Ten Things Every Developer Should Know Before They Do their First Tax Credit Deal
1) Tax Credit Pricing is Important but it is not the only thing that matters – Customer Service is the most important thing to me. Is your investor / syndicator / lender focused on giving you a good experience? Are underwriters / asset managers / construction people and attorneys difficult to deal with? Can they move quickly and be respectful your timeframe? 2) Is your Investor / Syndicator /Lender flexible or by the book? - Things won’t go perfectly, so you want a partner who will stand by you, share the pain and accommodate you even if it’s not in the written agreement. 3) Don’t Allow your Investor / Syndicator / Lender to change the deal at the last minute - This is a big one. You negotiate the deal and then at the last minute they come back with materially different terms. Negotiate your deal upfront and hold them to it. Don’t be afraid to walk if your financial partner tries to pull a fast one. 4) Focus on Building Relationships, Not getting the last half cent – I think you have to do some shopping to keep your financial partners on their toes, to satisfy your Board of Directors and to make sure you are getting a market deal. However, in the midst of all this you should develop deeper relationships with a few key partners who can help you figure out tough deals, refer you business, and come to your aid when you need it. 5) Be Realistic about what your skill level is – It takes experience and knowledge to execute these transactions. Most organizations and individuals should consider a Joint venture if they lack expertise 6) Understand the Guaranties before you sign them – There are a multitude of guaranties that lenders and investors require. You should understand them and negotiate the best deal for yourself before you sign anything. This is more important than tax credit pricing, in my opinion. 7) Be Realistic about your compensation / fee sharing in a Joint Venture – If you are not in a position to sign guaranties, you cannot expect 80%
- f the fee. If you are inexperienced, you cannot expect 80% of the fee
8) Developers should hire a construction professional – the biggest mistake I made as a syndicator was not insisting that developers hire capable owner’s representatives. The biggest risk is construction risk and you mitigate that by having a strong experienced construction person involved. 9) Strong Personnel is more important than fancy projects – The best developers have the best personnel. Reinvest your fees in hiring the best
- talent. If you have good people, you will distinguish yourself as a developer
10) Don’t try to do everything. Pass on Projects that seem messy or problematic – Saying no to things that don’t make sense or require too much work for too little reward is critical. The worst thing is to invest a lot of time in a project that ends up producing very little financial benefit – and a lot of headaches..