Talking Heads, Laura Burns President & CEO, Eagle Point Companies
By Darryl Hicks
13 min read
Creating an Opportunity Fund
In 2007, Laura Burns created an investment fund, Eagle Point Ventures, that acquired General Partnership (GP) interests in tax credit-financed projects and yielded strong returns for its investors. That fund is in the process of winding down, but Burns has already convinced those same investors to participate in a new fund that will invest their capital gains in designated Opportunity Zones.
Burns has been a major figure in affordable housing for three decades. In 2000, she co-founded Eagle Point Companies, which is headquartered in South Portland, ME, and manages a portfolio of more than 5,000 affordable housing units in urban, suburban and rural communities in parts of Maine, but mostly throughout the Midwest and Mid-Atlantic.
She also oversees a consulting division—The Signal Group—which was formed in 1995 and whose clients include federal agencies and private sector owners, lenders and managers.
Tax Credit Advisor sat down with Burns to talk about this new, exciting chapter in her career and to share her thoughts on what makes Eagle Point Companies such a success in the competitive world of affordable housing.
Tax Credit Advisor: Let’s talk about this new fund that will invest in Opportunity Zones. How will it work?
Laura Burns: Let me backtrack a little by first saying our investors are pleased with how the original fund, called Eagle Point Ventures, has performed over the past decade. Our fund acquired General Partner interests during a period from 2008 to 2011 when the stock market was up and down, and few good investment opportunities existed. In recent years, we have sold more than half of them, and we are looking to liquidate the remaining assets in the next six months. Even before the other assets have sold, investors have already received back all of their capital, plus a fairly good return.
When we shared news of this new tax provision called Opportunity Zones, our investors were enthusiastic. The tax provision matched well with the timing as investors were already impacted by capital gains for the proceeds they had received and were considering how to re-invest the gains that are expected in the next six months. This program is still very new, and we are all waiting for the regulations to come out, so we can truly understand all of the tools.
We have already closed one tax credit transaction located in an Opportunity Zone and we set that General Partner up as an eligible Opportunity Zone Fund. We expect to stay at the front of the pack and to be involved in more complicated transactions in late 2018 and throughout 2019. How I thought we might approach this six months ago has already changed a lot as we learn more about the requirements.
To become eligible for an Opportunity Zone investment, the rehabilitation must be substantial. It’s not a good fit for light rehabs or simple ‘buy and holds’ which are not going to qualify for the benefits that Opportunity Zones are designed for. So, it’s really going to benefit significant rehabs, new construction, or buying a vacant building and creating a new use for that property. When it is a good fit, it will be a great advantage and our investors are excited.
Getting back to your question about how the fund will be set up, I think that’s going to be a moving target. We may create two funds. One for investors who still have an appetite for acquiring General Partner interests in projects that would not qualify for Opportunity Zone benefits. And then we will set up a second structure for Opportunity Zone investments. We don’t know yet whether that will be a fund or a group of investors who will be educated by us and invited to participate in individual investments as each is ready to close. The timing of the investors’ capital gains needs to be matched with the timing of the new investment. We hope to be working on half a dozen deals at any given time in Opportunity Zones.
TCA: What types of investments are you looking to make in Opportunity Zones?
Burns: It’s important that we stick to our core business: affordable housing. We are looking for investment opportunities in markets where we already do business or in places where we have identified more than one investment opportunity. We work in markets along the Mid-Atlantic, the Midwest—in Missouri, Kansas, Indiana and Michigan—and we’d love to be doing more in Maryland, Virginia and Washington, DC. So, we’ll be looking for investment opportunities that fit the requirements of the Opportunity Zone program. I don’t think there is going to be a cookie cutter approach, but first we need to clarify the regulations and the components that will match the Opportunity Zone requirements.
TCA: You mentioned that to qualify for Opportunity Zone benefits, the project needs to be a substantial rehabilitation. Have you done projects of that scale?
Burns: Most of our tax credit deals meet that standard. However, as you know, tax credit deals don’t require much equity from the General Partner, so that’s not a real fit for our investors looking to deploy capital gains. In the past, we have put their equity to use by purchasing General Partner interests, but generally we are buying something that is already in very good condition. If we buy these types of General Partner interests, it will not likely be eligible for Opportunity Zone benefits, because we would not expect to invest in a significant rehab in that property. The rehab has to be substantial or double the value of the property. The assets would have to have a significant value-add need to make it work, which is contrary to how we ran our first fund.
TCA: You’re based in South Portland, ME, and yet most of your affordable housing portfolio is based elsewhere, with over 1,000 units alone in Missouri. I am curious why that is. Does that create any challenges?
Burns: Our development philosophy has always been based on deal type and whether it fits our expertise. I love Maine, but there has never been enough work to keep us busy, so we developed in states where there are Section 8 and tax credit properties and housing agencies with extensive resources and programs to support these deals. Missouri, for example, was open to companies coming from out of state, it offered State Low Income Housing Tax Credits, State Historic Credits and other tools to successfully complete deals. We do business in markets we like, where we have good relationships with the state housing finance agency, and where that agency has the tools to make deals be successful. We do pay a great deal of attention to concentration of properties by location. When we formed our first fund, we knew we couldn’t take investors’ money and put it to use unless we had our own property management company. We needed to be able to apply our detail-oriented, proactive style at the management level if we were going to take people’s money to invest in General Partner interests. So, we built our management company based on a business plan that we needed to work remotely. We have now been in the property management business for over ten years and have worked hard to ensure that we can work well with spread-out assets. We have been able to do this by retaining our senior employees, supervisors and strong property site managers. We believe in a corporate philosophy that values employee input and encourages employees to “think like they own it” as they help to care for our properties and react to changing conditions. We may not always heed the advice of our staff who are on the frontlines, but we always want to hear it.
TCA: As a mid-sized developer based in Maine, but active through the Midwest and Mid-Atlantic, I’d like to learn more about your business model and how that has allowed you to successfully operate in urban, suburban and rural markets.
Burns: As a property manager, the challenges that we encounter in Washington, DC or Kansas City, MO with a property that’s 100 percent Section 8 are very different from a suburban property that’s 100 percent tax credit. To be successful, we must understand our audience and support our people who are dealing with these challenges. Most of what we do as developers is tax-exempt bond financing with four percent tax credits. Usually, the deal needs to be larger for it to work. I suppose that’s why we are drawn more to urban markets as developers. We also seek out properties with project-based Section 8 contracts. We have a strong understanding of that program and how best to meet the regulations and position ourselves for maximizing the benefits. Many of the General Partner interests that we bought had been developed as new construction, nine percent deals. The ones in Michigan and parts of Virginia are more suburban. Although Eagle Point hasn’t developed in rural markets, we understand them well, both as market analysts in our consulting division and as third-party property managers.
Our development business model has been primarily acquisition/rehabs in small to mid-size cities and suburbs. Some of the stuff we are doing right now involves recycling deals out of the Eagle Point Ventures portfolio. Whenever it has made sense and meets with the financial goals of both the exiting Limited Partner and the Eagle Point Ventures fund investors, our development company has been able to acquire and recycle properties with tax credits. That’s partially how we’ve filled our pipeline recently in states where resources available today may not have been the same as what was around ten years ago or even five years ago. We just closed on an acquisition in Michigan that used “soft loan” dollars provided by the state and that’s what made this tax-exempt bond deal work. We are always looking for extended or new tax abatements. Like every other developer, we are trying to put together all of the resources that are needed to ensure we can do a strong renovation and have the operating funds to take care of the property for a long time.
TCA: You recently experienced a tragic fire at one of your Virginia properties. What did you learn most from that experience in terms of helping your residents find temporary housing?
Burns: It was such a tragedy for our residents and their families. The property included 83 units of senior housing.
It was a complete loss. Many of our residents left the building at 1:15 PM that day and never had the chance to retrieve their belongings. That is devastating enough but then there was the challenge of locating replacement housing. The sheer number of residents impacted all at one time took tremendous coordination and organization. We were very fortunate to have the whole community step forward, along with the Office of Emergency Management, Fairfax County agencies, many churches, nonprofits, fellow affordable housing owners, as well as the families of our residents and our property management staff. To coin the phrase ‘it takes a village,’ it literally took the entire community working together to get 83 households settled amidst a lot of commotion and uncertainty and a great deal of emotional stress for these residents. It was a delicate process. We were learning as fast as we could, collecting information as quickly as possible, and then communicating that message out to the residents. The first thing we did was account for everyone and try to understand where they were going. That was hard to know as people settled with families or in hotels or in the shelter that was created. Frequent meetings were held. Communicating with the residents was vital and it was our biggest challenge. We were trying to understand from the structural experts the condition of various parts of the building, and whether it would be possible to safely access apartments in order to get residents their things, all while balancing the safety of the people who were going to access the building. Settling the residents in new housing was difficult because Fairfax County, VA already had a tight market for affordable housing, so it would have been a challenge to house five households let alone 83. All of these team members, county and state officials and family members came forward one household at a time to find solutions. That’s how we did it. We had to look at each household and what their needs were, what family was available, what challenges they had. People lost their medicines, their car keys and many residents walked out that day with nothing but the clothes on their back. We can’t express our appreciation enough to the firefighters that they got everyone out, but also for their compassion in wanting to come back the next day to offer assistance to impacted residents.
TCA: How is the rebuilding process going?
Burns: During September, the building was demolished. We are working very closely with our state agency lender, the tax credit investor, the insurance companies, and an architect, so that we can start seeking bids and start rebuilding as soon as possible. There are steps that need to be taken and approvals that need to be followed through on. There are new building codes and regulations that are required today that were not around when the property was originally built in 1995. We are working as quickly as we can and being methodical to ensure it’s done right. Hopefully, we will see some of those original residents back again when Forest Glen 1 re-opens.
TCA: Maine has the fastest growing senior population in the county. Five out of six properties you manage in Maine are affordable senior housing. Are you looking to grow that side of your business?
Burns: We are definitely looking to grow our property management business not just in Maine, but in all of the markets where we are currently active. Being ten years in this business, we feel like we’ve achieved our plan to create a management company with a corporate philosophy that matches how we think as owners and developers – detail oriented and proactive. Because we work in different markets, we believe flexibility and asset-by-asset planning is a must. Our team working in the management company needs the support and confidence of the owners to think outside the box. Clearly, this business is highly regulated and requires lots of procedures and rules and regulations. But ultimately our success is built on believing in our staff and providing them with the tools and supervision so that we can all make the best decisions. We feel like we’ve built this fabulous team and we are looking for third-party work with customers who fit our style and want to see their assets perform at their best.
Story Contact:
Laura E. Burns
President/CEO, Eagle Point Enterprises LLC
lburns@eaglepointco.com
