Trusses for Troops
Military housing developers keep on building.
Building houses on a military base isn’t so different than other construction jobs–once you get past the front gate with its machine gun-toting guards and become accustomed to the combat jets roaring overhead.
“It’s a different atmosphere,” says Ron Hansen, senior vice president for Michaels Military Housing (MMH). “You’re seeing a lot of servicemen and families. You get a greater respect for what they do.”
Recession or not, MMH is building up a storm. The firm is drawing plans for thousands of new homes at the U.S. Army’s Fort Huachuca and Yuma Proving Ground in southwestern Arizona and is planning hundreds more at Fort Leavenworth, Kan. The projects will take years and billions of dollars to complete. In 2010 alone, the firm will build 500 new military homes from the ground up.
“We are busy,” understates Bob Greer, president of MMH, a division of Michaels Development Co., based in Mariton, N.J.
The Department of Defense has signed billions of dollars in contracts to hire private developers to build and manage nearly 200,000 homes for military personnel. Officials estimate that building these homes using conventional methods would cost $16 billion.
About a third of the construction remains to be done under the Military Housing Privatization Initiative, a plan authorized by Congress in 1996 to hire private developers to build and manage nearly 200,000 homes for military personnel. Of roughly 120 projects, the Pentagon still has to pick winning bids for 26 developments, according to the list on its website (www.acq.osd.mil/housing/ ). The work ranges from a plan to build 60 units of housing at Camp Pendleton in Southern California to a single contract to build nearly 4,000 homes at five Air Force bases in northern states.
The homes are conventional stick-built single-family and duplex houses, says Hansen, requiring all the standard building supplies, from 2x4s to kitchen appliances. To get the job, lumberyards and building supply dealers should track the competition between developers to build housing on military bases. “Wait until the decision is made and then approach the winner,” says Hansen, who manages MMH’s in-house general contracting arm.
As one of the few developers still busy, military housing developers and contractors are asking a lot from building suppliers. Prices have already been cut to the bone, and suppliers now compete on service, says Hansen.
Whenever Hanson has a warranty question about building materials that need to be replaced, his suppliers call him back the same day–something that rarely happened back in the building boom. Suppliers who downsize by letting go of service staff won’t keep his business, Hansen says.
Many material providers are even willing to “store materials,” says Hansen. That means the supplier leaves a shipping container on the development site that is stocked with building supplies the developer has not yet paid for. Workers take materials out of the container as they’re needed and the supplier bills the developer for these materials as they’re used.
“Everyone is looking for an amenity to offer beyond price,” says Hansen. “They’re having to be relatively creative.”
Affordably Attractive
NRP plans to build more than 1,000 affordable-housing apartments in 2010.
How big a deal is the NRP Group? In 2009 the firm won the National Association of Home Builders’ Pillars of the Industry prize for Multifamily Development Firm of the Year. The distinctive lucite trophy usually goes to giant luxury developers like Trammell Crow Residential, which won in 2008, or Forest City Residential, which won in 2007.
Maybe it’s a sign of the times: NRP’s main business is building apartments for low-income families using government money.
Across the country–with the condominium development business a wreck and many apartment developers unable to find money to build–active affordable rental housing developers like NRP are among the few multifamily builders left standing. NRP plans to build more than 1,000 units of housing in 2010 in new communities from Texas to Florida to New York. Those homes will need a lot of lumber and other building supplies
Sure, subsidized builders like NRP have been hurt by the capital crisis along with everyone else. NRP’s development plans for this year are much smaller than the company is used to doing. NRP started work on close to 2,000 units a year during the building boom, when it was rated the top affordable housing developer in the country three years running by Affordable Housing Finance magazine.
NRP is a private, for-profit company based in Cleveland. Its main source of construction funding is the federal low-income housing tax credit program. Housing agencies in each state, along with a few big cities like New York and Chicago, hand out these tax credits to affordable developers like NRP. Developers then sell the tax credits to private investors to get the cash they need to build.
It’s a big business. Affordable housing developers–largely funded by state housing agencies–built more than 50,000 units of multifamily housing a year back in the building boom, mostly using tax credits. Housing projects often also use financing from federal programs such as Community Development Block Grants and HOME funds. Some states even run their own, local tax credit programs. The federal government allows states to issue billions of dollars every year in tax-exempt bonds for a variety of purposes. Many states, especially large ones like California and New York, issue hundreds of millions of dollars in these bonds each year to finance housing projects, usually built by private developers. The program is often run by the same state agency that distributes low-income housing tax credits.
The recession is expected to cut construction levels in half in 2010, because tax credit investors, including many big banks, cut back during the credit crisis. But that would still mean as many as 25,000 new affordable apartments and homes completed in 2010, according to Gleb Nechayev, a vice president at Torto Wheaton Research. If housing starts hit 750,000 this year, that would mean the affordable-housing sector would account for 3.3% of all business.
“There’s lots less work to go around,” says Aaron Pechota, vice president of development for NRP. “But something is better than nothing.”
The business of building with tax credits has certainly proved more resilient than other kinds of development. For example, NRP started the development process on over 500 luxury apartments without subsidy in 2008, but has no further luxury development plans in the near future.
“The conventional side of our business has completely gone away because the banks are not lending,” says Pechota.
Building supply companies interested in working with affordable developers should start by contacting the active builders in their area. Most state housing agencies post a list of projects and developers that have won tax credits on the Internet. A Web search for “low-income housing tax credit,” plus the name of your state, should get you started. If the latest list isn’t online, just pick up the phone and call your state’s housing agency.–Bendix Anderson is a freelance correspondent and former reporter for sister publications to ProSales. He lives in Brooklyn, N.Y.
Get With the Program
Some big sources of government money.
Neighborhood Stabilization Program State and local housing officials have already received almost $6 billion from this massive federal program to rehabilitate vacant and abandoned properties left behind by home loan foreclosures. The money will be passed on to affordable housing developers like New Jersey HANDS that plan to buy the homes, fix them up, and sell them to low- and moderate-income families.
Rural Housing Rural Development, a part of the U.S. Department of Agriculture, will spend $200 million in 2010 to finance construction and rehabilitation of rental housing in rural areas through its Sec. 515 and Sec. 538 programs.
Seniors Housing The Department of Housing and Urban Development will give out $825 million in grants in 2010 to build new affordable housing for the elderly through its Sec. 202 program.
Other HUD Programs HUD also has a set of programs that tend to be combined with other funding sources to finance housing development. There’s the $1.8 billion HOME program and the $4.4 billion Community Development Block Grant program, which is run by local housing agencies. Housing advocates also propose that Congress finally fund HUD’s new Housing Trust Fund with $1 billion.
