough question to answer in the abstract, since all organizations and portfolios are different. The basic principles are the same: stay on top of the financial and compliance data to identify and address issues and opportunities, avoid problems and improve performance. For larger portfolios, risk rating systems and dashboard/portfolio reports become critically important in conveying and digesting large amounts of information.
TCA: What best practices have you learned over the years that you can share with our readers?
Netzer: Know what you want out of your portfolio, short- and long-term. Use the budget as a goal-setting tool, invest in getting it right, and use it as the benchmark in monitoring performance. Take the portfolio view in deciding how to allocate time and resources to the efforts that have the most impact. Don’t try to do the job of property managers. Micromanaging as an asset manager is a waste of everyone’s time. Use the lessons learned from the portfolio in underwriting and structuring new deals. And this one may seem obvious, but is not always a given, which is to manage the deal documents, so they are up to date, appropriately labelled and readily accessible to those who need them. In terms of organizing an asset management effort, it’s important that there are staff who can integrate information from specialists and can think about assets holistically.
TCA: What common challenges do you encounter asset managing affordable housing assets and how do you overcome these challenges?
Netzer: The major challenges for most in the industry have been during construction and lease-up, and at the other end as properties age and their capital needs require more attention. Addressing these challenges requires a proactive approach that includes developing a plan, staying on top of the progress relative to the plan, and course correcting as often as needed. Another more general challenge is the complexity of the transactions and the levels of financing and compliance involved. It is not simple to determine how much cash flow is owed to a subordinate lender, for example. This complexity creates challenges for all parties in working through and negotiating annual cash distributions. It takes experience and expertise and a good understanding of the deal structure to address the day-to-day challenges that stem from the complexity of the affordable housing industry. As the Low Income Housing Tax Credit (LIHTC) stock ages, new challenges have emerged. One of them is the challenge of ensuring long-term affordability after Year 15 when investors have exited. Investor interest in protecting their credits has resulted in many eyes on compliance during the first 15 years. Regulators need to figure out how to efficiently and cost effectively assume greater compliance monitoring responsibility post Year 15. Another challenge is prioritizing and positioning assets for re-capitalization, a challenge for developers, but also for allocating agencies and public lenders with loans that have long-term affordability requirements. How to overcome these challenges? There’s no magic solution. The industry will always need preservation capital to deal with aging properties and unfortunately few markets/jurisdictions have adequate capital for both preservation and new construction. However, strong asset management can help identify properties at risk and the level of capital needed, helping all parties with targeting new resources to maximize preservation of long-term affordability.
TCA: Describe your relationship with property managers. How much of your success depends on them?
Netzer: Property managers deserve a lot of credit for how well they do a very difficult job. Affordable properties are especially difficult to manage because of the complexities of the tenant qualification process and the multitude of stakeholders, among other things. Property management is critical to the success of a property/investment/loan – any affordable housing asset, in short. The role of the asset manager in an owner’s shop is to provide direction and support for property management, not to police or second-guess property management. If the owner’s asset manager finds him/herself constantly criticizing and getting involved in property management decisions, then it’s time to determine whether the property management company is up to the job. In other words, sometimes the role of the asset manager is to determine that a change is needed in property management. Property management is also the source of much of the data and many of the reports that asset managers use to track financial and compliance performance.
TCA: Some of your clients are state housing finance agencies. How do you approach your job differently working for an HFA as opposed to a developer or a bank?
Netzer: The role of a HFA is different than that of a developer or investor, and HFAs accordingly have different goals for the assets and different sensitivities. For example, public agencies are often concerned with balancing the need to help borrowers and allocators be successful in building and operating their projects, with the need to be “tough” about reporting and compliance requirements. TCAM has been successful in helping agencies get the HFA’s developer/borrower community used to a more responsive/disciplined approach to reporting without disturbing the healthy and important relationships between the agencies and its constituents. Because their roles and relationships with the assets differ, different organizations structure asset management differently. We tailor our approach and services to each type of organization. In the case of HFAs, we usually find their asset management organization has compliance specialists on one side and financial specialists on the other side of the house. When we work with public agencies we must effectively and efficiently speak to different sides of an organization – and help them communicate with each other.
TCA: How has your job changed in the post-tax reform era?
Netzer: It hasn’t changed yet – everybody is still figuring out how to interpret the tax law changes and incorporate the changes into their practices. But these changes will add to the complexity of projecting tax benefits and monitoring capital accounts and—once income averaging becomes a reality—of managing leasing and compliance.
TCA: What noteworthy trends as an asset manager are you seeing that our readers should know about?
Netzer: As portfolios have grown and become more central to their organizations, owners have become more committed to maximizing cash flow, looking at their existing portfolios for revenue (not just focused on development fees). Subordinate lenders are more focused on getting loans repaid and monitoring affordability compliance with those loans. More capital providers are focused on aging assets (Year 15 issues and recapitalizations). Rental Assistance Demonstration (RAD) is transforming the financing and management of public housing across the country. This trend has an impact on how resources are allocated for development and preservation, but it also profoundly changes the requirements of PHAs as owners, and their approach to asset management.
TCA: Let’s say I oversee a portfolio of 25 properties, encompassing 1,000 units, spread over a three-state footprint. How many asset managers should I hire?
Netzer: First, I want to mention that we do help organizations create their own asset management groups. Using your example, that could be one person, but that one person must do a lot of different things well. That’s usually where developers run into trouble. They only want to hire one or two people, but most have a really hard time finding in one person, even two, all that needs to be done. A big chunk of the job is data management, administrative routines, collecting data and analyzing it, putting the data into a usable format and making sure all stakeholders get what they need, and ensuring compliance reviews and audit reports are being done right. Then there’s an analytical function; creating a budget, working with your property manager and addressing property issues, and a strategic and long-term real estate component. Where is this deal going? How are we going to recapitalize? How do we restructure debt? It’s hard to find one person who can do all these things equally well.
TCA: What skills and background are you looking for when you hire an asset manager?
Netzer: There are multiple skills needed for asset management. Data management, financial analysis, compliance expertise, underwriting and market analysis, problem-solving, ability to read legal documents, ability to evaluate site operations and communication skills, to name a few. A property management and/or engineering background is often very helpful, as is development or other transaction experience. It is difficult, and in many markets impossible, to find all the requisite skills in one person. That’s why at TCAM we take the team approach. For each client, we assign a team of staff that together have all the skills necessary for that particular engagement.
Story Contact:
Jenny Netzer
jnetzer@tcamre.com
