Q&A: Traci Lutz of Edgewood Management on Affordable Housing Compliance
One of the challenges of operating affordable and mixed-income apartment communities is successfully navigating all of the various regulations and requirements.
In this Q&A, Traci Lutz, vice president of compliance at Edgewood Management, discusses a variety of compliance-related issues. She outlines common mistakes operators make, the increasing complexity of the regulatory landscape and how compliance may change in the years ahead.
What are the most common compliance mistakes apartment owners and operators in the affordable and mixed-income segments make?
Lutz: The most common mistake is not having the right internal compliance support in place. The complexities surrounding the way affordable housing deals are structured today demand an experienced and knowledgeable compliance team to properly manage these assets. This is to ensure that all program requirements are being met as well as reporting, inspections and everything else that goes into compliance.
It is imperative that we assist our site teams with ensuring their residents are qualified from move-in. It is also necessary that we understand how all of the regulatory requirements affect the operations of the property and all other facets outside of just the certification piece (certification ensures applicants and residents are eligible for the affordable programs applicable to their property).
Some owners attempt to manage affordable assets in-house or look for a cost-effective third party to provide solutions. And while that approach may appear to save money upfront, in the long run you are at risk to lose so much more in terms of loss of tax credits
At Edgewood, our expert in-house Compliance Department implements stringent procedures, conducts ongoing training programs and provides innovative solutions to complex regulatory issues. In order to meet the strict criteria of affordable housing, we have created a compliance program that provides team members with extensive training on affordable housing regulations and policies as well as ongoing training when changes and updates occur.
Has the pandemic added complexity to the compliance landscape for operators of mixed-income and affordable properties?
Lutz: Absolutely, in a few ways. What we’ve been experiencing during the pandemic is a whole new way of completing certifications at our properties. In the past, the certification process consisted of several face-to-face meetings with applicants and residents as well as obtaining signatures on multiple documents and third-party verifications of income and assets.
We are now learning to conduct those meetings with as little in-person interaction as possible and, when we do interact, it's while practicing proper social distancing and wearing face coverings.
Direction for these programs comes from the IRS, the Department of Housing and Community Development (HUD) and state funding and monitoring agencies. Staying on top of policy changes helps ensure that we navigate through this while remaining in compliance. We are working hard to reduce health and safety risks for our residents by reducing the cumbersome paper trail, which is often associated and required with affordable housing compliance. If these amended procedures are not properly adhered to, the owner is at risk of losing funding or possibly future projects.
How has the increasing demand for affordable housing served to prioritize compliance expertise?
Lutz: Compliance, with the many regulations governing affordable housing and mixed-income communities, is at the heart of successfully operating a property. For instance, in order to own and/or operate a HUD-financed property; an owner must be approved by the federal government to do so. Poor inspections and audits will cause an owner to be “flagged” in the system and could cost them an immense amount of money.
The ever-changing climate of our economic system – which is affected by things like presidential administration changes and assistance funding shortages – means investors and developers have to become more creative in their financing. As affordable housing evolves, developers also face more competition when applying to their state for an allocation of tax credits. Each state is only given a certain allocation of tax credits each year to award to developers wanting to finance tax credit properties. It can get extremely competitive, and you want to be able to show a history of compliance excellence in these competitions.
As you gaze into your crystal ball, how do you see the compliance landscape changing in the years ahead? Are there any issues not on the radar that will become very prominent in the future?
Lutz: What I see is a lot more innovation ahead. During the pandemic, we’ve had to change the way we operate and adapt to things such as social distancing and wearing masks. The livelihood of these programs is based on an annual face-to-face meeting to review all aspects of the residents' household composition, income, assets and student status. This is now more challenging than ever. Our priorities are keeping residents safe while protecting our partners’ investments at the same time, and I foresee more innovation in how we assist our residents and our partners through technology in this new, virtual world.
I also see more developers attempting to structure these deals than ever before. There is a significant wave of gentrification in this country, and if we don’t continue to support our affordable housing developers, we will be dealing with an even more serious homeless problem than already exists.
What are the benefits of a property management firm having a centralized compliance department?
Lutz: Having an internal, experienced and well-connected compliance department is crucial in the affordable housing industry today. The intricacies that go into structuring the financing that supports these programs has become more complex and scrutinized by investors.
We help protect the investment. This saves our clients and partners money, and means a third-party compliance auditor is not needed. Having an expert team in place takes away a burden from developers and owners and allows our residents to have the best possible experience living on our properties.
Edgewood's in-house Compliance Department is an expert at monitoring regulatory compliance with a multitude of federal programs. We also have deep expertise and extensive experience in many state loan programs that are often coupled with the Section 42 Low Income Housing Tax Credit program.
And our results speak for themselves: On average, we complete 150 tenant recertifications per month – close to 2,000 per year. Additionally, we’ve received an Above Average score on the HUD Management Occupancy Review six times since Q3 2020.