Using the winning combination of real estate knowledge and tax credit experience, this financial group excels.
Related Capital Co. (RCC) leads by example, combining 25 years of hands-on real estate knowledge and extensive tax-credit experience, that enables this New York-based financial group to excel in the affordable housing tax credit marketplace.
Since 1972, Related Capital and its affiliates have structured 260 real estate investment programs that raised over $3.5 billion of equity from more than 105,000 institutional and private investors. In turn, this equity was invested into 104,625 multifamily units, 28 shopping centers, five regional malls and $600 million in participating and non-participating multifamily mortgage loans. The current valuation of its portfolio is $7.3 billion and includes multifamily, retail and office properties. At present, the National Multi Housing Council's 50 Largest Owners Survey places the firm No. 3, with 120,384 apartment units owned nationwide.
As a successful company in a varying real estate market, RCC's track record of never losing a property to foreclosure or returning a property to a lender demonstrates its expertise, intelligence and commitment to investors, both institutional and private. "We've never lost a property to a foreclosure in 25 years, and we don't target properties from a financial background, but rather from a real estate development background," says Marc Schnitzer, an executive vice president and director of tax-credit acquisitions at RCC. "The idea of actually giving a property back does not even enter into our sight; that's not even on the table as a potential option. So our investors know, if we fly them to New York, they'll do a deal with us. On the developer side, it's coming up with diversified offerings, while providing a level of service that goes beyond what the developer's expectations would be."
Since 1987, RCC has sponsored 32 private institutional offerings and 10 public investment programs for private investors that raised more than $1.8 billion in equity for construction and rehabilitation of more than 69,000 tax-credit units at 547 properties in 45 states. "The developer who has a tax-credit project goes and looks for equity. We've put together a program offering developers joint-venture development opportunities," says Schnitzer. "We would be a co-principal with the developer and, by doing that, it enables the developer to access capital for predevelopment expenses, which is the hardest capital to get in this business. For us, it ensures the constant flow of good deals."
President and CEO J. Michael Fried notes that flexibility and innovation are the hallmarks at RCC. "Because we're in an era of consolidation, we're in an era of very large real estate companies, and one must diversify activities even more than a single-property shop would do, and that has been Related Capital's hallmark," says Fried. "Most of what we've done is to provide financing for leveraged multifamily deals that had some government assistance. We became very active as both a developer and a financial services company. What has been carried all the way through, as part of Related Capital, has been the provision of financial services in the area of equity capital for housing that benefited from some sort of federal assistance."
"What has set RCC apart is we've always diversified the activities we were doing, so that at the same time we did government assisted housing, we did unleveraged real estate transactions. We did a series of 10 public limited partnerships or REITs that invested in unleveraged real estate or in mortgages for unleveraged real estate. So we financed and created the management of almost $1 billion," says Fried.
RCC's affordable housing tax-credit program includes seniors housing, and the company maintains a presence throughout the country in that market. "We do a significant amount of seniors housing from the tax-credit program, and seniors typically qualify for 50% to 60% of median household incomes, depending on the area," says Denise Kiley, an executive vice president at RCC and director of its asset management division. "We have, I would say, a very good share of 100% in seniors housing properties. The developer usually picks the type of profiles for the property and, if they're building one- and two-bedrooms, they're looking more toward the seniors and single couples. In some metropolitan and urban areas, in order to compete to get these tax credits, certain sectors of the population must be served."
"Our investors are looking for good tax-credit real estate, they're looking for yield on their investments, but they're looking for real estate that is going to succeed for a 15-year holding period," says Kiley. "So, as far as what they like, they like a good diversified portfolio, and that is what Related Capital is giving them: good locations with different profile types within our products."
"We always told our private investors, 'Instead of being a first mortgage holder, you're the owner of the real estate.' Part of what we were doing was managing unleveraged real estate funds, which provided us with a stream of fee-driven income that provided RCC with a recurring income, which set us apart from any of the other companies doing business," says Fried. "We have enough annuity income that each year would cover the total cost of operating our company."
One important factor of RCC's success is the hands-on experience that the senior managers have at the firm. This level of industry expertise has guided RCC to the top of its game. "They have over 20 years' experience each in hands-on multifamily property management, as well as shopping center experience," says Kiley. "These are not young people learning the business as they go out into the field. These are mature seasoned professionals that have run their own companies and management groups; these are the people watching the transactions for our investors. These properties generate tax credits, but they're real estate and you need that hands-on multifamily experience. But I think the 25 years at Related Capital has added value informally and formally."
At present, RCC approaches only institutional investors for its tax-credit programs and has directed the private investors to other types of funds. "Our institutional investors are comfortable with RCC not having to do business every year to promote new real estate transactions to secure its position. Our recurring income stream has a comfort level with our investors that, whether the market changes or a downturn in the market happens, we can sustain the cycle and still stay active in the marketplace," says Fried. "Related has tried to position itself as being a broader-based financial services company, and we don't just do tax-credit equity, we do tax-credit debt, construction and permanent conventional financing through funds that we control. The key is that RCC is and stays a diversified company."