Where to make most $ in LIHTC?

Granted there's a ton of variability within each of the below spaces - which generally has the most earning potential? Any color would be great.


  • Lender (underwriting, origination, asset management)

  • Developer (large developer vs starting your own shop down the line)

  • Syndicator 

  • HFAs (assuming this would be on the lower end)

  • Anything else I'm leaving out

 
Associate 1 in IB - Gen

Granted there's a ton of variability within each of the below spaces - which generally has the most earning potential? Any color would be great.

  • Lender (underwriting, origination, asset management)

  • Developer (large developer vs starting your own shop down the line)

  • Syndicator 

  • HFAs (assuming this would be on the lower end)

  • Anything else I'm leaving out

Development always pays the most.  It also has the most risk.  Generally speaking those two factors will be correlated.

I guess that doesn't necessarily hold true for certain jobs - like, a mid level project manager at a developer may make less than a guy who is bringing in lots of deals at a syndicator.  But the most money flows to the development side of the business, I would argue.

And the goal in LIHTC will always be to start your own shop, because the barriers to entry are low once you know the business

 

It seems like pay in development is a little low until you get to a certain level - is there a level in which pay picks up? 

If you didn't start your own shop, understanding the capital requirements (or lack thereof) make it easier to, do you have any idea what comp looks like around 15-20 yrs experience at a large developer? Would you be making more at your own shop doing smaller deals versus a national developer?

Thanks for the insight, super helpful!

 
Most Helpful

That question is all - it depends. A 20 years acquisitions person at a developer will have a different salary and bonus structure than the development manager than the project manager. 
As it relates to having a higher income running your own firm - also depends on size of the platform you can build and fees / profits you can generate plus promote and how much you get to keep. Vs salary you can earn. If you do the math and let’s say you buy and hold - and keep in mind these are rough numbers. Assuming you do development and asset management and no ancillary services (CM, GC, PM, etc.), if you can do $30MM in development per year, 4% fee on hard costs (assume 80%) and 65% leverage. That’s $960k in dev fee. Let’s say over 3 years. So $320k per year in fees per project. You have 3 projects running at a time. So that’s $960k. Now let’s say you have done that for 5 years. At this point you have 2 projects operating and 3 in development. You charge an asset management fee of 1.5% on equity on operating properties. 35% equity on 2 operating properties for a project cost of $60M. 1.5%*60M*35%=$315k in asset management fees. 

So in all, you’re generating $960k + 315k = $1,275,000 in revenue per year. Now you need to pay salary and overhead. You can probably be a small operation of 2-4 people. But let’s for simplicity assume your margins are 12.5%. So you as owner get to keep $159,375. 
 

All this to say the above is assumptions. Garbage in garbage out. I am spitballing. But it shows the math you could do to figure out how much money you make. 
 

Why do you go through this headache? The fees ARE NOT getting you rich. You pay the fees to make a little more than break even, pay your staff in the down times, and keep some money coming in the door to you plus have additional capital for your next deal all so you can get at the promote and BUILD equity. If you can build equity, you get rich. 

 

It seems like pay in development is a little low until you get to a certain level - is there a level in which pay picks up? 

Again, I don't really know, which is why I had the caveat that development as a business gets paid better than the other areas.  But I would assume that once someone trusts you to run the process soup to nuts, to entitle a property and engage with housing authorities and oversee contractors, that's when you start edging into the mid six figures compensation territory.

If you didn't start your own shop, understanding the capital requirements (or lack thereof) make it easier to, do you have any idea what comp looks like around 15-20 yrs experience at a large developer? Would you be making more at your own shop doing smaller deals versus a national developer?

More at your own shop, no question.  That will pay better than working for anyone else.  Fees for a single deal are routinely in the 7 figures range.

 

I’d say establishers lenders in LIHTC make the most. Because if you think about it, agency lenders charge 1.00% origination fee. May be able to negotiate it lower to 0.75% if it’s for a large loan. Let’s say you close 10 deals a year and your median loan size is $20MM. Assuming a 50/50 split with your shop, you prob take home $1MM annually. If you think LIHTC is niche, LIHTC lenders are even more so niche because the lender MUST understand how to structure bonds, be tax compliant, be creative but also compliant with regulatory agreements, etc. 

I’d push back on those who say LIHTC development has healthy margins. I’ve seen the proformas for these deals and there isn’t really much profit when you break it down. LIHTC is all about fees. You don’t benefit from any upside in value, rent growth, or NOI growth. Not to denigrate the space but IMO, LIHTC developers tend to be guys who are unable or unwilling to raise traditional equity to go out and do conventional development outside of LIHTC.


Why do I say that? LIHTC deals require a lot of work such as securing bond allocations, navigating through regulatory bodies, the lease up to low-income tenant process can be cumbersome, legal matters, etc. You’re dealing with all this to not get any benefit from asset appreciation or cash flows. You’re just doing it all for fees. Therefore, they don’t make money unless they consistently churn deals. Just my two cents. 

 

Urban Mogul

I'd push back on those who say LIHTC development has healthy margins. I've seen the proformas for these deals and there isn't really much profit when you break it down. LIHTC is all about fees. You don't benefit from any upside in value, rent growth, or NOI growth. Not to denigrate the space but IMO, LIHTC developers tend to be guys who are unable or unwilling to raise traditional equity to go out and do conventional development outside of LIHTC.

No one says there are "healthy margins" in LIHTC development.  The buildings are levered to the hilt, so as you say there is almost no free cash flow.  But the fees are enormous.

Ohio, for example, allows developers to charge 25% developer fee on total development cost!  25% upside with no equity tied up, few guarantees, no lease up risk... quite the opposite of LIHTC developers not being able to go out and raise money, you'd be stupid to invest equity into a deal that might get you to a mid-teens return in your base case when you could take that kind of fee revenue for nothing.

Speaking frankly, raising money is easy, and navigating politics and regulatory restrictions is hard.  People don't do affordable development because they're forced into it - they do it because it's a better value prop than traditional development.  I've been told that to this day, Related's biggest profit center is still its legacy affordable housing.  LIHTC and Section 8 is what allows them to build Hudson Yards, not the other way around.

Why do I say that? LIHTC deals require a lot of work such as securing bond allocations, navigating through regulatory bodies, the lease up to low-income tenant process can be cumbersome, legal matters, etc. You're dealing with all this to not get any benefit from asset appreciation or cash flows. You're just doing it all for fees. Therefore, they don't make money unless they consistently churn deals. Just my two cents. 

All of this is true, though one could argue that the lease up process to low income tenants, while frustrating and slow, ultimately poses fewer risks than a market rate lease up.

And again, your argument makes a lot of sense when you assume that fees for LIHTC deals mirror the kinds of developer fees that market rate developers charge, in the 3-5% range.  That would be a "pay your overhead" situation where there isn't much profit, I agree... but fees are routinely 3-4x that.  As I mentioned in the case of Ohio, sometimes substantially more.  As I've said before, in New York you get 10% on acquisition costs and 15% on construction/rehab costs.  Given how expensive it is to build here, that is big money.  Obviously individuals may have different opinions, but to build a $50mm project (40 construction 10 acquisition, lets say) means a $7mm fee for no equity commitment, and that sounds way better to me than building the same size building, being forced to put up $2mm of my own equity, and hoping that I make a 3x after my promotes.  That would be a pretty good deal... which means that with my 4% fee and my 3x return, I'm getting.... $8mm in profit, so not much more than on my tax credit project, while also taking a ton more risk and tying up liquidity.

 

The two main attractions to owning real estate is asset appreciation and cash flow. LIHTC offers neither of these. Ok, I get it you earn fees for development. You put no equity in the deal. But honestly if fee income excites you, you’re missing the forest for the trees. Fee income is short-term. What happens when project is done? You have to consistently find new deals and secure new bond cap, which is very hard today. Asset appreciation and cash flows are long-term.
 

Theoretically, you can purchase some assets at an attractive basis with modest leverage and sit on the asset for 7-10 years. You get paid on the yearly cash and net proceeds. Once again, LIHTC does not offer this. And IMO, having cash equity in the deal keeps the sponsor incentivized to do well and since they are taking on real risk, they will do their best to perform. For LIHTC, you get tax credit equity but you don’t put up your own dollars. 

Not saying LIHTC is a bad business because it’s not. It’s solid. But would I choose to do a LIHTC deal over a free market? No. LIHTC to me is ridiculously cumbersome when compared to free market multi. I have heard the saying over and over again that “value is created from inefficient markets”…so yes, I get it. There is money to be made in LIHTC. Just not my cup of tea. 

 

I think starting your own LIHTC development shop would be the dream. The problem there is twofold: first, you are probably going to need to get that development experience somewhere, and second, if you are truly on your own, you need to have the money to guarantee your projects. Unless you spent your 20's and 30's really hustling, it's doubtful you are going to have the net worth to get lenders/investors comfortable doing deals with you. One option you didn't mention is a development consultant. You could come in as development consultant with a well-backed sponsor who lacks the experience to do LIHTC deals and take a portion of the fee for doing all (or most) of the development work while they provide the guarantees.  

Underwriting / Asset Management is just a cost center so you are not going to get rich doing that. Can get paid reasonably well though without much risk. 

Originations at a syndicator/lender can have some good upside if you have the personality for it. Having worked at both a syndicator and a bank (lender), I would pick a syndicator.

HFAs - highly bureaucratic and I'm assuming pay is not commensurate with other areas of LIHTC. 

 

9percent

I think starting your own LIHTC development shop would be the dream. The problem there is twofold: first, you are probably going to need to get that development experience somewhere, and second, if you are truly on your own, you need to have the money to guarantee your projects. Unless you spent your 20's and 30's really hustling, it's doubtful you are going to have the net worth to get lenders/investors comfortable doing deals with you.

You'd be surprised.  The guarantees aren't that crazy, because they tend to be restricted to bad boy, environmental, and tax credit delivery.  If you've got ten years of experience running deals, there is a good chance you'll be in a position to have the trust of lenders and therefore find a way to cover those guarantees.  This is the huge advantage of affordable development as an asset class for entrepreneurship - unlike traditional development, you don't need much equity and the guarantees are extremely manageable.

One option you didn't mention is a development consultant. You could come in as development consultant with a well-backed sponsor who lacks the experience to do LIHTC deals and take a portion of the fee for doing all (or most) of the development work while they provide the guarantees.  

Yep, this is also a good way to do it.  However, this is effectively just development.  It's all the same work except for sourcing the land.

Look, the nitty gritty of politics and navigating the regulatory environment isn't for everyone, not by a long shot.  And frankly, lots of people who come into real estate or who dream of opening their own shop are really dreaming of somehow doing a 400 unit condo project in NYC that is a home run and generates a 30%+ IRR, at which point you're probably better served going to a casino with your GP money and hoping to do well there.  Affordable is safe and it's slow; if you want to make a real career out of it, it's a really good way to build insane net worth over time, because it's never a 3 steps forward, 2 steps back kind of business... it's just 1 step forward at a time.  Again, that doesn't appeal to everyone, in no small part because I think many people want to get rich, not build a successful business, and those two things are not synonymous, especially not at the start.

 

LIHTC developments seems like a pain the ass to do. Delays, bureaucracy, etc. 

Guess its what you want in life. 

 

Repellat qui sint sit est similique qui quidem. Necessitatibus facilis iste est a et. Quia beatae optio ducimus sit ipsam aut. Non velit omnis repellat aut sit.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
DrApeman's picture
DrApeman
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”