Transitioning low income, LIHTC & section 8 to market rent

9 Replies

I'm looking at a 50 unit foreclosure in Texas that is currently 100% low income, rent restricted housing. Because of the foreclosure the rent restriction will not pass to the new owner. Although the property will cash flow as-is, my intent is to transition the property, or at least a portion of it, from low income to market rents. I know there are numerous groups that would oppose such a move (even in Texas) so I'm looking for anyone that may have experience with this strategy and can offer advice on the hurdles I would be faced with.

Not really concerned with what others may think myself but would strongly advise against a mix of welfare and market rents. Oil and water in my opinion. I would get rid of all the welfare and raise the entire property to market. Spruce the entire property up both inside and out to attract and reflect the higher quality of tenants.

It comes down to a question of business or charity. The two will never work together.

After you have everyone at market rent refinance or sell.

@Thomas S.

That would be the ultimate objective but, with the complex fully occupied, should I do that, I could be facing a very high vacancy rate until all the tenants are out. So a phase out over three years is what I'm anticipating followed by a refinance. 

Primarily though, as I mentioned, I'm skeptical of the public/media backlash. I don't concern myself with what others think either but I am concerned about my business reputation at this point. How much vilification should I expect? Would it be worth the cost?  Are there a organized groups that seeks to prevent this? Should I be factoring in court costs to defend the move? Are there local or national restrictions that specify how quickly the transition can occur? Can the courts block a transition even if the deed does not? I'm trying to look beyond the numbers. 

It's important to see the world as it is, rather than how you wish it to be.

@Stephen R.

Why don’t you resyndicate the asset, or put tax credits back on it, pull out a developer fee and then cash flow. I’m sure the housing authority would give you soft funds. In Texas if you partner with a housing authority you can get a full tax exemption. This way you’ll get paid and won’t have to kick anyone out.

@Stephen R.

Sorry if I was confusing, what I’m trying to suggest is take it all down cash and then put tax 4% credits back on the property, keeping it affordable and in the program.  Doesn’t that make sense? I work with these properties everyday, have prob sold 16 of them this year.

Originally posted by @Stephen R. :

@Thomas S.

That would be the ultimate objective but, with the complex fully occupied, should I do that, I could be facing a very high vacancy rate until all the tenants are out. So a phase out over three years is what I'm anticipating followed by a refinance. 

Primarily though, as I mentioned, I'm skeptical of the public/media backlash. I don't concern myself with what others think either but I am concerned about my business reputation at this point. How much vilification should I expect? Would it be worth the cost?  Are there a organized groups that seeks to prevent this? Should I be factoring in court costs to defend the move? Are there local or national restrictions that specify how quickly the transition can occur? Can the courts block a transition even if the deed does not? I'm trying to look beyond the numbers. 

It's important to see the world as it is, rather than how you wish it to be.

What city are you looking at?

I would reach out to the right folks and get their buy in. you might find with the right amount of investment and support from the right city council member support for upgrading to a mixed use development.  Especially if you are bringing some amount of investment to the property.