Jeremy (00:00) Overall, affordable housing, and I think the market's woken up to this, most of the time has very good risk-adjusted returns because our rents are below market, and so it's a highly stable asset class. more and more investors are realizing that. because of the tax credit. It's a challenging business to put a ton of equity in. So if you look at the overall amount of dollars being invested in affordable housing, a pretty small percentage of that is coming from traditional equity sources. I think continued focus. ⁓ from the institutional market and seeing that this really is an institutional asset class with good risk adjusted returns is great for the industry overall ZRG (00:47) Hi, this is Matt Sleppin and welcome to Leading Voices in Real Estate. Today's episode recorded on October 30th is a conversation with Jeremy Bromfman, CEO and founder of Lincoln Avenue Communities, a company founded in 2016, which has grown rapidly to now be one of the top 10 owners of affordable housing, as well as one of the most active developers in the country. We've had many episodes on affordable housing on the show and this episode continues that conversation. Several thoughts here. First, as I've said many times on the show for most of my career and therefore most of my adult life, housing was a back page, not a front page issue. So when it did come up, the conversation was often about funding for government low income housing programs like the old HUD programs, public housing, and now for a very long time, the tax credit, LIHTC, which is what this episode is all about. But when housing became a front page issue, the heated debate bifurcated to topics like housing supply, rent control, and housing affordability for middle moderate income families at one end of the spectrum and the intractable problem of homelessness at the other end of the spectrum. Government subsidy programs, what I used to call alphabet soup, are still on the back page, not the front page. And maybe this is good news since the major program, Lytek, is highly functional and even expanded under Trump's big, beautiful bill. But this capital A affordable housing is still, even with today's focus on housing in our national conversation, still a back page Two things for me in this conversation with Jeremy. First, listen in on how thoughtful a guy this is, and how thoughtfully he's built this company from scratch to be one of the leaders in this space in less than 10 years. Second, you've heard me say this on other episodes where the guest, in my words, built their business from bupkis. Well, if bupkis has any meaning, Jeremy from the Bronfman family is at the other end of that spectrum, and for sure, His discussion on the topic of family history is also hugely thoughtful. I admire the bupkis stories, but I equally admire those who come from great wealth to also find their paths, build a great company and find ways for themselves to make a difference. That's Jeremy. I'm joined in this conversation by my colleague, Sarah Dunn, who came to ZRG with me from my prior firm, TerraSearch Partners, and now leads our search practice in affordable housing as other areas of search. One of the great pleasures of my work and my moving next year into, I've said before, semi that great undefined word, semi retirement from search. One of the great pleasures is to mentor and work with, and ultimately pass the baton to phenomenal colleagues like Sarah. If you're enjoying the show, please rate our show on your podcast app and please follow and subscribe to the show and share your favorite episodes with colleagues and friends. If you have interest in the topic of today's discussion with Jeremy, Go back to the archive and check out conversations with Jonathan Rose, Daryl Carter, Alice Carr, Ron Towilliger, Robin Hughes, Ishmael Guerrero, and others on their affordable housing businesses. You can find these and other episodes from the archive on your podcast app or on the ZRG website. If you have comments on the show or would like to talk about how ZRG can help your business on the talent side, including search, consulting or advisory in the real estate space generally, or our work in affordable housing specifically, please contact me at msleppin at ZRGpartners or sarahdunn at sdunn, d-u-n-n, at zrgpartners.com. I hope that you enjoy this conversation with Jeremy Broth. Matt Slepin (04:19) Jeremy Brompton, welcome to Leading Voices in Real Estate. I am thrilled to have you on the show to talk about your business, Lincoln Avenue Communities, which is a company that's in the affordable housing space. You're still relatively new in this space, but you've grown very quickly to become one of the leading owner operators in the business. And I want to hear all about how you've done that and what that means for you. I'm joined today in the conversation by my colleague Sarah Dunn, who leads the affordable housing practice for CRG partners and I know is working with you as I have in the past. So we're looking forward to her perspective on this as well. And we'll talk all about your company and all about the affordable housing space, a little bit about housing policy and a little bit about your background. So lots to talk about and Jeremy introduce yourself. Sarah Dunn (04:52) Thank you. Jeremy (05:04) Well, Matt, thanks for having me. I'm Jeremy Broffman, the founder and CEO of Lincoln Avenue Communities. We're one of the leading developers of affordable housing in the country. We own about 30,000 units in 31 states and are primarily focused on low income housing, tax credit development and preservation. And then we have some other smaller divisions with workforce housing. Matt Slepin (05:31) Talk about what those differentials mean. What does development mean? What's preservation mean? Because you've bought most of your stuff, not developed it. And what does workforce housing mean? So we think about those different segments. Sarah Dunn (05:32) Thanks. So, Jeremy (05:45) Absolutely. So preservation is renovating and extending the affordability of tax credit properties using new tax credits. That's how we started our business was acquiring properties which have rent restrictions and no real natural incentive to do capex because you can't raise the rents by doing value add. And as a result, there's a subsidy available to renovate them. ⁓ as long as you also extend the rent restrictions. Sarah Dunn (06:12) you Jeremy (06:13) Development for us is new construction, building new affordable housing, also using low income housing tax credits. And we started our business focused on preservation. But starting in about 2019, we have dramatically expanded our new construction, affordable housing development business to the point where that's ⁓ probably about half of our Sarah Dunn (06:14) So, Jeremy (06:37) production, if not more. Matt Slepin (06:39) And you said something I want to pick on, because we have a real estate audience, and you say capex is hard to do and not incentivized. And if you do capex every 20 years or whatever the period of the hold is, that's not enough because you have to do capex all the time. So is that true? it's hard to put money in to keep these up? Jeremy (06:59) I'll talk about the tax credit program in general. So we can start with the new construction development, although that's a newer part of our business. You receive tax credits as part of the low income housing tax credit program. You build one of these communities and the rent restrictions are typically in place for 30 years. As a result, you need to do capex to maintain the building. But unlike a market rate community where you can also raise the rents when you do capex in a lie tech community, you can't because you have those 30 year rent restrictions. And so after year 15, you become eligible for a smaller subsidy, which enables you to renovate the building as long as you agree to extend the restrictions for 30 years from that point. And Those renovations typically are enough to cover all the major building systems, which generally do last 15 years. Of course, you do need to do do capex along the way, but that really is the primary part of preservation. And what happens around that year 15 period is you really have a competitive dynamic between developers like us who focus on preservation. And then market rate groups who are buying those communities with the expectation that 15 years later the rent restrictions will go away and they can be taken to market. And so from an impact perspective, you know, we believe that the preservation strategy is really, really important and creates really good incentives for the developers and really improves the communities. Matt Slepin (08:36) Yeah, and also as a taxpayer, taxes are not paid, which is what the tax credit does. So I can't say as a taxpayer, we put money into here, but we do. And as taxpayers, we've created, I think it's three and a half million units of low-income housing, tax credit, housing. And you hate in 30 years that it all naturally runs off because all the incentives are for it to run off. This is a big investment by our country in these communities, in these properties, and for the stability that Sarah Dunn (08:55) So, so much. Jeremy (09:07) Yeah, it's a really important program. And in fact, the recent tax bill, which expanded the amount of credits available, makes it a lot more feasible for preservation to happen. Matt Slepin (09:20) Well, we'll talk more about that in a second. And then one other theme that you mentioned before is you do some work in non-affordable, non-subsidized affordable housing. We call that NOAA. But what does that mean and what's your work look like in that area? Jeremy (09:36) So NOAA really is naturally occurring affordable housing. They're generally market rate buildings that were built in the 70s or 80s where the rents are close to affordable levels. And when those properties are being sold, they're either sold to a value add group that's gonna invest significant capital, but try and take them from a class C plus to a B plus and raise the rent significantly. And what we've done is bought a number of those properties, kept the rents restricted, often in partnership with the local community through a real estate tax abatement in order to maintain their affordability and enable the families that live there to remain. We bought a REIT in 2021 called Housing Partnership Equity Trust, which is in partnership with the 12 largest affordable housing nonprofits in the country. where they're the local operator and really the GP of NOAA communities and Housing Partnership Equity Trust is the equity provider and LP. We've also done a number of NOAA deals on our own where we're the operator. And it's an important part of the housing stock, although it is probably about 5 % of our business. So it's a lot less of our focus. and it's become a little more challenging as interest rates have increased. Matt Slepin (10:57) One of the things that we talk about on the show a lot it's statistic someone gave me a couple years ago, which I find fascinating if we look at the subsidized housing the number of subsidized housing units in the country is against low-income people who need them within the income restrictions I think about us that stock that we have houses about a third of low-income people So the other two-thirds are in the housing that you just described And it's actually a big part of the multifamily space is this naturally occurring affordable housing because that is half, I don't know what the number is, of kind of the tenants in these buildings. And when you do this NOAA acquisition and then you put some use restrictions on it, you're still doing well financially while you do good things for stabilizing communities. But the numbers work out that you can buy in a competitive market. And then you can also make dollars as a for-profit in the business. Jeremy (11:53) ⁓ In some market But when it works and the interesting thing from from an investment perspective is obviously the volatility is lower because You're not making a bet on raising the rents. And so the returns are lower as well. But but it's it's more stable because Because the investment thesis isn't predicated on on raising the rents and changing the tenant base, etc Sarah Dunn (11:55) Okay. And. Matt Slepin (11:54) When it works. One thing before, I want to talk about housing and housing policy, but I do want to talk a little bit about your family. Like the Brompton family is a family we've heard of in the world. heard, I think I drink vodka or something. So Seagram's fortune was made there, but growing up in that family, what does that mean? And just a little bit about how that might have brought you here. Sarah Dunn (12:29) Okay. Jeremy (12:37) Yeah, absolutely. So my family owned and controlled the Seagram company, which is a large liquor company. They sold it in in a merger with an entertainment business in 1999. I grew up in New York city and every Thursday night I would have dinner with my grandfather, Edgar Bronfman senior. And he ran that business for a very long time, but also had a major impact on philanthropy. And he did that in two ways. One was through traditional philanthropy and donations. But what really inspired me was he used his business platform. to really turbocharge his philanthropy through political and policy areas. Specifically, he was involved in getting reparations from Swiss banks for Holocaust survivors and just seeing how he was able to use his platform to have an impact that was orders of magnitude greater. than he could have done, you know, just by writing checks is something that's really inspired my approach in terms of how we invest and in reality, probably over invest in policy at Lincoln Avenue. And we can go into that in a lot more detail, but it's been a real inspiration. And I think one of the things that gives me a huge amount of satisfaction in, leading the business is being able to try and help steer affordable housing policy to be more efficient and create more units and create the right incentive structures for developers to create more supply of housing and to do so efficiently. Matt Slepin (14:11) Was there any business that he had like your business that in the business itself you're influencing in a good way So you're kidding the double bottom line here Sarah Dunn (14:15) So So Jeremy (14:22) That's a great question, and not that I'm aware of. But I think having a global business gave him that platform to have impact in that way, even though it wasn't ⁓ a double bottom line business in the same way as ours is. Matt Slepin (14:37) Right, but there's values that come in the family tradition that really mean something to you and I appreciate that. And from the outside as a member of the Jewish community in our country, we watch that leadership and that leadership matters and then you kind of want to emulate some of that in your own life and the only way that you do it and I know I grew up with values that matter. It's one of reasons I care about this part of the business a whole lot. So it's fascinating. Jeremy (15:04) Yeah, that makes sense. One other piece, which isn't about the double bottom line, but was an inspiration for him was at Seagram. really did have, it was a public company, but it did feel a bit like a family. He had a tremendous team and many of them worked there for decades and decades. And, and in a lot of ways that was a big focus of his and in terms of running the business. And so that also shaped, you know, how I think about. about our team and trying to create an exceptional place to work and recruit the best talent, but recruit the best talent that can stay at Lincoln Avenue and have a whole career with us. Matt Slepin (15:41) That's awesome. That's awesome. It's funny. are the affordable housing space has a lot of players and I think about and we might think from the outside that government owns a bunch of it, but they don't they own you know, the public housing which is a decreasing asset base within like five million units give or take of of low-income housing and Within the tax credit world or the subsidized housing world. There's a lot of nonprofits but I believe that they own 25, 30%. I've tried to run the numbers, but I can't add them up. But I think the nonprofit world is at about that amount. Sarah Dunn (16:16) So Jeremy (16:18) And, you know, there's a really great community of developers who build this stuff. But I think one of the key points is the low income housing tax credit is arguably the most successful private Sarah Dunn (16:29) So Jeremy (16:29) public partnership we've had. it's ⁓ incentivized developers like us who are really able to take risk, use our own capital, attract the best talent and develop housing efficiently. Sarah Dunn (16:30) So Jeremy (16:44) And that's the reason that we've been able to create three and a half million units over the past 30 years or so. Matt Slepin (16:52) most stable program we ever had. So I totally agreed. I was a housing lobbyist back in the day when this program was becoming created and I wasn't quite in the room where it happened but I was maybe in the enter room where it was happening. So it was fascinating when it did and the thought was that we could create a more permanent program if it's through the tax code versus through direct subsidies it would get bipartisan support which the tax credit certainly has. Jeremy (17:16) It certainly has, you know, part of our investment in policy last year was trying to make sure that this expansion of the, of the lie tech was included in whatever tax bill happened. And the interesting thing that, you know, that became a big bill, but in the Senate version, which was a skinnier bill, other than the key priorities that the president talked about on the campaign trail, the only additional thing that was included was the expansion of the lie tech. And so that really shows what, what bipartisan support it has, and that's largely due to the success and how overall it's an efficient program. And the way that we invested in that, our team did over a hundred congressional meetings, whether that was bringing senators and congresspeople to our sites or flying in and really just trying to demonstrate the value of the program and share stories about how the LIHTC is able to create these sustainable communities. in particular in a time where the housing crisis has become much more of a public issue, but also much more of a diverse issue in terms of geography, where now there's a housing crisis all over the country, not just in the high cost coastal cities. Matt Slepin (18:29) Let's let's talk about that context for a few minutes and I want to think about it and when I I mentioned before I was a housing lobbyist I worked a little bit alongside the guy who works for you now Tom Amdur and that was that's been his job through his career but I was one of them 20 30 years ago long long time ago and Back then housing policy was about this issue, which was let's get more subsidies for low-income housing That was what housing policy was around and the other issues were taken care of themselves in context of the world and then housing and it was a backdoor issue was maybe you know number 20 on the List of hot issues in the country, right? it was it was all and almost never discussed except through this alphabet soup thing and Then over the last 10 years affordability has become a massive issue And I think it's bar billed in that the housing issues that we read about in the newspaper kind of deal with affordability for middle moderate work, workforce housing, working, working people who can't afford the damn rent. So that's number one, or can't afford to buy a home. And those numbers are at an all time, I'll say an all time level of frustration. And then the other thing we read about is homelessness. And those two ends of the barbell seem to be the national discussion and low income housing, except for the tax credit, which is just accepted. has kind of disappeared as part of that ongoing dynamic. You don't read about it much in the New York Times, which I read every day. So kind of help me put that discussion in context and then how you've been able to kind of, as with your other compatriots, fought for the program to continue. Jeremy (20:05) Yeah, our real focus and belief is the solution to the problem is supply. And, and the lie tech does a really good job of more than any other program. Uh, and if you look across the country, the cities that have invited supply, like Austin, Texas, for example, you know, rents have come down and even though they've had fantastic job growth and income growth. And the cities and states that have made supply more challenging to create are the ones that have had sustained higher rent growth and therefore lower affordability. And the interesting thing about the LITECH is it also creates sort of a countercyclical supply investment. So if you look at housing new multifamily starts, they were... at a 20 year high, you know, in 2021 and 2022 when interest rates and cap rates were really low. And now they've dropped off a cliff as construction costs went up, et cetera. But Lytek has been a lot more stable. And if you look over time, Lytek really is a stabilizing force of continuing to create new supply, even when the market rate world is developing less. And that really is ⁓ a huge positive impact of the LIHTC because in our view, affordable housing specifically matters, but so does supply of any sort and creating supply of any sort is important and LIHTC really is a big stable part of that. And specifically the 4 % LIHTC, which generally develops much larger buildings, know, 200, 250, 300 units. is the vast majority of that new supply. Matt Slepin (21:47) Talk about the differential between the 4 % and the 9%. Our listeners, some of them will know this. And I'm always surprised that the 4 % is contributing more to the supply. But just talk about the dynamics of that and how that works. Jeremy (22:00) Absolutely. So the 4 % LIHTC is a slightly less generous tax credit that provides 35 or 40 % of the development costs in exchange for keeping the units restricted at 60 % of area median income for 30 years. As a result, in most states, that subsidy is effectively as of right. If you go through all the state housing, regulations, you are able to receive that credit as long as there's enough bonds available. And they're relatively high fixed costs to doing these transactions. And as a result, you end up with much larger buildings and the total number of units is more significant. The 9 % credit is also an important program. It's a much more generous subsidy where you receive about 70 % of total development costs. But as a result, that means that that that program is highly competitive and it's highly competitive where there's a QAP and this is where we get the much deeper housing affordability because the subsidy is more generous and so you can make the numbers pencil with 30 % AMI units or more services. But it also means it becomes more competitive in terms of green standards and all sorts of other. priorities that the housing authorities put into place. But because that's a limited and competitive resource, on average, those buildings are probably about 50 units. And so they're often in more infill locations and they solve an important problem. But in terms of total number of units, it's just a much, much smaller, much smaller number of units. Matt Slepin (23:39) And when you keep putting the additional wonderful things that you want to have happen to those properties If you want to extra green it or put more use restrictions on it I'm thinking of Ezra Klein's book on building we're getting into a bad dynamic of not having the dollars go as far because we are putting on, I think of his Christmas tree ornaments, just a little bit too many. Maybe it's like a doctor's. Jeremy (24:03) Well, that's exactly right. And generally that competition, the way the 9 % works is you have a certain amount of dollars allocated per deal. And so the more ornaments that go into it, you just end up with fewer units. And that's really the outcome for the same amount of dollars. Whereas the 4%, and that's really where we focus, but it does, it's a, 4 % from a developer's perspective is riskier because if the numbers don't work, the numbers don't work. Sarah Dunn (24:11) you Matt Slepin (24:15) Mm-hmm. Sarah Dunn (24:22) Okay. Jeremy (24:30) Whereas with the 9%, often you have all the ornaments and costs come in high, instead of building 40 units, you just build 36. ⁓ And you're able to make it work. But that is a real challenge in terms of the inclination on the 9 % to create all those ornaments that do make it less efficient. That said, Matt Slepin (24:39) Mm-hmm. Jeremy (24:53) That is the primary way that these much lower set asides or green programs get funded. We generally believe that the goal of housing should just be to solve the housing issue as opposed to solving all sorts of other important social issues through a housing subsidy. Matt Slepin (25:10) I'm going to quote something directly because I don't remember the number. I want to pull it up on my screen real quick. And Ezra Klein quoted this in his book. But I'm going to make it up. I think it costs maybe three times as much to build a market rate unit in California as it does to build a market rate unit in Texas. So call it three times. But I think it's six times to build a tax credit unit in California as it is to build in Texas. there's something. And directionally, that's what Sarah Dunn (25:14) Okay. Matt Slepin (25:37) The quote is it's from the Rand Institute. But that's a dangerous dynamic. It's also a dangerous dynamic if we take our limited resources of subsidy and put it towards things that go so high in terms of cost. maybe the last comment I was going to say before is the tax credit has lasted so long because we've had few headline articles about this being a bad program. So we've had very little abuse. Sarah Dunn (25:43) you Jeremy (26:02) you know, there are lots of fantastic 9 % deals out there, ⁓ but there certainly is a Sarah Dunn (26:08) I want Jeremy to sort of take a step back and talk a little bit about your decision to get into development when you really started the business more as an acquirer and how you've been able to grow that to such a significant part of your platform. Jeremy (26:23) Yeah, absolutely. You know, I have my background is in finance, not in development. And so when we started acquisitions and renovation was a lot more natural. It's also a much quicker, you can scale much more quickly. And then there was an interesting dynamic in 2019 and 2020 when interest rates were extremely low. Institutional investors, large institutional investors really started to pay attention to LITECH and buy it in very significant scale. Blackstone and Starwood and a number of other groups through their REITs were buying it. And there were a couple of specific dynamics there. They typically use interest only debt. And when interest rates were very low, that made a bigger difference, ⁓ interest only versus amortizing. Whereas when you do a tax credit deal, you're required to use amortizing debt. And as a result, after a couple of years of buying a lot of properties, we were winning very few deals. And I got nervous. We'd built a pretty large overhead. We'd built a great team. But I was worried that a market dynamic like that, that it was out of our control, was threatening our volume and our ability to transact at the same level and have the impact we did. Matt Slepin (27:17) Mmm. Jeremy (27:32) And simultaneously, I hired a couple of people at that time who'd worked at tax credit development companies that did do new construction affordable. And so that was when I decided to really build out a new construction affordable housing business. ⁓ And last year we were the largest developer of new construction affordable housing by units started. But it also was a time where I had to figure out the career path model for our company, or it certainly inspired me to. And we created a model, and this is how we recruited the best talent in terms of new construction, affordable housing developers, where we created the platform model, where our developers are true partners in their developments, have real equity, have their own P &Ls. And that's really permeated our culture where it really is this model of a full career. You can make partner, and, and become one of the key developers in whatever region that is. And so, you know, I feel pretty lucky that it was sort of a competitive threat that nudged me in the direction of, of building new construction, affordable housing. And now that's become a core part of our business. Matt Slepin (28:47) Let's play that out for a minute because it's multifamily development is a massively cyclical business, but I tax credit development is a continuous business and particularly with the 4 % where you're not competing heavily, it's by right kind of if you have a site you can get it done, then that's a predictable business that goes on and on and on. Jeremy (29:07) It's a relatively predictable business, obviously changes in interest rates and construction costs because our rents are fixed and the subsidies are relatively fixed. so the two, other than land costs, the key variables are interest rates and construction costs, but it certainly is less cyclical than market rate development. And it is actually in some ways less cyclical than the acquisition business because the acquisition business, you know, can really change based on return dynamics, you know, from capital market factors. Matt Slepin (29:44) It's also less cyclical if someone says, here's capital for 350,000 units a year to develop and that capital is always going to be there through the tax code, then that further keeps that engine going and the need will almost always be there. Not everywhere, but the need will be there on a global basis. Jeremy (30:04) Yeah, and from an impact perspective, think I mentioned this earlier, I think that's one of the reasons that the program is so important, because it generates new supply of Sarah Dunn (30:11) So, Jeremy (30:12) housing across the country in a pretty stable way, not just big spurts, you know, when the market, when market rate housing is more profitable. Matt Slepin (30:22) So you said before that you started your career in finance. Let's go back to you and then how you chose this business to get into from whatever it was that you did in finance and invest your dollars to build this company. So tell us your story a little bit. Jeremy (30:36) Yeah. So I, I've been an entrepreneur from a very young age. I started working actually when I was 16 at a small merchant bank, cold calling public companies, uh, and trying to provide them with financing. Um, and, um, I learned a lot through doing that. I worked at a number of hedge funds and private equity funds. And then I actually ran an enterprise software business after business school. Sarah Dunn (30:45) So, thank Jeremy (31:03) My grandfather, who we talked about earlier, passed away in 2013. And at that time, I didn't want to go work for my family, but I was helping my family with the generational transition after he passed away. And during that time, I got pitched a Lytek deal from a developer who needed capital. They were buying a deal or bidding on a deal that was a year 11 deal. And. I just found it fascinating. You know, the concept that there was this big positive impact, pretty stable financial returns. and the capital markets were a lot less developed at that time. so there weren't real sources of capital from groups that could both do tax credit development, had that expertise, had that overhead, but also had traditional equity to buy. properties without using tax credits. And so that was really our initial thesis was I wanted to build a business that could be both. We could have traditional equity so that we could compete with the private equity firms and buy deals quickly, not need to have them under contract for two years while you set up the tax credit deal, but then also build out the expertise and the team needed to do tax credit redevelopment. And so that's how Sarah Dunn (32:22) So, Jeremy (32:23) Lincoln Avenue came about. In fact, I bid on a number of deals as a financial investor unsuccessfully before deciding to start Lincoln Avenue. And then in 2016 is when I founded Lincoln Avenue. Matt Slepin (32:36) Let's go back for a minute. So you work at Merchant Banks when you're 16 and you work in private equity through college, whatever, through a period of time, and then you do a software enterprise company. That's a big shift. And then your grandfather dies and something else happens, so you get into this. How did those things prepare you for this and how did you go into software from kind of the finance world and then just think about that. Jeremy (33:04) Yeah. This, the software was really a divergence. Everything I'd done before, whether it the merchant bank or the private equity was in, in much more asset heavy industries, real estate, ⁓ natural resources, et cetera. And those types of businesses for whatever reason, I really enjoyed the financial complexity that, that came with them. the software business was an opportunity right after business school. Sarah Dunn (33:13) Okay. Jeremy (33:28) Uh, actually with my best friend from childhood who, who was a software engineer, uh, and started this business and he still runs it. It's been, it's become quite successful, but in fact, uh, I actually didn't love it. I didn't love like building that the products and running a big sales organization, which is what enterprise software businesses are. Uh, and so, you know, he, he matured a lot while we were running that business and it felt natural to go. Matt Slepin (33:45) Hmm Jeremy (33:56) help the family out, but all of those financial jobs I had before really were in more asset and financing heavy businesses. And so there was a lot of alignment with the capital structure. I found the capital structure and the impact of affordable housing both fascinating and inspiring. And it's a wildly complex industry. which I enjoy. I get to keep learning every day, even though, you know, I know a fair amount about it. And that is both on the financing side because there's so many layers, but also on the regulatory side because each state is always changing their rules and regulations. And the way that that financial and regulatory complexity comes together is a challenge, but it's one of the things that I think can give us a competitive advantage. by taking risk and trying to always be on the cutting edge of understanding the landscape in that area. Matt Slepin (34:54) It's funny, I'm thinking of Steve Ross from Related, one of the founders in this business. He was one of the early people who got into this and it was from the finance side, hey, this is complicated. We could do the headache to get it together and we're going to learn this business and we're going to grow a big empire based on this. He was that before he was the developer of the things we know about. Jeremy (35:18) Yeah. I mean, there, there's certainly an inspiration for us and, he built his business originally with section eight development, but it was, it was similar. And one of the interesting things that I certainly didn't realize when I started this company coming from a more financial background is how human capital intensive it is. You know, we now have 140 employees at the corporate level and that's without doing property management or, having a GC. So really think of it as. Sarah Dunn (35:22) So, to ahead start with the first question. Matt Slepin (35:24) Right? Jeremy (35:44) 140 person development company because these deals are highly, highly labor intensive and require a ton of local expertise. And that's, you know, a little different from, from market rate development, but it's something that I think means that the scale developers like Lincoln Avenue are able to have a really big impact by making that investment in their team. And, and you know, that's what enables us to sustainably create so many units. Matt Slepin (36:14) So when you said a few minutes ago, it's a wildly complex business, and then you quoted finance and regulatory, I was hoping that you were about to say, but running a company is really complex as well. So I want to go back, but then I want to come to that point. But going back when you did a deal, someone brought a deal to the family. And then you looked at that, you found it interesting. You found that it could bind some social things along with investments. But at a certain point you said, I'm going to make this a business and the business is not just a collection of deals. It's the knowledge that you're going to create an entity that has long legs. When you first had that, I'm going to create an entity with long legs. What was in your head and what did that look like? What were the goals? Jeremy (36:58) Yeah, I think what was in my head, I remember having a conversation with my father about it was we're probably going to do three to five preservation deals a year. And I don't imagine we'll ever have more than 10 or 15 people supporting that. And so we hired some people who knew what they were doing. One of whom was from related and a couple of other industry shops. But but that was the original plan was let's go do, you know. Matt Slepin (37:10) Mm. Jeremy (37:21) three or five acquisition rehabs a year, and that will be the business. And as I got more and more involved, I kept seeing more opportunity for us to grow, obviously, way beyond that, both in scale, but also in business lines and opportunities to really scale up our talent. And that's been, you know, required to get from that small start to where we are today. Sarah Dunn (37:49) Something I've just observed from getting the chance to work with you is so much of the company success has been your ability, has been your entrepreneurial drive and, compounding passion and interest in different aspects of the business as they come up and just drive to be competitive. Not necessarily drive to grow for growth's sake, but see opportunities where you can do more and build the platform to meet that goal. Jeremy (38:16) Yeah, I think one thing that's been lucky is, you know, we've brought in real talent and expertise, but because we were new, there was enough curiosity to go always figure out new things. remember really early on, I learned about the qualified contract, which was sort of a quirk of the low income housing tax code, which has largely been solved. But a lot of the older deals after 15 years, if they were put on the market, and no one offered a particular price, the rent restrictions would go away after 15 years. And in Florida, the offer needed to be what was called a bonafide offer and no one had defined what that meant. And so I just learned about this and I said, we're gonna figure this out. And we looked at every deal that was listed and tried to find the ones where we'd be willing to pay the price, but not just that, where we'd be willing to pay the price. but also where the owner of the property was a group that we respected that we thought was not going to try and really fight. And so we started making these offers and the first couple groups fought on and fought whether it was a bona fide offer. And then we offered on this building called Logan Heights. And the owner of Logan Heights is a group called Vescor. They're really great guys. And I called the CEO of Escor and I said, well, we're gonna make an offer on this building. If the rent restrictions are gonna stay, let's do a deal that sets the precedent for what a bonafide offer is. And we did it, and actually the contract that we negotiated became the form bonafide offer contract for the next couple of years. Matt Slepin (39:45) Hmm. Jeremy (39:47) And through those offers, we bought about thousand units, but we preserved about 5,000 units. And that was just what we did. But once, you know, that once there was real legal definition on what qualified other groups did a lot as well. And those are the types of, you know, opportunities that we always look for where we can have an impact, but it takes a little risk and creativity that others weren't doing. And I think part of that is because we were new to the industry and felt able to do it. And through that, we created a lot of interesting relationships. And I think it really just shows through our entrepreneurial culture, which is relatively unique in the industry. Matt Slepin (40:33) Which is the unique part? it the entrepreneurial culture is unique? What what what how do you describe it? Jeremy (40:38) I think it's the entrepreneurial culture. think a lot of, and there are other developers that have it as well, but in general, there are a lot of local affordable housing developers that maybe are similar to what I imagined at the beginning for Lincoln Avenue, where, you know, we do three, 9 % deals a year in Texas, and that is what they do. And they're, you know, that business works pretty well. Matt Slepin (40:51) You would be good. Jeremy (41:02) And they have a real impact, but they're not necessarily looking to figure out, you know, new, new business strategies, new business lines, new edges, et cetera. and so our culture really is one where we'll turn over any stone, try and figure out a new strategy. And part of the platform now for me, part of my job is figuring out new strategies or new business units that we can grow into. because we have such exceptional talent. And I really want there to be enough space and opportunity and business lines that we can promote our team as soon as they're ready and have the skills to take on a business unit. Matt Slepin (41:40) Yeah. One thing that may happen is that people do those five or six deals. They surprise themselves by becoming wealthy and then they go, this is cool. And you sit on it and it's cool and you grow marginally along your way. Now you came from great wealth, so maybe that, that wouldn't be the motivator. The motivator, the motivator might be something more. that that's comment number one. Comment number two is that $25 million deal that you did. in Florida, if someone was going to buy it and take it out of use restrictions, could they have paid 27? I mean, what would have been, was it the same number? Jeremy (42:18) I think likely much more. I think likely much more. And that's one of the reasons that we actually, you know, did a deal with Vesco who still does a lot of affordable housing and they believe in preservation. I don't remember exactly, but a cool story about Logan Heights is we then preserved it. So we made a major investment through the tax credit program and renovating it and extended the the restrictions by 30 years. And so, you know, that's a community where instead of the restrictions going away in 2017 or 2018, they're now in place to 2048, I believe. Matt Slepin (42:53) It's something I always worry about Impact investors who have a fiduciary responsibility to do impact but also to make money and if you're facing okay I could sell it to these guys for 25 I could tell to those guys for 40 maybe I'll hold my nose and do it once because that differential is pretty good for me or my investors and I don't know how people make those decisions and I worry about the the incentives of structure structure is what makes those decisions Sarah Dunn (43:20) and I'm take to talk about the work we're So, I'm to a few to work So, going a minutes to talk the So, minutes to the Jeremy (43:21) Well, I think that's right. And that's why from our perspective, policy is the way we can have the most impact because it's not sustainable to expect groups to, you know, sell deals for 26 million if they could get them for 40. And so trying to nudge the policy framework in such a way that, you know, it's a little more aligned, ⁓ in terms of preservation is really a big part of what we do. And the preservation tax credit really does a relatively good job of that with exceptions. Matt Slepin (43:53) And so one thing I've worried about it took just sorry describe the preservation tax credit or is that just the tax credit used for preservation? Is that a separate? Jeremy (44:03) It's the tax credit used for preservation, there you do get slightly less tax credits because you on most communities, you get a higher amount of tax credits on the renovation piece than the acquisition piece. And so if you look at the capital structure, you get more tax credits on on a new development than you do on an acquisition, but it really is the same tax credit. Matt Slepin (44:26) We have conflicting goals here because your first goal that you said the real problem with housing affordability is supply. But we don't want to, so let's go build, but we also don't want to lose the supply that we've invested in. Jeremy (44:37) It is conflicting, but only to the extent that there's a real limited supply of the tax credit. And in most states, at least after the tax bill passed, that's not the case. They're really doing as much new construction as they can using the tax credit and the remainder is going to preservation. Sarah Dunn (44:38) Thanks. Matt Slepin (44:55) And so let's go back and forth talk about the big beautiful bill and what the tax credit Expansion and extension look like and what it does I've heard people say it doesn't help that much because prices have tumbled That's one thing I've heard I don't know if that's true or not So help put that in some context and I'm gonna go back to your company Jeremy (45:13) The tax bill, the big beautiful bill increased the amount of 9 % credits across the country by 12.5%. But it also probably reduced, increased the amount of 4 % credits by about 50%. And it was through a change in the requirement that you use municipal to finance the 4 % tax credit, where that requirement went from Sarah Dunn (45:34) I hope that you guys enjoyed this video. If did, it a And you please you Jeremy (45:39) 50 % of the total development cost to 25 % of the total development costs. And you're absolutely right. It has made every deal more challenging, but it's made a lot more deals, you know, able to get done. And the reason for that is these tax credits are generally purchased by banks. And by increasing the supply of tax credits, the... ⁓ pricing or the yield on those, the yield has gone up and the pricing has gone down on the tax credits. And so if you look at an individual deal, it is more challenging post the bill, but it means that a lot more deals can get done because there are a lot more total credits out there. I am hopeful and this is actually our next big policy investment is leading the charge in terms of how to increase the demand for the credit. and to lower that yield that banks are requiring to buy the tax credits in order to close that gap. But take for example, California, where they were limited before and they were really maybe 90 or 95 % of the tax credits were just for new construction. Post the bill, there's now enough credits available where you're also getting preservation done. Matt Slepin (46:35) And there's... Jeremy (46:50) even though each deal is a little more challenging because the value of the credit has gone down. Matt Slepin (46:56) Let the challenges live especially for those of you who are set up to be sophisticated enough to deal with the challenges but also if that then allows us to preserve that stock instead of have it go away because then we have to build twice as much to get it back then that makes a ton of sense Jeremy (47:12) Yeah, overall, I think it's a big win for housing, even though certainly for deals that were already sort of in progress, it makes them a lot more challenging because you'd underwritten them, you know, thinking that you were going to get 88 cents for the tax credit and it turns out you're only going to get 82. And so that creates real challenges in the short term. But when I look at it from a long term perspective, I really expect that it's going to be really valuable for housing production long term. Matt Slepin (47:43) Cool. So I want to go back to something that you were talking about before about the inception of the company. And I want to think of two different stories at the same time. So one story is building a business. And we've talked a lot about that in the conversation and your depth of expertise and digging into this thing is obvious. So I want to talk about what that means and how that goes forward. But then also you're investing in a business. So you're and you're an investor. So you have a choice of where to put your capital and that's different than the business that you're building. So talk a little bit about investing in this business because you have the options to put wealth into lots of places. How does this land as a place to put wealth? Jeremy (48:27) Overall, affordable housing, and I think the market's woken up to this, really has exceptional risk-adjusted returns, or most of the time has very good risk-adjusted returns because our rents are below market, and so it's a highly stable asset class. And more and more investors are realizing that. It's also challenging because of the tax credit. It's a challenging business to put a ton of equity in. So if you look at the overall amount of dollars being invested in affordable housing, a pretty small percentage of that is coming from traditional equity sources. But, but, you know, I think continued focus. ⁓ from the institutional market and seeing that this really is an institutional asset class with good risk adjusted returns is great for the industry overall because it lowers the cost of capital and anytime you lower the cost of capital it means you can get more done with the same amount of resources and so I do think that that's a tailwind for both supply and for preservation over time is more and more investment And that's both on the equity and the debt side. We've seen a lot of groups come into the market, you know, in terms of buying senior mortgages, private market groups buying senior mortgages or buying tax credits or investing in more traditional equity on the affordable housing side. And that's something that I think some viewed as a threat and we viewed as a threat. That's why we started the new construction business. But on net... it's going to be a real positive for the industry to keep lowering the cost of capital for affordable housing. Matt Slepin (50:06) Big time. I think the holy grail for years for low income housing investment was can we find kind of permanent capital? Some of your competitors who are buying up deals are still doing it with closed end fund money and that needs an IRR versus a long-term hold return. And so how does that help? How do you either compete? You've got to compete well with it because your cross capital is going to be lower. But how do those players do the thing they do and does that require them to then sell the property, amass a portfolio and then sell it to a couple, five, six, 10 years, whatever the deal is. Jeremy (50:44) likely does, but I don't view that as being a major problem as long as there's a real stable buyer for that. And I think that's one of the key points of some of these REITs coming into the industry, that they do create that stable exit. Another thing we've seen with some of these closed end funds is that they kind of are bridged to tax credits. So was one of the big positives of the big, beautiful bill is a lot of these properties, for example, in California that we thought might never get credits. ⁓ to be preserved now can be. And so we've actually bought some properties out of closed end funds like that from our competitors that we're now preserving using tax credits. And we view that as a really positive outcome. And I think it's probably a positive outcome for the LPs of those funds as well. I think that the majority of our key competitors really do have the right long-term view on how to preserve housing and do the right thing. Matt Slepin (51:40) Well, it's I'm back to the conversation. It's interesting because part of what you're describing is stewardship and we as a Hunt society we want those who own this these kinds of properties to be stewards in some way and therefore we want the financial structure to foster stewardship versus either quick trades or You know slumlord thing, whatever that means. I we have all those words for that stuff And most, not all, of the people who do own in your business, I know a lot of your compatriots or competitors, whatever the right word is, is this business is infectious and they want to keep doing it in the right way. And the enlightened self-interest is really to do it. Jeremy (52:21) It really is. And, you know, this was a much less institutional business when we started in 2016, but we do have a number of peers, you know, that are close to similar scale as we are. They don't all make the same policy investment we do, because I think that's really, you know, a personal passion of mine, but in general, they really are focused on long-term. long-term stewardship doing the right thing. And as I mentioned, from my perspective, part of my job is trying to steer policy so that there is less conflict between that stewardship and what is in even the short-term economic best interest, but certainly the long-term. Matt Slepin (53:07) Two comments. One is we Alice Carr on the show and she did talk about stewardship. We talked a lot about that because you think of Blackstone and I think of Blackstone in the olden days when it's a pure opportunity fund. Now there's different pools of capital but the pool of capital that she uses is aligned to low volatility and a longer term hold. So the returns are just fine and that's a great business. Jeremy (53:31) And I think that's one of the big things that changed since we joined. When I was looking at that year 11 deal, probably in 2013 or 2014, the only source of capital was opportunity fund type of capital with much higher return expectations. And that's exactly the point to having more institutional capital in the industry that recognizes the stability. creates an opportunity for more stewardship where you don't have to generate 20 plus percent returns, which would potentially require taking things to market. ⁓ And so to the extent that your cost of capital is lower and recognizes that volatility, that lack of volatility, it makes sense to keep things affordable. Matt Slepin (54:18) Yeah, and again, as long as capital aligns in a way that enables you to do that, you may put bumpers around the policy laws that discourages the wrong behavior, encourages the right and longer term behavior, but I just love the thought of that stewardship. We've often thought of self-interest. Jeremy (54:37) you've Matt Slepin (54:38) But the policy work that you describe could kind of dig a little bit more into that. I'm at my home in DC right now. So are you hear a lot? And what do the ears hear when you talk to them about this stuff? Jeremy (54:52) Yeah, so there's a federal policy piece, but there's also a state policy piece. So for example, on the federal side, it is just, there are a couple of pieces. One is just making sure that the industry shows up in terms of contributing to senators and Congress people that make housing one of their top issues, not just an issue that they talk about, but also demonstrating the value and the efficacy of the housing policy. And part of that is, Sarah Dunn (54:55) Excuse me Jeremy (55:22) getting our representatives out to see what a LIHTC community actually looks like and that it's something that they're going to want in their communities. The other piece, some of it's just simple work. Like we comment on every state's QAP, whether or not we do business in that state. We have a list of best practices that we think are the most efficient policies and we will comment on every state's QAP just to try and guide them in the right direction. Sarah Dunn (55:36) So, Jeremy (55:49) or guide them to use more of their tax exempt bond allocation for housing. There are a list of policies that we really think make a lot of sense and we advocate for them in a number of ways. One would be through QAP comments, but we also sponsor research, independent research into what we think are the more efficient ways to get housing done and use the limited resources available. in order to create as much housing as possible with those limited resources. And so sponsoring that research, I think helps feed into those best practices. Matt Slepin (56:26) Last comment, I want to go to the discussion that we had before about you being a leader in a business and the complexity of finance and the complexity of regulations and policy. But talk about the complexity of running an organization, what your surprises have been and where your successes are. Jeremy (56:43) I think the surprises have been, and I think a lot of this is natural for a rapidly growing business, that the right leader for a particular division when we were 30 people is a different thing. A lot of our original managers were really exceptional individual contributors, but struggled to make that transition. And so we've worked with Sarah and a number of others really to bring in exceptional talent. Sarah Dunn (56:44) So, Jeremy (57:10) but exceptional talent that fit with our culture. and that fit is really a key point because although we're institutional, we are very flexible. We're very fast moving. I control the company. I'm very decisive. I make quick decisions and we move quickly. and so, those. were challenges in terms of really getting the right people. Our goal is to be best in class in every division. And we think of our, we have two types of clients or customers. We have our tenants that are really important and it's really important that we take care of them. But I also think of it as if our developers, our employees who are running the deals are customers. And my job is to make sure that being a development partner at Lincoln Avenue Communities, is the best job you can have in the industry and you have the best resources available in every way. So whether that's our construction management or our asset management or our origination or our capital market relationships or our culture, just the day-to-day enjoyment of being in the office or the junior resources in terms of the analysts and associates. And so that creates some discipline for me where I really view it as My job is to provide a best in class services in all of those ways so that our team has those resources available to compete and create housing as efficiently as possible. And I think that really, really has permeated through the culture of the company. Matt Slepin (58:43) I think if you talk to Ron Twilliger 30 years ago when he was running and creating Trammell Crow residential, he was putting entrepreneurs into business and then his job was to support them. I think he let them go a lot more than supported them. But you're talking about a bit, you know, kind of what, where that business has come to now, which was their shared services that make that all sing well and work well. Jeremy (59:07) Absolutely. know, I mean, he created a really inspiring business that I've learned a lot from our model is a lot more integrated, then, then the tram will crow model, but I've also listened, you know, for example, to the interview you did with the guys from Lincoln, and, and there are other platforms that run similarly. We are very integrated. our partners, you know, manage teams, we have shared pools of analysts. So we have analysts that. can work with two different partners as opposed to being totally independent business units. But that culture of just thinking of our developers as our customers creates a requirement or a pressure to really try and constantly be improving in every way. Matt Slepin (59:49) That's true the conversation with Lincoln for our listeners go back It's about four or five episodes ago and it was the the two new generation leaders of Lincoln property company not Lincoln Avenue communities So you're not related to them to the best of my knowledge but but they did update the model to do exactly what you're talking about because the Ron to Williger model Ron wouldn't do it that way today, because there would be centralization Jeremy (1:00:04) but... Matt Slepin (1:00:16) of various functions that should be centralized and that's what they're trying to do there. It's a cultural shift that's not that easy. You're starting de novo so you hire the right people into that and they know that's what they're getting. Jeremy (1:00:28) Yeah, and it's a little more complex because it's in between. know, the original Ron Terwilliger model really was more of a financial arrangement. ⁓ you know, ours is both a financial arrangement, but it's really more of a compensation model and a culture than it is just an independent financial arrangement. And I think that helps create a more cohesive culture across the company. Matt Slepin (1:00:36) Mm-hmm. Yeah. Sarah, I'm going to let you ask the last question on leading voices, which is always the same last question. Sarah Dunn (1:01:00) We have a lot of younger listeners earlier in their career. What is your advice for somebody getting started in this industry? Jeremy (1:01:08) So think my first piece of advice is learn what exceptional is. And so work somewhere where they really are the best at whatever they do. Now for me, finding a niche was pretty powerful. So it could be niche, but to the extent that you can find a mentor that really is one of the best or the best to have an understanding of what it takes. And then that can go translate in other areas. But whether that's if you're working for a broker or a mortgage lender or, or an investment bank or whatever, really understand what, what talent is and what truly exceptional is. And so that you can target that ⁓ in terms of your skill of development in your career. That would be my, my recommendation. Sarah Dunn (1:01:55) Jeremy, that's fantastic advice. I remember 20 years ago having a light bulb moment of realizing, I now know what really good looks like. I can tell very specifically what good looks like. And I think that's such an important thing for a young person to be able to do. Matt Slepin (1:02:12) Yeah, and you said two things and we talked about this at GRG, we just had a retreat this week and we talked about the same exact thing, which is what does it mean to be exceptional and figure that out, whether through mentors or having the aspiration. But I think equally important is what you've done, which is let's find a niche where I can put that to work because you can't boil the ocean to do everything. Some people can, but even you can't do that. And then in this space, you just dive, dive, dive, dive, dive, which you've done. Sarah Dunn (1:02:33) Mm. Matt Slepin (1:02:41) to an exceptional extent. great story and thank you and thanks for being on the show. Jeremy (1:02:46) Thanks for having me, it was a real pleasure.