Affordable Housing Institute : US

From time to time in these posts Watson has remarked on my many habits, such as the paradox (as he sees it) between my ordered mind and entirely disordered lodgings.

 

But his papers were my great crux. He had a horror of destroying documents, especially those which were connected with his past cases, and yet it was only once in every year or two that he would muster energy to docket and arrange them.

 

Now, this case was particularly interesting.

 

On one such occasion Watson took it upon himself to rearrange my papers, dragging up from archive an enormous chest, upon the opening of which I sternly commanded him to touch nothing.

“These are the records of your early work, then?” I asked. “I have often wished that I had notes of those cases.”

“Yes, my boy, these were all done prematurely before my biographer had come to glorify me.” He lifted bundle after bundle in a tender, caressing sort of way. “They are not all successes, Watson,” said he. “But there are some pretty little problems among them. Here’s the record of the Thetford litigation and its two-decade resolution, the case of Blackberry the thumbing wonder, and the puzzle of the post-mature partnership, and the singular affair of the flexible subsidy, as well as a full account of the envious attorney and his abominable accountant. And here – ah, now, this really is something a little recherche.”

He dived his arm down to the bottom of the chest and brought up a small wooden box with a sliding lid such as children’s toys are kept in. From within he produced a torn computer printout, a misshapen cube of amber with an object inside, some bent clasps from a bristol-board binder, a scroll of yellowing thermal paper whose ink had bleached invisible, and three rusty old seven-inch floppy diskettes.

 

Record-keeper boxes were stronger in the Victorian era

 

“It is a curious collection.”

Sherlock Holmes picked them up one by one and laid them along the edge of the table. Then he reseated himself in his chair and looked them over with a gleam of satisfaction in his eyes.

“These,” said he, “are all that I have left to remind me of the adventure of the Musgrave Ritual. Yes, Watson, the case where I first exposited the financing quilt.”

“The quilt!” cried Watson. “You have often spoken of it.”

Seeing that I must explicate or be condemned to an impenetrable refiling of my papers, I settled myself. My friend Musgrave had come to visit me when I was merely a starving clerk-typist. He wanted to be a developer — he had numerous property renovation schemes in mind — but he had been utterly unable to raise the financing for it.

 

“If one is to be a developer, one must look the part.”

 

‘I understand, Holmes, that you are turning to practical ends those powers with which you used to amaze us?’

‘Yes,’ said I, ‘I have taken to living by my wits.’

‘I am delighted to hear it, for your advice at present would be exceedingly valuable to me. My conventional bankers have been able to find no financing that meets my needs. It is really the most extraordinary and inexplicable business.’

You can imagine with what eagerness I listened to him, Watson, for the very chance for which I had been panting during all those months of inaction seemed to have come within my reach. In my inmost heart I believed that I could succeed where others failed, and now I had the opportunity to test myself.

 

Musgrave’s problem, as he sketched to me, was simplicity itself. He sought to develop a large multifamily affordable housing property, for which he was satisfied there would be ample demand, but he was unable to find it.

 

Our site visit revealed there would indeed be substantial demand.

No bank would lend him everything he needed. “I wish my great-great-grandfather were alive,” he concluded with despair. “He was a genius at this sort of thing. But all he left for advice was this little chant,” and he handed me this yellowed, barely legible thermal paper:

‘Whose is it?’

‘They who have funds.’

‘Who shall borrow it?’

‘He who does deals.’

‘Where do we start?’

‘With permanent bonds.’

‘What gain we next?’

‘Those who lend short.’

‘How span our gap?’

“Credit by long and by short, equity by slow and by fast, mezzanine by rent and by buy, sponsor by sweat and by pledge, and so closing.’

‘What does it cost?’

‘All that it’s worth.’

‘Why should we pay it?’

‘For the sake of the deal.’

“I have studied it many a night,” said Musgrave, “but other than the first four lines, which obviously refer to the relationship of banks and borrowers, I can make no progress.”

 

In similar fashion, Michael Milken wore a miner’s headlamp to read on the pre-dawn bus.

Hearing of his problem, I drew the housing consultant’s time-honored graphic: time on the horizontal axis, moving from left to right, money on the vertical, moving upward from none to sufficiency. “You need all of the money all of the time.”

It would be nice if we could simply roll out the financing … but we cannot.

“Yes.” Musgrave sighed with longing, bedazzled by the glowing green I had chosen. “That is what I have long sought. And failed,” he added bitterly.

“My dear Musgrave,” I replied with a touch of asperity, “if that was your dream you were always doomed to fail. No one source will provide all the capital, handing it as on a plate to you, with you having nothing at risk. And the reason is risk-reward ratio. For this investment, from inception to final repayment, which moment in time is the riskiest? Obviously the instant just after initial closing.” I tapped the left-hand line. At that moment, all of the capital is committed, but none of the value has been added. “And which is the riskiest dollar?”

“The last repaid,” Musgrave said, sitting forward. He tapped the uppermost point, labeled TDC for Total Development Cost. “That last pound is always the hardest to find because it has the first loss.” He shook his head. “The puzzle is insoluble.”

“Pshaw. I believe your ancestor solved it. And your ancestor’s ritual is a mnemonic that shows how.”

[Continued tomorrow in Part 2.]

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