Surviving Tough Times: Ways to Boost Income and Cut Expenses in Credit Projects

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Tax Credit Advisor, May 2009: In today’s tough economy, given the rising costs for affordable rental housing projects and the limited ability to raise rents, you need to cut expenses, grow income – or both – to juice your company’s bottom line.

At a recent Florida conference of the National Housing & Rehabilitation Association, developer Roger Yorkshaitis, of The Gatehouse Group, spoke about possible ways for owners to boost income and trim costs in their low-income housing tax credit (LIHTC) projects, highlighting steps his firm has taken or is exploring.

“If the stream of new development deals is drying up a bit, we’ve got to look at what we’ve got and what we can maximize out of that,” he said. “And we can look at how we can be more cash-efficient.” Gatehouse, based in Mansfield, MA, is a multifamily developer/owner/manager with about 5,000 units in Massachusetts and Florida, mostly 9% LIHTC properties.

Yorkshaitis suggested that owners can boost income and cut expenses by creating new sources of ancillary income, by harnessing modern technologies, and other means.

Ancillary Income

Yorkshaitis said a “big focus” at Gatehouse has been finding ways to increase ancillary income at its LIHTC properties.

One lucrative method has been to switch arrangements for the optional television service offered to residents from cable TV to satellite.

Gatehouse found itself saddled by existing long-term contracts with cable TV operators in which it was essentially re-selling cable TV service to residents for little if any markup above the monthly per-unit bulk rate paid by Gatehouse of $15 to $18 per unit. Switching to programming from satellite service providers (e.g., Dish Network, DirecTV) lowered Gatehouse’s cost to around $10 to $11 per unit. Gatehouse spends about $60,000 to $65,000 upfront per property to install the necessary hardware and distribution system to provide satellite TV service. But that outlay is recouped quickly because of the larger per-unit monthly profit. Yorkshaitis said some properties generate $4,000 to $7,000 monthly from these satellite contracts.

In addition, Gatehouse has just entered into a five-year contract with a private firm for one of its properties to offer Wi-Fi Internet service to residents as an option and alternative to DSL. Yorkshaitis said Gatehouse didn’t expend any upfront costs and will share in the revenues generated, while the private firm will handle billing.

Other possible sources of ancillary income at LIHTC projects mentioned by Yorkshaitis include:

  • Washer-dryer rentals.
  • Garage rentals. (Yorkshaitis said his firm typically charges $75 to $150 a month.)
  • Storage space rentals. (Gatehouse has even converted some garage units into storage units. Yorkshaitis said unused space in some projects might be convertible into storage units. But he cautioned that a lease fee isn’t possible if the cost of this space has already been included in the building’s tax credit eligible basis. In this situation, he said an owner might think instead of offering the storage unit as an additional amenity with the building’s harder-to-rent apartment units.)

Smart Use of Technology

Yorkshaitis said companies can save money, staff time, and travel by making smart use of modern technology, both at individual properties and firm-wide. These include:

  • Web-based services to facilitate online “virtual” meetings and presentations for employees at different locations. Gatehouse uses these services to educate new employees on the company’s operations, policies, and the electronic documents accessible on its central computer network; to facilitate meetings among staff; to and to train new property leasing associates in LIHTC compliance.
  • Digital copiers and scanners, to scan paper documents and post electronic versions to the corporate network where all employees can view them. Gatehouse, for instance, scans and posts centrally the utility bills for all of its properties, which can then be reviewed by site staff and regional managers.
  • Advanced property management software. This can improve compliance monitoring and communication with vendors, monitoring agencies, and investors; provide access to multiple parties in multiple locations; enhance reporting; and integrate electronic payments processing of tenant rent and vendor payments and automate work order systems.
  • Web-based electronic payment systems. These can be used to receive and pay electronic invoices from vendors, as well as to accept and process payments from tenants and applicants. Such a system, for instance, enables a site leasing agent to secure an application from a walk-in prospect and process a credit or debit card charge for the application fee, and avoid the possibility of the prospect walking out the door because they don’t have a check or money order.
  • Electronic work orders. Residents can make work order requests online, and property managers can notify maintenance staff and track performance.
  • Digital cameras, to take and electronically share photos, such as to show new damage at a property, a spot where a resident fell, etc.

Yorkshaitis said companies can probably achieve savings through more price-favorable contracts with vendors for services and supplies that reap economies of scale. Examples include contracts for elevator maintenance, equipment leasing, or automated phone answering services covering multiple properties; cell phone contracts that allow sharing of minutes among employees, to avert billing spikes for individuals in months of heavy usage; and deals with suppliers.