The government housing specialist, whose company today operates 40,000 apartments across the country and has contracts with Uncle Sam to do complete residential makeovers at five military bases, was lured into real estate by a $300 commission.
“I thought that was all the money there was in the world,” he said in an interview in May, recalling the summer job with his father’s real estate company, after his junior year in pre-law at Dickinson College in Carlisle, Penn., in 1954. “I sold a house and that $300 commission changed my life. I wondered, why in the world did I want to be a lawyer? I should be in real estate,” said Levitt.
Fifty-five years later, Levitt’s organization consists of a squadron of seven affiliated real estate service companies, the oldest of which are Michaels Development Company and Interstate Realty Management, created in 1973. The youngest are Michaels Military Housing LLC and Prestige Renovations LLC, born in 2004, when the U.S. Army chose Michaels to rejuvenate or rebuild more than 1,500 dwelling units at the base Col. Henry Leavenworth established as a frontier outpost in Kansas in 1827. In 2008, the company was selected by the Army to do similar work at Fort Huachuca and the Yuma Proving Ground in Arizona.
“We only do affordable, mixed-income and military rental housing.
That’s all we do,” said Levitt, whose early years in real estate were focused on buying single-family homes, fixing them up and selling them under the Veterans Administration or Federal Housing Administration programs.
“I became good at working with government and government numbers. And then, when the first urban renewal housing program came out in 1961, I went into multifamily,” recalled Levitt, whose debt-free company is the quintessential multifamily do-it-yourselfer, providing everything from its own construction and bridge loans and tax credit syndication to building and operating apartments, and is essentially recession- proof.
“We don’t owe a nickel to anybody. Isn’t that wonderful?” said the CEO, who, just a few weeks ago, received the paid-off mortgage on a property he built 40 years ago, along with a check for $1 million that had been in escrow for the past four decades. “We’ve had great earnings and I’ve been around long enough and owned properties long enough, that we’ve eliminated a lot of debt.”
And that self-sufficiency has made it easy for the Marlton, N.J.-based multifamily company to add a legion of military housing units over the past five years to its arsenal of projects underway and under management.
Do-it-yourself financing
Michaels started syndicating its own low-income housing tax credits, cutting out the middle-man in the financing of its affordable housing, seven or eight years ago, and financed its first three military housing projects with 45-year, taxable corporate bonds the company sold at competitive interest rates.
The $305 million in bonds sold to rejuvenate housing at those military bases are backed by net operating income from management of the military housing, Michaels Development Company President Robert Greer explained in a May interview, about a week after the closing of an $82 million bond sale to fund housing makeovers at Fort Huachuca and the Yuma Proving Ground.
“It’s tough right now and I am very proud of the fact that we have been able to place these bonds and achieve the income levels that we need to make these deals feasible,” said Greer, who was a director of development at the Pennsylvania Housing Finance Agency (PHFA), when he met Levitt in the mid-1970s.
“PHFA awarded financial assistance to Mike on many different deals,” he recalled. “I got to know him and to respect him and saw the wonderful product he was building and one day he approached me and asked if I would like to step over to the other side of the table and work with him,” said Greer, who accepted that offer in 1978, leaving the agency his new boss had a hand in creating in the early 1970s.
“I worked with HUD (U.S. Department of Housing and Urban Development), when they first wanted to come out with state housing financing agencies and I was instrumental in starting the ones in Pennsylvania and New Jersey,” said Levitt, who partnered in that effort with the National Association of Home Builders (NAHB), when he was chairman of its Multifamily Rental Housing Committee from 1971 to 1975.
“When I first started with Mike, there was one guy in the field and a secretary and I was a vice president,” said Greer, who worked almost as an independent contractor in the early years of the employment agreement, sourcing and financing multifamily deals and responsible for his own product.
“Since that time, this organization has grown to almost 1,500 people and we’re participating in affordable housing all over the United States. Over a 31-year period, there’s been significant change and it’s been a rewarding experience that I’ve enjoyed and treasure,” said Greer, who became president of Michaels Development Company in 1997.
Michaels gained national prominence in 2003 with its huge portfolio of HOPE VI mixed-income and low-income housing tax credit (LIHTC) funded affordable communities, when it debuted at 42 on the National Multi Housing Council’s top 50 apartment owners list. And Greer, who worried back then that the HOPE VI program that pushed Michaels into the national ranks might come to an end, has been active in keeping it alive, working with NAHB and the Affordable Housing Tax Credit Coalition to coordinate with Congress on re-authorizing the program and its funding.
Similar, but different
While the LIHTC projects and mixed-income HOPE VI communities that Michaels started creating in 1998 may be very different in appearance and community focus from rejuvenated housing for military personnel, realization of both requires intense interaction with the government, resulting in mountains of paperwork.
“But, in the end,” said Greer, “It all comes down to the fact that Michaels is building and managing all of its communities with the residents in mind. Our company has had the opportunity to impact many people’s lives in a positive way by creating vibrant communities that people of all income levels call home,” Greer said. “With the military privatization program, we are now involved in ‘housing for heroes,’ and our primary focus is on delivering first-class product and the kinds of services and amenities that enhance those people’s lives.”
Michaels, a pioneer in the provision of social services to affordable communities, can apply much of that experience to provision of services and programs on military bases — programs like the Interstate Realty Management Education Foundation that Levitt and his wife Pat created in 1993 to provide scholarships to college-worthy children of families living in the company’s affordable communities and now also helps military families, who often are working on restricted budgets that put college for their kids out of reach.
The foundation is supported by private contributions and Mike and Pat Levitt donate $2 for every dollar raised. In 2008, the foundation awarded 83 scholarships, 18 of those at Fort Leavenworth.
“I was there to make those initial presentations the first year and what a wonderful day it was. They were so proud,” said Greer, who is pleased that Michaels was selected for three projects, all with 50- year lease agreements, so close to the end of the Army’s participation in the U.S. Military Housing Privatization Initiative that was approved by Congress in 1996.
Much of the credit for the success of Michaels Military Housing, Greer said, rests with Ron Hansen, the senior VP, who joined Michaels in 2004 and has spearheaded that company’s growth. A graduate of West Point, Hansen served in the Army for 16 years, programming and executing construction projects throughout the U.S. and Europe before retiring from the military to enter the private sector in 1996.
“Ron was already a leader in the privatization of military housing before joining Michaels, so it has been our great fortune to have him heading up this effort, which we see as a big part of our company’s future,” said Greer.
Makeovers march on
Last November, Michaels Military completed the historic renovation of The Rookery at Fort Leavenworth, the oldest residence in Kansas and the oldest building remaining on the base. Work on the historic structure that was built between 1827 and 1834 included sprucing up the exterior and preserving the original brass and copper fixtures in the interior where possible. Wood floors were refinished, bathrooms were upgraded and new appliances, solid wood cabinetry, granite counter tops and new flooring were installed in the kitchens of the 9,000-sq. ft. duplex.
A year before, 33 new three- and four-bedroom homes for senior non- commissioned officers that average 1,700 sq. ft. and feature wall-to- wall carpeting, oak cabinetry and two-car garages were completed in Cheyenne Village, the newest residential neighborhood on the post, where Michaels has built 263 new homes since 2006.
And, in mid-May, the company broke ground on two new communities at Fort Huachuca, which was founded in 1877 at the base of the Huachuca Mountains in Sierra Vista and is home to the U.S. Army Intelligence Center and School and other Department of Defense operations, and also is underway on the revitalization of housing at the Yuma Proving Ground, which was established in 1943 and is one of the largest military installations in the world and part of the Army’s Test and Evaluation Command.
As with Ft. Leavenworth, the deconstruction of obsolete housing at both Arizona bases will be accomplished in partnership with Habitat for Humanity’s ReStore program. After removing parts that could be used as replacements in older homes, Michaels Military invites Habitat ReStore to come in and take what the non-profit can use. Proceeds from the resale of building accessories like dismantled kitchen cabinets, bathroom vanities, light fixtures and hot water heaters, help fund the building of quality homes for low-income families in the area.
Other branches beckon
Although it may seem that Michaels was a little late getting into the military housing game, when almost all of the Army’s residential makeover opportunities had been allocated, it may prove to be an unwittingly wise strategy. Greer believes that many who got involved in the program early on may be losing their enthusiasm for those daunting projects and experiencing difficulty obtaining the funding required for those deals. “We are aware that those changing conditions exist and we certainly will be exploring them and seeing how we can participate,” said Greer.
And, even though the Army has reached its published goal in its housing privatization program, the other branches of the armed services have not.
In 2007, Michaels signed an agreement with the Department of the Air Force, in joint venture with Clark Realty, a partner in a number of Michaels’ LIHTC-funded multifamily deals in the past, to revitalize existing housing at the 5,000-acre McDill Air Force Base eight miles south of Tampa, Fla., and the 4,320-acre Andrews Air Force Base eight miles east of Washington, D.C. The two-base deal includes demolition, replacement, renovation and management of 1,458 homes.
“The Air Force and Navy still have ongoing requests for proposals and we will participate in those,” Greer said.
And, since the lion’s share of Michaels’ military and affordable housing financing activities takes place beneath the parent company’s wing, there’s no real limit on its ability to take on and finance future military deals, which will be just as easy for the company as the funding of the LIHTC communities.
Over the past couple of years, Prestige Affordable Housing Equity Partners LLC, another of the seven businesses that operate under the parent organization’s umbrella, has sold 70 to 80 percent of the tax credits used to finance much of the 30-community collection of affordable apartments Michaels Development is underway on today. “We were selling tax credits when nobody else could,” Levitt said, attributing that success to his company’s good reputation in the LIHTC arena.
Over the past 22 years, the mortgage company has arranged more than $2 billion in financing for the organization’s affordable and mixed- income communities and most recently for its military housing deals.
“And, because we have cash on hand, we lend ourselves our own bridge loans and a lot of our own construction loans,” Levitt said.
Continental Mortgage Corporation, an FHA-insured mortgage lender that Levitt created many years ago, structures sophisticated funding transactions for the company’s new projects and acquisitions, as well as refinancing for properties in Michaels’ existing portfolio.
Pursuing portfolios
Unaffected by the current credit freeze, Michaels is actively looking to buy asset portfolios and recently entered into an agreement to purchase some 1,500 units in the Midwest from a seller who wanted some cash and was tired of dealing with the paperwork and problems associated with operation of LIHTC-financed multifamily communities.
“We do it for a living and we’re really good at running and managing those communities and filling out all those crazy forms. For some people, it’s a real headache, but for us, it’s just part of our portfolio,” said Levitt. “We’ve sold a few properties, but we generally don’t sell a lot. We’re buyers,” he said.
The 40,000-unit portfolio Interstate Realty Management manages for Michaels and third-party clients is spread over 26 states, the District of Columbia and the Virgin Islands. Current acquisition deals in Michigan and Indiana will increase that number to 28 states for the portfolio that attained coast-to-coast reach with its entry into California in 2003.
“We’ve always done some fee-management, but as the market has changed, so have we, and we have increased the number of third-party contracts.
Certainly a lot of our product in California is property management of someone else’s portfolio,” said Greer, adding that Michaels Development also is working on several HOPE VI projects in the Golden State — four in Los Angeles, one in Berkeley and one in Winnetka, just north of Los Angeles — and negotiating for several more.
California has become a focus area for Michaels because of the large demand for affordable housing and the large number of tax credits that are available in that state, he said, explaining that some of the HOPE VI projects Michaels has won are so large they have to be financed over a number of years, limited by how many tax credits can be achieved or allocated from a given state housing finance agency in any given year.
“In Chicago, we have 4,000 units at the former Robert Taylor Homes that will take us eight years to build out, so that’s a continuing effort. In New Orleans, we worked so hard for so many years to get a tax-credit award, finally received it, built and occupied the first two phases and had construction underway on the third and fourth phases when Hurricane Katrina completely destroyed all of it.
“We had to clear the site of all the debris, clean the ground and get financing to rebuild those first two phases, which we have done and occupied, and now we are in the process of achieving all of the required financing so we can build the third and final stage,” said Greer.
Today, the company that was awarded its first HOPE VI deals in 1998 is starting a new phase in a HOPE VI community in New Haven and a mixed-income development in Sarasota, Fla., and responding to an RFP for an affordable deal on St. Croix in the Virgin Islands, adding a fourth community to that far-flung tropical portfolio Levitt started building 40 years ago.
Looking to the future, Greer will focus on financing the remaining phases of the 10 HOPE VI deals the company has underway and finding investors to continue to grow the company’s stand-alone tax-credit inventory, while preparing for the acquisition of more LIHTC-funded portfolios.
Staffing up to operate all the new affordable and military housing that’s coming onboard and increasing the syndication of the company’s own tax credits also are ongoing efforts. “There’s a lot of change in this industry right now, so we are trying to grow with that change and increase our portfolio by those three avenues that are open to us,” said Greer.
Life is good
Levitt, who takes a very hands-on approach to the business he created, would like to see his company grow 15 to 20 percent a year for the next 20 years or so. He now works mostly from his home office, coming in only on Mondays to the Marlton office, where he conducts meetings twice a month to review every job the company has in development.
“All of the developers send me notes about all the jobs they’re doing on the Thursday before the meeting, so I can review them over the weekend. I get incredible accounting information. So, I know exactly what’s going on in my company,” he said.
“I love what I do. I’m in a wonderful position. I’m chairman of the board, I’m CEO of our companies and my weekends begin on Tuesday. I’ve got this marvelous place down on the eastern shore of Maryland on the Chesapeake Bay and I go down there Monday afternoon or Tuesday morning and come back up to Philly on Sundays,” said Levitt, whose hobby is competition deep-sea fishing. He holds 18 world records for catching marlin on light line, nine or 10 of which are current, more than anyone else on the planet.
“So, I’m doing what I want to do, when I want to do it, with the people I want to do it with and it’s all working out really well. I know we’re in a recession, but we’re really doing terrific,” he said, in the voice of a very happy man.
