Evan was in the medical field in college before realizing that was not for him. He noticed a student housing development being built close to his school and wanted in. He blew up the development company until they gave him a task, get 100 students to the groundbreaking – Evan got 800! Now working for a large development company, hear how he was able to get his dream job and how they use tax credits to build affordable housing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Evan Holladay Real Estate Background:
- Real estate developer and investor
- Developed over $100 million in new construction multifamily at LDG Development
- Uses tax credits to create affordable and mixed income communities
- Based in Louisville, KY
- Say hi to him at www.evanholladay.com
- Best Ever Book: Crucial Conversations
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff. With us today, Evan Holladay. How are you doing, Evan?
Evan Holladay: Great, Joe. Thanks for having me here.
Joe Fairless: Yeah, my pleasure, nice to have you on the show. A little bit about Evan - he is a real estate developer and a real estate investor. He has developed over 100 million dollars in new construction, multifamily properties at LDG Development. He uses tax credits to create affordable and mixed-income communities. Based in Louisville, Kentucky. With that being said, Evan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Evan Holladay: I kind of jumped into real estate in college, and... Always thinking about how can my story relate to others trying to get into real estate, and I think the way I was in college, I was looking at medical school and that just really wasn't for me... So I saw this 55 million dollar student housing development with retail and everything going on on the first floor, and I was like "Man, I need to be a part of that. Something about that just gets me really excited." So I figured out who the developer was, who the owner was. They were doing student housing properties all over the place, and I reached out to them through making mini connections.
I was constantly, constantly reaching out to him. It wasn't like he just said "Oh yeah, sure, join the team." It was constantly reaching out, barraging him with e-mails and calls, and then he actually told me, he was like "You should help us get a bunch of students to the ground breaking", so I said "Sure." He thought I'd get maybe 100 people, and we ended up getting like 800 people out.
Joe Fairless: Oh, my gosh!
Evan Holladay: Yeah... That was a little help from my fraternity brothers; we were handing out pizza on campus, trying to get the word out... But that kind of started it. From there, I was the first hire at that development, and learned the nuts and bolts of coming out of the ground, new construction.
Then in college I started my own development company. We actually did modular housing development with mixed-income, used a houseboat manufacturing plant in Kentucky; they were one of the biggest houseboat manufacturing plants in the world. So we took those skilled laborers who were out of a job with the housing market crash in '08, we were able to give them a job by making modular housing, and turning that into apartments.
So we took that and eventually built that out into a company, and then won a few business planning competitions in college, and then from there found LDG. And really, we were looking for partners that had money, had experience, had a balance sheet... They actually reached out to me and said "Hey, how about you do the same thing for us?"
I've been with LDG about five years, and have been sourcing and finding out funding, providing new developments, working with politicians... Now my focus is just to rapidly, exponentially expand what we're doing, and trying to do larger and better developments. Now we typically focus on 200+ unit new construction developments in major metro growing areas.
I've been working mainly in Nashville and New Orleans, in the surrounding areas. That's been my niche, and it's really worked out well for us. We were recently named the number one affordable housing developer in the country, actually.
Joe Fairless: Wow. I have so many questions... [laughs] First off, incredibly impressive... Let's see. We'll start from the beginning and just kind of work our way through... You were constantly reaching out to the developer, and it took lots of phone calls.
Evan Holladay: Right.
Joe Fairless: When you were calling, what were you saying?
Evan Holladay: My biggest thing was "How can I add value to you? How can I help you with this development?" and I tried to stress what I was good at - I was good at connecting with people, and I was good at using my network on campus and using the certain positions at clubs or whatever that I was involved in... Using those connections in those groups - I tried to leverage that into a job.
He didn't bite on that right away, but that got me my foot in the door. That's why I always try to tell people - if you look up to somebody or you admire somebody or you see something that you want, go out and ask for it. That's how we got you on the Monumental Podcast; I made my way up to Cincinnati and introduced myself, and now here we are.
Joe Fairless: Yeah, I really enjoyed that podcast. Real quick, the Monumental Podcast - what is it? ...so that the Best Ever listeners are aware of what you're referring to.
Evan Holladay: So about two months ago I started a podcast called Monumental. We interview individuals like Joe Fairless - the one and only - that are doing amazing things that are changing an industry and making massive change. It's kind of all over the place as far as who we're talking to, but we want people that are being leaders in their field, and other people can learn from and make their lives exponentially better.
Joe Fairless: Now, going back to the ground breaking - you said the developer was expecting 100... Heck, I was thinking 10 people, and then you said you brought 800 people. And that was through your campus connections and just a bunch of hustling... You said you got hired at the development, you were the first hire at the development. What were you doing?
Evan Holladay: Honestly, I was doing a little bit of everything. They had us starting to lease units out of a Holiday Inn two miles off campus... So I was doing lease up, I was preparing leases, I was preparing strategies for how to manage the property, and then on top of that, we were still going through construction, at least about prior to being complete. I was going through taking videos, doing social media, the whole build-out. I even had, interestingly enough -- one of the things that I was proud of at the time was they had these lobbies with no windows in it, and I was like "You know what, that would just be a really boring lobby on every single floor, going up five floors", and I was like "There's something we've gotta do about this." So I told the owner, and he ended up putting windows all over the lobby, and I'm like "Man, that is awesome!"
Joe Fairless: That is cool!
Evan Holladay: That was my first little taste of having a little say in what goes into a development.
Joe Fairless: I've read the book of Sam Zell, Am I Being Too Subtle...
Evan Holladay: Yeah, I love that book.
Joe Fairless: Okay, good, so you've read it... You'll probably remember when he mentions in the book that he hates development, and the only people who are in development - 50% wanna make money, but the other 50% get a lot of satisfaction in the end product. Would you be in that category, where you wanna make money, but then half of it is also about just the satisfaction of doing it?
Evan Holladay: Reading that book - I think that's such a valuable book... But yeah, I tend to agree with that. I think what got me into real estate was - especially with new construction; you can definitely do this with existing assets, but with new construction, you can literally change a neighborhood. You can forever change the path of a neighborhood, and make it better, and provide value for people already living there, and also bring new people into the communities. I've found that so powerful... It happened in college with that development, and since then I've been able to do many other developments.
When we finish out our long-term development cycle, once we get it leased up 100%, we're going into redeveloping parts of town, and adding tremendous value. Politicians will come up to us afterwards and be like "Thank you so much. You changed the direction, you were a catalyst for that neighborhood." So that's what got me into development, and since then there's been a million other things that I've fallen in love with... But I think that that's what got me here.
Joe Fairless: In college you started your own development company - see, we're working through the timeline, by the way... So in college you started your own development company, you employed workers from a houseboat manufacturing company instead, because they didn't have jobs; you said "Hey, since you don't have jobs and you used to do houseboat manufacturing, how about you create modular housing and we make that into apartments?" Can you just elaborate more on that?
Evan Holladay: Yeah, definitely. The plans were called "Houseboat Energy-Efficient Residence" (HBEER) and we actually worked with the University of Kentucky, College of Architecture and Design... The students there had a class built around this, so we worked with them. We took the plans of the students and professors - both designed - and brought those to the houseboat manufacturing plants. They lost 1,100 skilled workers. With the housing market crash nobody was buying houseboats, so we were able to say "Hey look, here's the plans" and we used the exact same layout, the exterior shell layout of a houseboat; we just wanna take that and stack it on top of each other like little LEGOs, and do multifamily in more urban areas.
We actually did do a few single-family developments as kind of a test run, and then we were going into the multifamily and that's when LDG came and snatched me away.
Joe Fairless: What happened to what you were working on with the modular housing after you left?
Evan Holladay: I was kind of leading that charge, and after I left it kind of fell apart... But it's always been on the shelf. Maybe we'll make a run at it again. I think modular is making a big turn in new construction as far as efficiency and costs, and I'm really excited about that, to see where that goes, and I'd love to start implementing that into some of our new construction developments.
Joe Fairless: Did any of that modular housing that was created during your time there end up as a community now?
Evan Holladay: Not the multifamily, but there was a few single-family units that we did in Sout-Eastern Kentucky - families that were less fortunate (not as much income), we were able to put them in. And another thing, too - the way designed it being modular, it was energy-efficient, so we could lower their energy bills and get it built in seven days.
Joe Fairless: They're still there now? Not the people, but the actual modular housing units?
Evan Holladay: Yeah, the housing and the people.
Joe Fairless: Cool, good. LDG Development - you mentioned you line up funding and you work with politicians, and maybe you mix and mingle some of those... No, I'm just kidding. So you do that for LDG Development. Why work for someone else as an employee, versus find a partner who (as what you were seeking) had money, experience and a balance sheet?
Evan Holladay: I think that's a great question, and really when anybody asks that, I always say it's the value that I got from learning from now one of the top-ranked developers in the country for affordable housing, the value of knowledge and experience... It was almost like I was able to come in -- I started working there when I was 23, and coming in, learning... They literally threw me in the deep end; they said "Okay, go source developments, go find developments, find the funding, fly here, meet with these politicians, work with the architects, engineers, and get these things built." They just said "Do it."
That for me was an amazing experience. I couldn't have asked for a better way to just learn by being thrown into the trenches, and also being able to not make the same mistakes that they made. I was able to learn from their millions of mistakes... And it's funny, because we always have this conversation where they're like "Man, I wish I was in your shoes, Evan, because I've made tens of millions of dollars in mistakes." And granted, they've made quite a bit of money too, but they've also made some big mistakes that have cost them significantly financially... So they've learned to never make those same mistakes again, because it hurt them so badly - so they can pass that on to me. That's where I've been able to learn so quickly and just catapulted where I'm at today, being able to do 100 million in a little over a year closing deals, and then I think another 100-120 million in the pipeline to close this year.
Joe Fairless: That's incredible. When they spoke to you about some of those big mistakes that cost them tens of millions of dollars, and they passed them on to you - what are some of those mistakes?
Evan Holladay: I would say one of the over-arching ones is know your niche. Know exactly what you're good at, and double down on that... Because in many situations, especially as developers and real estate investors, we try to chase the shiny object, and nine times out of ten it will get you in over your head. Or maybe it is a successful development or a successful investment, but in a way you only have so much time to allocate towards your work. And if you spend all this time learning about some new field of development that maybe you're not the best at, so you need to spend way more time learning it and making sure that you're making a good investment - that's time that you're taking away...
We always say, we're like "Well, do we wanna do this crazy, over-the-top, wild, extravagant project, in an awesome location, this and that, but it's out of our wheelhouse; it's not what we do day-to-day, it's not our bread and butter..." We always say, we're like "Look, that could take five years", and you think of the opportunity cost of how many deals you're missing out on, that you know how to do, that you know how to close, and that will be successful.
So that's really been the biggest lesson, because they did go out on a limb on a few projects and lost millions of dollars... So that's what we've harped on and doubled down on what we're good at, and since then, I think the ranking is kind of an external proof of that, that we are on the path to what we are very good at doing.
Joe Fairless: For someone who's not familiar with using tax credits to create affordable and mixed-income communities, what is that?
Evan Holladay: Good question, I get that all the time. So tax credits are, in essence -- we could go on for days about this, but the tax credits are programs set up by the Federal Government, set up in 1986 to basically incentivize banks to invest in lower-income or disadvantaged parts of town that needed that kind of kickstart and were not seeing investment from the banks... And specifically, if your listeners know about redlining... Banks back in the day would literally just mark off certain neighborhoods, because they said they were too poor. So this is a way to stop redlining and to require banks to invest in these areas.
The banks [unintelligible 00:15:23.24] score to invest in lower-income neighborhoods, so this is a way for them to up their score or maintain a good score by investing in tax credits.
So we have a required market almost, like banks that are required to invest in these tax credits, so we always have the supply of buyers. And on the flip side, we're providing quality housing. Basically, the equity comes in as tax credits. We sell those tax credits to the banks who have the investors, and then that in turn is almost like our free equity source, and in turn we're able to provide market rate style apartments or market rate style developments, communities, for a margin of the price of what a market rate community would be.
Our residents are still making income and still carry a job, still have to pass our background check and all this, but it just gives them a safe, quiet, comfortable, nice place to call home and raise a family without being stressed by spending 50%-75% of their income on rent. I'm sure your listeners know that's a big problem today in the United States, so this tax credit program is trying to make a dent on that by providing good housing for working families that just can't pay the exorbitant rents that people are seeing today.
Joe Fairless: You said the equity are the tax credits, and then you sell the tax credits to the bank, and that provides you with what you need in order to do the development, right?
Evan Holladay: Correct. There's two different types of tax credits. There's competitive, non-competitive... Competitive covers about 70% of the cost of development, and by the name, they are very competitive, and they're very hard to get. So we have kind of taken out the guessing game and have strictly gone after the non-competitive, and they cover around 30%-40% of the total development cost. So we're still getting a mortgage, we're still getting a loan, and we're also putting in some form of equity ourselves, and then we're also -- sometimes even with all that, on the non-competitive side, we're still seeing 5%-10% that we have to fill from local help, from the city, from the state, and they'll help put in a soft loan that's payable out of cashflow, something that won't hurt our loan sizing.
Joe Fairless: So if the equity equals the tax credits, and then you sell the tax credits to the bank, then the question is how do you get the tax credit in the first place?
Evan Holladay: Each state has their own state housing agency, and they are kind of the gatekeepers, making sure that all affordable housing is done correctly, upkept well, managed well... And that's also another person to oversee the property, make sure that they're safe, clean communities, they stay well for the long-term... But they are the gatekeepers of the tax credits, and you apply to them for competitive; it's all in a time schedule. Non-competitive is typically a year-round... So we apply, make sure we're hitting their parameters, make sure we're hitting their goals, and then the same thing at the city level and the county level as well - they have funding that we're trying to go after, and then we're making sure that we're hitting their goals as well.
Joe Fairless: Is there a person in your company that is strictly focused on the process of working with the states, the city and the counties, from a paperwork and regulatory standpoint?
Evan Holladay: Yeah, I am on the front-end; I do the sales part of the job and the relationship part of the job, and making sure that we're aligning with their goals. Then I have a team that helps me put together the applications, work through the paperwork, and then on the back-end, once we have a tax credit award, and then once we've built the development, that we have an asset management team that makes sure throughout the property we're staying in compliance, we're making sure everybody's happy.
Joe Fairless: With the non-competitive, where you all are receiving 30% of the total development costs, what type of check-ins...? Would it be the banks? You're selling the tax credit to them; are they the ones checking in with you, or is it the state that's checking in with you?
Evan Holladay: It's honestly everybody. [laughter] That's why I think the program works so well - you have the state agency that's looking over your shoulder, you have the equity investor through the bank, or sometimes they go through syndication groups, and they're looking over your shoulder. Then you have the bank giving the perm loan - they're looking over your shoulder. You have the city or the county - if they gave any money, they're looking into the deal. So you have so many partners that are checking in on you constantly. And it depends city by city, state by state; everybody does it differently, but they'll typically check in monthly during construction, and then they have some sort of stabilization process where you have to stabilize the loans, stabilize all the affordable units, verify that they're all qualifying as affordable tenants, and then from there you do either a bi-annual or three times a year - whatever it is per state, you do that, to check in on the property and make sure it's all going well.
Joe Fairless: Goodness gracious... And how long do you do this till? The checking in part.
Evan Holladay: Tax credit compliance period is 15 years... So it is a long-term hold.
Joe Fairless: Yes, it is. And after that 15 years, if you were to sell it at the 15-year mark, could the buyer then not have any regulatory part in reporting, and then just put those units at market rent?
Evan Holladay: It used to be that way. For the last five or so years the states have come in and said "15 isn't long enough. Because of the benefits that you're getting, we wanna see some guarantee of affordable period up to 30 years or 40 years", depending on the state. So the states have added that on. The federal requirement is 15 years, but obviously, because the federal rolls off at year 15, you're a little bit less stringent year 15 through 30, or whatever it is, but you still have that affordability requirement.
Joe Fairless: And what is the actual affordability requirement?
Evan Holladay: There's a couple different selections you can do, but probably the most often selected one is to get the tax credit you have to have 40% of your units at 60% area median income. That basically means that each metropolitan area is given an average income, you take 60% of that, and then multiply that out by 12 months, and make sure that your residents are paying no more than 30% of their income every month, on rent. So that calculation tells you how much you can charge for a 2-bed, a 3-bed, and how many family members you can fit in. Basically, it ranges per city, but typically, for cities we're working in, for 1-bedroom, it can be anywhere from $750, to (a 3-bed) $1,000-$1,200.
So they're not super cheap rents like most people think. It is still something that you have to have a job to be able to afford, but it gives people enough breathing room that they can actually pay for healthcare, pay for school.
Joe Fairless: And you mentioned the affordability requirement... I thought you said there were two; maybe I missed the second.
Evan Holladay: I think there's three different requirements, but the main one is 40% AMI.
Joe Fairless: Okay, that's the main one. Cool. Got it. What did you call it...? Oh, AMI - area median income.
Evan Holladay: Yup. You're basically an affordable developer, Joe.
Joe Fairless: [laughs] This is way beyond my pay grade right now. I'm just taking notes and listening and trying to ask somewhat intelligent questions. Alright, what is your best real estate investing advice ever?
Evan Holladay: I would say learn from others constantly, and learn from others that have done it before you.
Joe Fairless: Well, that is exactly what I'm doing right now, so I am adhering to your advice. Do you wanna do a Best Ever Lightning Round?
Evan Holladay: Yeah, let's do it.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Break: [00:23:18.25] to [00:24:01.23]
Joe Fairless: Best ever book you've read?
Evan Holladay: I would have to say -- right now I'm reading Crucial Conversations, which I think I've heard you recommend.
Joe Fairless: Absolutely! What to do when the stakes are high and opinions vary. I love that book. Best ever deal you've done?
Evan Holladay: I would have to say the one we did in Nashville... We closed about two years ago and we did the first ever PILOT (payment in lieu of tax). We had to get state legislation changed to do it.
Joe Fairless: [laughs]
Evan Holladay: It took way longer than I ever...
Joe Fairless: How long?
Evan Holladay: It took three years to get the financing in place, and we're just now wrapping up about two years after that, on the construction.
Joe Fairless: What was the legislation and what did you get it changed to?
Evan Holladay: It was kind of odd... PILOT (payment in lieu of tax) is like a tax abatement, and they're allowed throughout the whole state of Tennessee, except for a certain caveat that said that city county governments greater than 500,000 people are not allowed to have PILOTs, and Nashville is the only one in the state of Tennessee... So that's where our project was and that's where we needed a PILOT; it couldn't get done without a PILOT because of our restricted rents. So we were able to work with the mayor's office and get that done, but it took quite some time.
Joe Fairless: What's a mistake you've made on a transaction?
Evan Holladay: I would say making sure you're paying attention to all of the deal points, and also making sure you're paying attention to contracts. The first deal I ever did was a minor little one-acre piece we had to add on to the site; it went out of contract. This was a week before we were gonna close, and I mistakenly missed the date... So I would remind everybody, watch your contracts, watch your terms, and have good ways of keeping track ahead of time before you make that mistake like I did.
Joe Fairless: Did you end up closing on that deal?
Evan Holladay: We did, and actually we got lucky... The seller -- I think we were buying their house for like 60k, to add an acre to our 10-acre site, and they [unintelligible 00:25:58.02] up to 90k. But it was like, man, they really had us by the balls, and they just didn't know it. They could have asked for whatever and we probably would have paid it, but...
Joe Fairless: What would you have paid?
Evan Holladay: We probably would have paid close to 250k-300k.
Joe Fairless: Best ever way you like to give back?
Evan Holladay: What I've done in the past is mentor high school or middle school kids... There's a program similar to Junior Achievement, but in Louisville it's called Young Entrepreneurs Academy. We help mentor kids to start doing businesses and do business plan competitions. That's been such a blast. One of the kids I mentored ended up going to the national competition, so that was really cool.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Evan Holladay: My website is EvanHolladay.com, and my podcast is Monumental. You can hear Joe Fairless on there, and I hear that's it.
Joe Fairless: They hear enough of Joe Fairless, they wanna hear other people. [laughs] Evan, thank you so much - holy cow, this is a crash course for me and perhaps some of the Best Ever listeners, on development, on tax credits... Just a refresher for how important resourcefulness is, and reaching out to people. There are so many life lessons and very kind of 2.0 real estate lessons in here... It's insane.
Thank you so much for being on the show. I'm not even gonna try to recap anything, just listen to the episode again everyone, and we transcribe the episodes usually about 3-4 days afterwards, so just visit the website BestEverShow.com, and you can read the transcription, too.
Thanks for being on the show. I hope you have a best ever day, and we'll talk to you soon.
Evan Holladay: I had a blast. Thank you, Joe.