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Imagine that you run a business where costs continue increasing and you can’t raise the prices you charge. While that is not exactly what Percival Vaz deals with, the general idea is true enough. Vaz, the president and CEO of AMCAL Multi-Housing Inc. in Agoura Hills, builds multifamily and single-family homes for low- to moderate-income earners and seniors who cannot afford to pay market-rate rents and prices. Although the rents charged are restricted, the costs of construction, land and all the other things that go into housing developments are not, meaning AMCAL pays full freight to deliver its housing, and those costs have been rising exponentially in recent years. To finance these developments, AMCAL must secure tax credit allocations from public sources and then sell those tax credits to real estate investment companies such as AIG SunAmerica, the company’s dominant funding partner. A not-for-profit builder can sometimes go back to the well for additional tax credits if costs rise, but for AMCAL, a for-profit company, such options are not typically available. Despite those challenges, AMCAL has been especially active in the affordable and senior housing markets, having developed more than $350 million worth of projects since 1996. Recently, it has completed developments in Echo Park, Lincoln Heights and South L.A. Locally, the company is about to begin developments in Panorama City, Palmdale and L.A. and it has expanded its operations throughout California. Question: You entered the industry as a developer of market rate housing. Why did you switch the focus to affordable housing? Answer: Through the ’80s, we did about two projects a year and we funded them through family and friends and my own savings. But the projects grew larger and toward the end of the ’80s, we were doing 100-lot subdivisions and apartments that were in the 100-unit range, and we graduated to having institutional funding. And then the recession hit in 1995. There were some pretty tough years and some of the best known names in homebuilding ran into trouble. Fortunately, because we weren’t that big we didn’t have the capacity to have a lot of land inventory and so we didn’t get caught in that. But we realized that if we were competing against Kaufman & Broad or Standard Pacific and they were doing 100 projects across the country, if the market turned, an edict would come down from the CEO to liquidate the inventory and slash prices and (we had to be competitive). Overnight our profit pro-forma would go from a plus 10 percent to a minus. Q: How did the company make the transition to a developer of affordable housing? A: We came across a site in Santa Barbara in ’96 and we were going to do more of the same, market rate housing or apartments. And the county told us the previous owner had been trying to do this now for almost 10 years and they ran into one problem after another, from neighborhood opposition to water shortages. Then they said, but we badly need affordable rental housing, and if you do that on this site we will actually help you get all the planning approvals and we will give you some subsidy money. And they did, for about $1.3 million. That whole concept of subsidy money was totally foreign to me the government tells me they’ll give me money? It was unheard of. It turned out to be an extremely successful project. So that sort of caused us to rethink everything we were doing. We looked at all our strengths and weaknesses, and we didn’t think we had the competitive advantage to compete with these large homebuilders on a sustained basis, whereas this niche seemed like we had a lot of competitive advantages. We had a lot of financial discipline; we had a lot of financial capacity compared to a lot of people in the affordable housing business, many of whom are non-profits. Q: What has made you so successful at winning these tax credit allocations? A: We come from a market rate discipline so we run a very tight ship. A lot of people in the industry have a lot of good intentions but they’re just not as efficient. We also have a lot of people with a lot of experience in different facets such as finance and entitlements. We’re also a vertically integrated company. We do all our own construction, so we’re very focused very early on in the design stage in trying to keep costs down because cost is another factor in the competition. The more housing you can deliver for less tax credits, the more competitive you can be. Q: Do you go about raising capital differently in the affordable sector? A: It is different. This was easier because there’s such a shortage of tax credits, the demand far exceeds the supply. The demand comes from these investors. They want to buy these tax credits so they can offset it against their tax liability so they actually tend to woo us as opposed to the market rate side where we have to woo the institutional side. And California is probably the best place in the country for this. The gap between what the market rents are and what the affordable rents are is huge. Q: What are some of the deterrents to building affordable housing? A: Land is probably the biggest deterrent right now. Land has been extremely expensive and in the boom market we had in the last six or seven years we had to compete with all the homebuilders that would build market rate, for-sale housing or apartment developers and because they have no restriction on the price of their rents, they can generally afford to pay a lot more than we do. Four or five years ago we paid roughly $10,000 to $15,000 a door for the land. Today it’s $60,000, $70,000 and even $80,000 a door. I remember in Palmdale several years ago, the land was $1,000 a unit. It’s more like $15,000 a unit now, so you can see there has been an enormous increase. Q: Are you building less in the local area because land is in short supply and so expensive? A: We haven’t slowed down. L.A. is still our predominant market. We just added other parts of the state the Central Valley, Northern California, Orange County and we’re looking at San Diego. Today we have about 10 projects under construction as we speak and another dozen or so in the planning stage that will probably break ground last year. Q: What other deterrents are there? A: Construction cost is the second biggest challenge and the third deterrent is rising impact fees: park fees, sewer fees, water fees, recreation fees. In some cities like Thousand Oaks it’s $28,000 a unit; in other cities maybe $10,000 a unit. Q: Why did you decide to make the transition into real estate? A: I came to this country in 1966 from Bombay. It was the days when there was a lot of talk about landing a man on the moon and so electronics and aerospace was very trendy. I graduated UCLA in 1969 and then worked in the aerospace industry from ’69 to ’78. And I did enjoy it and did very well at it, but after being in it for a while and becoming a project manager it started to get very confining because microelectronics is highly specialized. I wanted to have exposure to finance and marketing and actually be in business. SNAPSHOT – Percival Vaz Title: President, AMCAL Multi-Housing Inc. Born: 1948, Bombay, India Education: Bachelor’s and Master’s degrees in engineering, UCLA. Personal: Married, four daughters Most Admired Person(s): Father, Mark; Gandhi for his patience, persistence and passion; and the major industrialists like Henry Ford and John D. Rockefeller for the tough times they had to go through.

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