CRE Guide: Take 5 – Todd Hutchison

Todd Hutchison, an affordable housing developer and consultant, has a track record of participating in more than 20 projects using state housing tax credits.

He is vice president of Wisconsin Redevelopment LLC in Milwaukee, director of Impact Seven Inc.’s housing preservation loan fund, and president of his own development company, ABC Development LLC, which advanced numerous projects in the early 2000s. He has seven projects in the hunt this year for 2012 affordable housing tax credits from the Wisconsin Housing and Economic Development Authority.

Hutchison answers questions from The Business Journal on the high volume of applications for tax credits this year, how the competition affects developers’ project proposals and the challenges that remain for affordable housing projects.

Q: How do the tax credit housing projects that you proposed through various companies in 2012 reflect opportunities that you see in the market over the next several years?

“Two, we proposed acquisition and rehab of existing low-income housing to help maintain the current stock of affordable housing. There are a large number of affordable housing units that are now over 40 years old that need to be updated and have the new energy-efficient windows, insulation and HVAC systems installed. The affordable housing tax credit program is a good vehicle to pay for those upgrades and keep that housing stock affordable without the capital expense of all new construction. These upgrades make the units more marketable and attractive to their local communities from an aesthetic sense, but also make them more affordable for living by reducing the resident’s utility costs through improved energy efficiency.

“Three, with Gov. Scott Walker’s focus on job growth in the state of Wisconsin, we also focused on projects that were near companies that were expanding and creating jobs. Having affordable housing near to employment growth helps to support that growth.”

Q: Do you see any themes or trends emerging in affordable housing development based on this year’s crop of WHEDA tax credit applications?

A: “It is really driven by scoring. With so much competition, developers that want to succeed have to design their projects to maximize the WHEDA scoring. Therefore, you will see a lot of acquisition/rehab projects this year and a lot of projects that serve lower-income clients and clients with special needs.”

Q: Housing tax credit projects continue to be proposed in denser neighborhoods in Milwaukee, but how much affordable housing development activity are you seeing in rural areas in southeast Wisconsin?

A: “WHEDA requires that a minimum of 10 percent of all the credits be used in rural areas. Further, WHEDA has another 30 percent set aside for preservation of existing affordable housing. Much of the preservation projects also include housing that was originally developed in rural areas using Federal Rural Development and HUD programs. So based on percentages, the funding and activity is definitely there. The issue is that the state is so large with so many rural areas to cover that even if you put 100 percent of the tax credits in rural areas it would still look like the rural areas were undercovered.”

Q: What challenges remain for affordable housing developers in southeast Wisconsin and how can they be overcome?

A: “One of the biggest problems is something that all developers deal with, and that is (‘not in my back yard’). This can only be overcome through education by showing folks the high-quality work that we have already done and by continuing to put out high-quality developments that people are proud to be associated with. A second problem that I see emerging now is that in 2008, 2009 and 2010 Wisconsin received three times the normal allocation of Low Income Housing Tax Credits because of the flooding in 2008. That extra allotment of credits is now gone, but the outside developers that it brought in have not left and, coupled with the continued economic problems that we face, it is still difficult to get deals financed conventionally, so there is a lot more competition for fewer resources. This will work itself out in the next couple of years as either the conventional market gets stronger or additional developers drop out of the market entirely. We just need to adapt and move with the market as we have for years.”

Q: How frequently are companies combining various forms of tax credits, including new markets, historic and housing, to finance projects?

A: “This has always been the case, where there are multiple layers of financing in every project; it’s just that the ingredients that make up those layers change based on the current sources of funding. In some years, we relied more heavily on conventional financing, when those sources have pulled back government grants or private foundations are used. As investors have become more comfortable with different forms of tax credits and as their need for tax credits increase due to higher taxation or increased profits, we can rely more heavily on those and combine them in ways that make up for lost sources of funding in other areas. In the 15 or more years that I have been doing this, it has never remained static and we are always looking at the most effective method of delivering the best product possible.”

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