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September 6, 2023

Safeguarding Success: Vital Traits of a Construction Risk Management Consultant for LIHTC Syndicators

By Brian Ward and Drew McCreery

Safeguarding Success: Vital Traits of a Construction Risk Management Consultant for LIHTC Syndicators

The world of construction risk management consulting is as varied as the clients it serves, each with distinct requirements and expectations. These consultants provide an essential bridge between developers and lenders, offering insights crucial to a project’s success. One client might seek a debt-level overview, while another requires an equity-level report for a high-budget endeavor. Yet, it’s the middle ground, where syndicators tread, that warrants a unique approach. This article delves into the critical role that construction risk management consultants play in the Low-Income Housing Tax Credit (LIHTC) syndication landscape, focusing on the nuanced needs of LIHTC syndicators.

A looming doubling of distressed assets in the coming two years is predicted, largely attributed to escalating interest rates and economic uncertainties. As interest rates climb, the ripple effect of amplified spreads intensifies, progressively pushing deals into distress and compelling financiers to repurchase properties. A syndicators’ discernment in cherry-picking distressed properties of pragmatic financial sensibility underscores the pivotal need for them to hire experienced construction risk management consultants that can help safeguard their investments.

In the realm of LIHTC syndication, where compliance with regulatory frameworks is paramount, the role of construction risk management consultants cannot be overstated. Partnering with knowledgeable consultants equipped with dedicated pre- and post-close loan service teams that specialize in LIHTC affordable multifamily projects is crucial. These teams offer a comprehensive range of services that encompass various phases of a project’s lifecycle, helping to ensure smooth operations and risk mitigation.

Key Needs of LIHTC Syndicators:

  1. Expertise Aligned with LIHTC Specifics: LIHTC syndicators have specific and detailed needs to ensure the success of their affordable housing projects. They require more than standard construction project managers – they need individuals who possess an elevated level of expertise in both construction and tax credit intricacies. This expertise is vital for navigating the complex regulations and implications of LIHTC programs. Syndicators seek a predictable investment landscape over the project’s 15-year tax credit cycle, aiming to shield their sizeable investments from unexpected surprises. This involves a thorough risk assessment process and the implementation of robust mitigation strategies to safeguard tax credits and equity investments alike.
  2. Insightful Reports and Strategic Guidance: A core requirement for syndicators is the delivery of comprehensive reports and advisement that provide clear understanding of the project’s health and potential challenges. Document and Cost Review (DCR) and Construction Progress Monitoring (CPM) reports must go beyond the norm, featuring detailed descriptions and informed opinions across various project aspects. These reports empower syndicators with actionable insights and solutions to any identified issues, enabling them to make informed decisions. This can include a thorough understanding of the design details of the building envelope, a focus on the placed-in-service date, consultant opinions on completion dates, and a review of the tax credit application. Such attention to these aspects is essential when holding the asset for 15 years, as it mitigates potential unknowns during the hold period and ensures informed decision-making.
  3. Expertise-Centric Teams: An indispensable aspect of meeting syndicators’ needs lies in assembling a project-centered expert team. These consultants should possess an intimate knowledge of the specific project at hand, allowing them to engage in intelligent and meaningful conversations with syndicators. This expertise extends top-to-bottom, critical components in the foundations to roof, as well as inside -to-outside, ensuring the watertightness and long-term durability of the building envelope as well as making sure the internal mechanical systems are tenant appropriate.
  4. Timeliness and Diligence: Timeliness and due diligence are paramount for syndicators. Consultants must be equipped to provide rapid two-week turnarounds for document reviews, going beyond standard practices to offer a deeper level of scrutiny that satisfies syndicators’ demands. This entails a thorough analysis of project drawings and proactive identification of potential construction conflicts.
  5. Adaptability and Consistency: Adaptability and consistency are qualities that syndicators value highly. Consultants must demonstrate a willingness to adapt to changing project dynamics while maintaining a consistent level of service delivery. This is particularly important as syndicators often join the project at varying stages, necessitating transparent communication regarding the associated costs of adjusting due diligence levels to meet their specific requirements.
  6. Communication Excellence: Effective communication is a cornerstone in the syndicator-consultant relationship. Consultants should possess a construction-savvy acumen that enables them to engage in intelligent discussion. This includes promptly notifying syndicators of any emerging issues to facilitate swift corrective actions. Clear and detailed reporting, including opinions, findings, and scope delineations, should leave no stone unturned and provide syndicators with a comprehensive view of the project’s status. In addition, maintaining open communication about the needs of all the parties involved is imperative for gaining a comprehensive understanding of the project’s continually evolving landscape.
  7. Long-Term Vision: Long-term planning is vital, with syndicators seeking reserve schedules that span their entire 15-year hold period. Accompanying these schedules, syndicator level reporting aims to ensure alignment with both lender underwriting needs and the demands of equity teams. Successfully navigating this complexity, especially when both debt and equity are involved in the same project, underscores the importance of skilled consultants who understand the necessary level of Due Diligence required for both parties.
  8. Building Envelope Mastery: A concentrated focus on the building envelope is paramount. Attention to detail, particularly concerning critical components meant to thwart external weather elements attempts to breach the envelope, plays a crucial role in mitigating water infiltration risks, thereby safeguarding the project’s long-term viability.
  9. Strategic and Proactive Advisement: Top consultants can also serve as strategic advisors to help clients succeed and save money. For instance, they can identify if a property falls within an elevated radon zone and recommend preemptive measures such as installing a mitigation system or non-permeable vapor barriers. By proactively addressing these issues, the project can avoid future radon tests and related expenses, in compliance with local state requirements, saving thousands to tens of thousands of dollars in radon assessments over its lifetime. In addition, consultants can suggest innovative Environmental, Social, and Governance (ESG) solutions to enhance the project’s resilience and durability, such as incorporating hurricane-certified windows and façade systems designed to withstand severe weather events.

Construction risk management consultants can be the linchpins of both simple and complex LIHTC projects, and as such, facilitate success for the project’s syndicator. Meeting the intricate and comprehensive needs of LIHTC syndicators is imperative for establishing trust, protecting investments, and achieving the successful realization of affordable housing projects. By tailoring their expertise to the nuanced needs of syndicators, these professionals provide invaluable insights, ensuring effective risk mitigation and sustainable project outcomes. From transparent reporting to compliance expertise and a focus on open communication, the traits of a skilled construction risk management consultant allow LIHTC syndicators to continue to champion affordable housing initiatives that benefit communities in need.

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