Raising Capital for Housing for American Indian Tribes
Hunt Capital Partners, and other companies, and investing in this important niche in housing. Columnist Lew Sichelman explores their challenges.
A Los Angeles capital markets firm has raised $63 million in equity to build and rehab hundreds of units of affordable multifamily and single-family housing for American Indian tribes.
Hunt Capital Partners, a unit of the Hunt Companies, has acted as the equity syndicator on a dozen Indian housing projects in seven states, bringing in mainstream capital to build 322 units of single-family and multifamily housing in places as remote as the Rocky Boy and Fort Peck Indian reservations in Montana. Of Hunt’s 12 projects, six are single-family, three are a mix of single-family and duplex houses, and three were totally multifamily.
Besides Montana, Hunt Capital has also been active in California, Maine, North Dakota, Utah, Arizona and Wisconsin.
Multifamily has a significant, though minority, share of housing in Indian Country. According to Freddie Mac, about 23 percent of all rental units on reservations are multifamily.
In one recent deal, Hunt Capital raised $2.1 million in equity for the construction of 24 affordable apartments for the Penobscot Tribe of Maine. The Penobscot Elder Homes, on Indian Island, Maine, include 16 one-bedroom and eight two-bedroom units for seniors 55 and older. All units are restricted to households that earn up to 50 and 60 percent of the area median income.
At Fort Peck, Hunt provided equity for 20 apartments, the first part of a larger development that also will contain 100 single-family rentals. The Fort Peck Sustainable Village project was awarded $6.5 million in tax credits by Montana’s state finance agency.
As the syndicator on these Low Income Housing Tax Credit deals, Hunt has persuaded investors like commercial banks and insurance firms to contribute equity in traditionally capital-poor places where the need for housing is intense. The Department of Housing and Urban Development estimates there is an immediate need for 68,000 units of new housing in Indian Country.
A ‘Dearth of Housing’
While mission-driven nonprofit developers have been active in the Indian LIHTC market, for-profit firms with an interest in Native housing remain comparatively rare.
Dana Mayo, Hunt Capital’s executive managing director, became interested in Indian housing at a previous post at SunAmerica and brought that with him to Hunt Capital, the syndication unit of Hunt Companies.
“I’ve done a number of them. I’ve been involved for quite some time,” Mayo said.
Hunt Capital’s Native American deals are mostly new construction, Mayo said, but also include four rehab projects. “There’s a dearth of housing out there,” he explained. “What there is tends to be not be well maintained and substandard.”
Working in Indian Country provides “a good social purpose” as well as providing features investors like, including simple deals and substantial rental subsidy guarantees by tribes in case their members fall behind on payments, Mayo said.
Though these are affordable housing projects—the LIHTC program stipulates renters earn no more than 60 percent of area median income—investors generally don’t pony up to earn Community Reinvestment Act credits. These rural and remote places are often not in their mandated CRA service areas. Rather, the appeal is that “these tend to be safe deals,” Mayo said. “The tribes involved are heavily invested.”
Making it Happen
Many deals have Housing Assistance Program (HAP) contracts between the tribes and the partnership to guarantee rental subsidies. And some states—LIHTC is administered through state housing finance agencies—have set asides for tribal housing projects, which helps boost the volume of deals.
Land issues are simplified by the fact that tribes tend to already control the ground that’s to be developed. (Technically, the federal government owns reservation land but holds it “in trust” for tribes and individual Indians.) The deals are structured as partnerships, with the tribes as developers and owner/managers.
Typically, there is no hard debt involved. Instead, the money comes from two sources: the LIHTC equity raised by Hunt Capital and tribal housing funds, according to Mayo.
Usually investors are part of a multi-investor group. But in a couple of cases, J.P. Morgan Chase was the lone investor. Hunt uses Kutak Rock, a firm with a lot of Indian Country experience, as legal counsel to help with the underwriting.
Hunt isn’t the only one playing in this sandbox. In 10 of the 12 deals, Hunt Capital has partnered with Travois Inc., a pioneering company with a private involvement in Indian housing. Mayo first became involved with the company at SunAmerica when Travois was working to increase the limited number of investors in the field. Now, he has continued the relationship at Hunt Capital.
Travois, based in Kansas City, Mo., is a housing consultant that has been involved with more than 190 Native American housing projects, raising more than $675 million in equity since it was started in 1995 by David Bland. Bland’s daughter, Elizabeth Bland Glynn, is now the owner and chief executive.
Travois offers a long list of services to tribes, including designing projects, environmental services and advising on economic development and asset management. Adding in its Native economic development portfolio, it has been involved with $1.4 billion in projects using $750 million in investor equity (Travois is also involved in New Markets Tax Credit deals).
Mayo praised Travois’ work in Indian country, calling the outfit “the most experienced group in the industry” and one of the few for-profits in the space. “It’s not a deep bench. We don’t see a ton of competition,” he said. “Travois does a really great job.”
One of the reasons for its success is that “Travois respects tribal sovereignty,” Mayo said. That includes the jurisdiction of tribal courts, a sticking point for many non-Indian firms. Tribes also have sovereign immunity, which limits lawsuits unless the tribe waives that immunity.
James Crowder, Hunt Capital’s senior director for project management, detailed some of the projects in which he has been involved. Not all are as remote and inhospitable as Fort Peck and Rocky Boy.
At the Tolowa Dee-ni’ Nation in northern California, for instance, the 21 affordable housing units are built on the Pacif Ocean shore. That deal used $8.8 million in LIHTC and federal solar tax credit money along with $4.05 million put up by the tribe for construction to permanent financing.
It will include picnic areas and a playground, a community center and a business center.
The ocean views at Tolowa Dee-ni’, which is n Smith River, Calif., may well be matched by a recent development by the Yurok Tribe. Also in northern California, it has energy-efficient housing located in the middle of ultra-scenic Redwood National Park, Crowder said.
The 17 units there, in a project called Woo-Mehl LIHTC Homes, are set to be finished in 2022 and comprise Hunt Capital’s most recent Indian housing deal. There will be both new construction and rehabs at two adjacent sites in Weitchpec, Calif., about 75 miles northeast of Eureka. The project includes a fourplex as well as single-family rentals.
Units will range from two-to-four bedrooms and have set asides for tribal members earning up to 30, 40 and 60 percent of the adjusted median income for the area.
The tribe has contracted to provide up to $650 per unit per month to cover the project’s operating costs. Total project cost is $10 million, with $6.7 million coming from tax and solar credits and the balance from the tribe.
Construction can be a real challenge in places with such harsh winters as the Montana reservations, Crowder said. At Fort Peck, for instance, where modular construction was used, the units were built so airtight against the cold that the interior air wasn’t being refreshed properly and the design had to be redone. Otherwise, they turned out to be “gorgeous units,” he said. “They look great, they’re very efficient, exactly what you need for the climate.”
Besides providing much-needed affordable housing, these projects also provide jobs for tribal members. Crowder said Rocky Boy was especially remote, with a two-and-a-half-hour drive necessary to get building materials. “Ninety-five percent of the project was completed by tribal members,” he said.
“They’re labors of love,” Mayo agreed. “The (tribal) housing authorities have put their hearts and souls into doing these deals.”
Crowder, meanwhile, has a warning for anyone considering such projects: They tend to be small and time consuming, he said, noting that a 24-unit development can take up to 18 months, start to finish.
“You have to be patient,” he said. “They won’t be done overnight.”
Editor’s Note: Mark Fogarty also contributed to this story.