Longtime affordable multifamily investor quietly builds a massive seniors housing portfolio.
By Jeff Shaw
Jack Manning and Boston Capital are not household names in seniors housing. They aren’t staples at industry events, and their names rarely come up when discussing the big-name owners in the industry.
Manning founded Boston Capital in 1974, and is the chairman and CEO of the company. While he focuses on all sorts of multifamily, his specialty is affordable housing. He funds most of his investments through the Low-Income Housing Tax Credit (LIHTC) program.
Manning is a luminary in the general multifamily sector. He’s a 44-year veteran of the industry and former Forbes 400 billionaire. He was No. 354 on the 2006 list, with a net worth of $1.1 billion, but hasn’t made the list since. He says that honor was “out of left field and old news,” and generally not something he or the company focus on.
The company he founded has invested nearly $20 billion in 220,000 multifamily units throughout its history.
This trend of focusing on affordable housing led him to build affordable seniors housing as well. States and municipalities are the ones who decide how the tax credits are allocated to seniors housing versus standard affordable housing, so Boston Capital took the opportunistic approach of learning to build for seniors.
Through the construction of affordable housing, Boston Capital has quietly become the sixth largest owner of seniors housing in the United States, amassing a portfolio of 431 properties and 32,985 units. The largest property is 704 units, while the smallest is 15 units. That puts the company behind only the giants of the industry on the list of total units: Brookdale Senior Living, Welltower, Ventas, HCP and Senior Housing Properties Trust.
Despite many years in politics and big business, Manning is not what one would typically think of when imagining a billionaire, though. He’s disarmingly casual and easy to talk with. Manning even asked about this interviewer’s life during a Q&A focusing on his own. The photo in his Forbes 400 profile shows him in a button-down shirt, boxer shorts and flip-flops, reading the newspaper over a cup of coffee.
Seniors Housing Business spoke with Manning about his understated role in seniors housing, the overwhelming need for more affordable housing and his longstanding love for the city of Boston.
Seniors Housing Business: Can you give us a quick history of how you got into commercial real estate, the founding of Boston Capital, and what’s happened since then?
Jack Manning: I co-founded Boston Capital 44 years ago with a good friend of mine, Herb Collins. We started the company from nothing.
We went into the apartment development business back then. We watched prime lending rates go [from as low as 6.5 percent to nearly 22 percent] over the next few years. It was an extremely challenging period of time, with inflation and interest rates at all-time highs. It was not good at all. The banking industry was in trouble as well.
We made it through the hard times by producing very little volume — one to two projects per year. From there we decided to focus on affordable housing because of the problems that existed with people who couldn’t afford to buy their own home and found rents to be too high — 50 percent or more of their income.
Those were the motivating factors. We believed there was a market to succeed in while also doing good for people with incomes that were not substantial. They can be seniors, families or single people.
As things have progressed today, it’s become even more of a problem in terms of providing housing for people of lesser means, whose incomes are 80 percent or less of area median income (AMI).
SHB: Although you’re very well known in the general multifamily world, I don’t think most readers realize Boston Capital is the sixth largest owner of seniors housing in the country. How did you build a portfolio that big while flying, to a certain extent, under the radar?
Manning: We looked at the broad base of affordable housing and our largest desire was to focus more on the senior citizens.
We generally are the equity partners of a contractor or developer who needed the money to build these sorts of properties. In rare cases, we are also the developer, but that’s not even 3 percent of the deals we’ve done.
SHB: Tell me about the partnerships.
Manning: We take responsibility for providing the financing, including the mortgage. In some cases we’re even the mortgage lender, but in most cases we get financial institution to do the debt side. But it won’t be heavily leveraged. Mortgage financing typically ranges from 20 to 50 with our equity investment, along with city or state subsidies, making up the balance.
The motivating factor is the affordable housing tax credit program. It’s a 10-year tax credit where you get one-tenth of the tax break every year for 10 years. That’s the incentive.
The tax credit is a very valuable asset in the overall transaction. It means less pressure is put on charging rents.
SHB: Who are your investors?
Manning: For the most part, 80 to 90 percent are banks because they have to fulfill the Community Reinvestment Act requirements. They have to reinvest some of their capital into the community, so the banks are a major player. Insurance companies are second.
SHB: What are the significant hurdles you face when it comes to seniors housing?
Manning: The most challenging hurdles these days in developing seniors housing is the cost of construction. Although all new construction housing in general has experienced significant cost increases, in many instances seniors housing is more expensive per apartment square foot.
This is because seniors housing usually will include various forms services for seniors. For example, recreational areas, elevator service, special security systems, and sometimes even minimal health service area will add more to the average construction cost per apartment unit.
The affordability riddle
SHB: Affordability is one of the biggest problems facing seniors housing right now, and it only promises to get worse as the demographic wave of Baby Boomers arrives. Since you specialize in affordable housing, what are some ways the seniors housing industry should be tackling this issue?
Manning: This is an area of housing for which there is enormous demand, but we’re limited by the amount of credit that is allocated by the federal government. There’s no lack of desire by the capital sources. They totally understand what’s happening with seniors and the fact that it’s getting worse and worse.
The limitation is the incentives the government can provide. It’s not providing an adequate amount to deal with the housing needs of seniors.
That’s basically the House and the Senate control valve. On the Senate side, Orrin Hatch (R-Utah) and Maria Cantwell (D-Wash.) amended the tax law and allowed for a 12.5 percent increase in the tax credit for the next four years. So there was a bonus tax credit that will expire, but at least it was an added incentive. So that was a good thing.
That incentive will be spread between affordable housing for families and seniors. I can’t tell you what the ratio will be. It will be purely a matter of the states taking that credit and deciding how they wish to allocate it.
SHB: In your opinion, does that mean the federal government needs to turn the valve on and let the tax incentives flow?
Manning: Yes, it does. We need to get the House and the Senate together to increase the amount of tax credits available to finance these properties and keep the rents as low as possible. That’s the objective.
The amount of credits that can be allocated to the states comes completely from the House and Senate. They have to come to a conclusion as to how much they’re willing to expand this program.
We had to do a tremendous amount of work when tax reform came through just to make sure these tax credits weren’t eliminated entirely.
It’s complicated tax legislation, frankly, but it’s critically important to senior citizens. There’s an ever-increasing population of senior citizens coming at breakneck speed.
A careful growth strategy
SHB: Are you looking to grow your seniors housing presence further? If so, what’s your preferred growth method in terms of acquisitions versus development, and geographic concentration?
Manning: Yes, and our growth includes a variety of developments and acquisitions. For example, last year we did a couple projects that were unusual.
In addition to having low-income seniors, we also have homeless seniors in this country. There’s a deal we did in San Diego last year, the New Palace Hotel. We’re trying to serve both the tenants that have enough money to at least make their rent payments, and the homeless that don’t even have that.
Another project was an old waterworks building just outside downtown Boston in Somerville. It was abandoned, but had great architectural features and qualified for historic tax credits for improvements. It’s undergoing renovations that will generate a historic tax credit and LIHTCs.
The Somerville project is about 30 units. It’s not a big property, but it’s an example of an attractive property that has been derelict for a long time. Clearly the costs are low. It’s a unique property and we’re really proud of it.
Another example, and the polar opposite, is a property we did in Saratoga, California. It’s a higher-income area where home prices are $3 million on average. That’s a brand new building with all the amenities you’d expect in Saratoga. The seniors there aren’t wealthy but will live in a safe, attractive, high-end property. That will be a more expensive property to do.
These are three good examples of what we have to deal with and what we look at. Do we want to do this transaction? What do we think the dynamics will be? Can the property operate at the lowest rents for tenants, while staying well preserved, well maintained and appropriately managed?
SHB: What operators do you work with?
Manning: We will look at all the submissions that go into the state tax credit allocation agencies. We’ll look at the proposals and decide which we’d most like to do. What factors into our decision to start a project is location, then cost, and a very close third is the management makeup of the developer/general partner.
You have to look at how a property is going to operate. Some have facilities that involve minor medical care; some don’t have that at all. Some have meal services; others may not.
Does the financing all work? What does the market look like? Can residents afford the rent? Is the state or town willing to add some subsidies?
The last thing we want to do is invest in a property with serious problems, and then we have to take care of seniors at a property that isn’t functioning well or management is incompetent. That’s a rare occasion, but it’s a possibility. We have to review the history of the management company, which is usually a third party. It’s a very thorough, detailed analysis before we put down money and go forward.
Let’s face it, each property is a business.
SHB: Besides the age restrictions, what separates your seniors properties from your general multifamily offerings?
Manning: If it’s a family property, you don’t have to have elevators, and you don’t necessarily need common areas. We like to have both, but you don’t have to have them.
On the seniors property, you have to be certain there are elevators and some common areas. You also don’t need two- and three-bedroom properties, so you can put in more units.
Also the location is a factor. We try to find seniors properties that are close to medical aid. There should be some capability to have a nurse come through now and then, something of that nature.
Friends in high places
SHB: You’ve served with quite a few governmental and political entities, including several appointments by President Clinton. Tell me about your involvement.
Manning: With President Clinton, his mother and my mother trained together as nurses in Arkansas and Louisiana. When he came to Massachusetts during primary season, I greeted him and told him that story. Lo and behold, he confirmed that with his mother and we built a friendship out of that.
He invited me to the White House a number of times and appointed me to the President’s Export Council, a board comprised primarily of Fortune 500 CEOs that advised the president on government policies and programs that affect U.S. trade performance.
It was incredibly interesting. Anything to do with business intrigues me because we have investors from overseas as well. That was very gracious on his part, and I learned a heck of a lot. It changed my overall perspective on what was going on in the country, and how we should invest money for decades to come.
SHB: I’m sure you get this question far too often, but I have to ask: What’s President Clinton like?
Manning: He’s an incredibly warm guy. He and his wife are both very different in person than what you see on television. They were really wonderful to be with when they were in the White House.
The president came into my office about 10 years ago. He was in Boston and asked to use one of my conference rooms. He was wonderful to everybody here.
I haven’t seen him much since that time. We haven’t stayed in touch, for no other reason than we’re all absorbed in what we’re doing.
SHB: You went to Boston College, head up a company called Boston Capital and still live in the Boston area. What fuels this clear passion for the city of Boston?
Manning: What I like about Boston is the multi-cultural aspects, the various backgrounds of people who live here. What drives a lot of that is the academic community here, which is amazing. It’s a wonderful environment from that standpoint.
I don’t like winter here, unfortunately. But setting that aside, this is a smart city. It’s a very educated population, and there are always ideas and perspectives that are reflected in our newscasts and newspapers. There’s always something intellectually intriguing, and I’d hate to be away from that. I just wish it weren’t so bloody cold!
SHB: What’s something people within the industry would be surprised to learn about you?
Manning: I have dual citizenship with Ireland. My grandparents came from Ireland, so I’m only second generation. You can apply for citizenship and for an Irish/European Union passport, which I have.
When I travel outside the States, I use the Irish passport to go into those countries, and when I come back I use my U.S. passport. n