Sometimes You Just Have to Reach Out: An Interview with Gary DeRigne (Part 2)
In Part 1 of my interview with Gary DeRigne, president and chief operating officer of Yarco Property Management, a Kansas City–based company specializing in affordable housing, we talked about his experiences during and after the Vietnam War, as well as his novel One Young Soldier. In Part 2, Gary and I focus on his experiences with the multifamily industry in general and affordable housing in particular.
What got you into the multifamily industry?
After a long career with Butler Manufacturing Company I took early retirement in 1999 to go back to school and earn my MBA, thinking I would spend my productive time thereafter consulting with non-profits in technology and general management. That had become my great passion. My consulting partner was a lady with whom I had worked at Butler, and her husband and his father, Jonathan and Cliff Cohn, owned Yarco.
Jonathan engaged me as a consultant to assess Yarco’s information systems, but the more I worked with him and Yarco, the more I realized that the company’s mission really fit my interests. I came on board initially to direct IT and implement critical new systems, becoming chief operating officer a few years later, then president early in 2010.
Yarco primarily manages affordable apartment communities, providing people who wouldn’t otherwise have a good home with a safe, decent, affordable place to live. So when I go into the office every morning to confront whatever challenges exist that day, I can do it with full knowledge that 33,000 people woke up that morning in a nice home because Yarco and all our wonderful employees and I do what we do. That’s pretty powerful in a world where, it seems to me, so many companies exist solely to help amass wealth for their owners.
I can see how that corporate philosophy ties in with your personal one of helping people.
Some days it gets hectic just keeping the business going and dealing with all the problems inherent to this kind of business, as well as working in ten states and all the things that we do. You can forget what you’re here for. So one of the messages we communicate to all our people is, “Don’t ever forget that the reason we’re here is for those residents out there. We’re providing them not only a roof over their heads, but ultimately a better quality of life. We have to remember that all the time.”
How has your experience in the war and your time leading up to Yarco affected your ability to influence people within the company?
I think one of the benefits of my wartime experience is that I don’t get my feathers ruffled as easily as some other people may. You tend to stay a little calmer in problem business situations after you’ve survived a few firefights with bullets popping by your head and explosives going off around you and people trying their best to kill you. A good friend of mine, our medic in Vietnam, is now a superintendent of schools in Massachusetts. When he sees his associates getting nervous before a meeting with the school board, he’s been known to ask, deadpan, “Do they have guns?” People look at him strangely and shake their heads. So he smiles and says, “If they don’t have guns, then we’re all going home tonight. So don’t be nervous. It’s just a meeting.” Perspective.
Another thing I learned from the war is that there’s no substitute for behaving ethically, no matter what. Not surprisingly, unethical things happened in the war. People at all levels sometimes made unethical choices. They didn’t always tell the truth. Sometimes people died because of that. So I came away with a deeply ingrained belief that any successful enterprise, whether it’s a rifle platoon in combat or a company in business, must be based on honesty and ethical practices. It just doesn’t work any other way. Today I personally teach the ethics component of our new employee training to every new Yarco associate. I think it’s that important.
So do you think your ethics have changed Yarco?
I believe Yarco has always been an ethical company. It’s the nature of our founders and owners to behave ethically, and that was part of what drew me here. I’ve simply helped people at all levels understand the absolute commitment we have to ethical behavior: that we expect it from everyone, all the time.
So I can see that Yarco has a very good environment, one that you enjoy working in personally and professionally. In the affordable housing industry, is there anything that you would like to see changed?
Well, I love America’s political system, but it’s kind of … political. Every four years we may change political parties and we change focus and we become a conservative America or a liberal America depending on which party’s in office. Because of that I see fluctuation over time in the level of support being provided nationally and at the state level, for things like the HUD programs and state and federal Low Income Housing Tax Credits, and how they’re being made available. Those fluctuations directly affect the number of affordable apartment units available for the millions of people who need them. So if there were one thing that I believe could be done to positively affect the affordable housing industry, it would be to implement long-term consistency and a real commitment to making more funding and more excellent affordable housing programs available.
Would you change specific programs?
At one time HUD had 12 programs that were all incentive based and were designed to drive the production of new affordable housing units in America. When they did away with new project-based Section 8 funding during the Clinton administration and moved to the housing choice voucher pro gram, that pretty much killed the HUD development programs. A voucher has never driven the building of anything, and it’s way more expensive to administer a voucher program than the original project-based programs. So now the only real federal incentive to develop new affordable housing units is the Low Income Housing Tax Credit program, which is administered by the IRS and the states, and has its limitations.
As a result we’re seeing things like in the city of Flagstaff, Arizona, where if you want to build a new apartment community, you have to commit to set aside at least 15 percent of the units into a defined affordable housing program. There are no other incentives like credits, etc. Your only reward is that you get your deal approved by the city, and get your permit. They’re trying to drive the development of new affordable housing through permitting, and historically, that has mainly motivated developers to go somewhere else to build.
As far as new tax credit development goes, the number of credits being made available year over year are affected by many national and state factors, and they fluctuate pretty dramatically from one year to the next. And of course there’s the core issue that businesses must be profitable before they pay taxes, and therefore they must be profitable before they need the tax credits that ultimately fund development of new LIHTC properties. So this recent extended recession, which reduced profitability or even created operating loss for so many businesses, has drastically affected the market for tax credits, and further reduced new LIHTC property development. Meanwhile with job losses, the need for affordable housing has grown. So we have higher demand and reduced supply. It’s a tough situation.
Bottom line: Though this isn’t terribly specific, I’d like to see HUD, the IRS, and the states sit down and create more thoughtful, consistent, long-term, strategic initiatives to encourage new development and make sure there is adequate affordable housing for the millions of people in America who need it.
Why do you think there’s so much inconsistency?
Well, in the Tax Credit program it’s because the federal government decentralized the administration of Low Income Housing Tax Credits a number of years ago and went to a block grant type of program, insisting that the states administer the grants and manage the tax credit compliance programs. But the federal government didn’t really put a good set of standards in place for how the states should operate those programs. So we now have fifty inconsistent programs for the management of Low Income Housing Tax Credits.
What can we do to improve that?
Organizations like NCSHA and others try very hard to work with the states to achieve that consistency. In fact, companies like RealPage and Yardi and others who’ve been working with tax credit software have actually brought some consistency across the states just by the sheer economics of saying “here’s what will work the best if we all come together on it.”
Yet there’s still a wide range of approaches from one state to another in how those programs are administered. That adds a lot of cost to companies like mine because our compliance folks have to work with all those state programs, and they’re all a bit different. Money and time we spend dealing with inconsistencies is money and time we can’t spend trying to provide people with great places to live.
I’d like to see a federally driven initiative to create and enforce consistency in how the states manage the programs, to eliminate a lot of this waste.
What do you really like about the affordable housing industry right now?
Despite these issues, there’s a lot to like. Certainly I do see the industry and its participants maturing, including HUD, the state housing agencies, the contract administrators, software providers, developers and owners, and management companies. The industry has been around for a number of years now and we seem to be mastering its complexities, even with continued and frequent change. I think RealPage and the other major software suppliers have had a strong positive effect beyond what might be assumed, by taking leadership roles in some of the initiatives to standardize things like state tax credit reporting, and to help manage implementations of HUD handbook changes and other key changes for the management companies. While RealPage and Yardi and others compete aggressively with each other for business, key leaders at those companies like Gustavo Sapiurka and Janel Ganim of RealPage and Dave Kessler of Yardi, to name a few, work together behind the scenes to make sure these implementations are consistent and coherent for the users in the management companies. I applaud those key leaders for their sense of responsibility to the industry, and ultimately, to the people we all serve. Other leaders in other industries could learn a lot from their example.
If you’d like Gary to speak to your organization or at your event, you can contact him at email@example.com.