#336: Putting Together a Complex 300-Unit, 40B Multifamily Development Deal on Cape Cod with Pat Carino

In this deal segment episode with Pat Carino we break down one of the most unique deals featured on the podcast to date: a 300-unit, five-building ground-up development on Cape Cod, Massachusetts, acquired through the state's 40B affordable housing program on a 20+ acre site.

Pat walks through how the deal first surfaced through a social media message, how it came back to market through a broker four months later, and how NRP Group ultimately won the deal in a competitive process. The conversation covers the mechanics of 40B entitlements, why the Cape Cod market is more compelling than it looks on paper, how the town's own incentives aligned perfectly with the project's approval, and how the team is navigating the Massachusetts rent control uncertainty heading into November.

This episode is essential listening for any investor curious about how institutional ground-up development deals actually work — from 40B entitlements to construction type to exit planning — and what the Massachusetts legislative landscape means for multifamily development in 2025 and beyond.

Join us as we dive into:

• A clear explanation of Massachusetts 40B: what it is, how it works, why towns strategically support "friendly 40B" projects, and how crossing the 10% affordable housing threshold removes the tool from future developers
• Why wood-frame, surface-parking construction is Pat's preferred method — and how construction type, affordability requirements, and tax environment are the four key variables in any development site evaluation
• How NRP prices development deals: per approved/entitled unit — and why that structure protects both buyer and seller when final unit counts are still in flux
• How the capital stack works at NRP: traditional bank construction debt combined with institutional equity from pension funds and family offices
• Why Cape Cod is a stronger demand market than it appears: a large workforce commutes onto the Cape daily with almost no rental housing options — and this project fills that gap
• Pat's honest assessment of Massachusetts rent control: how NRP has stress-tested their underwriting against worst-case scenarios, and why a 10-year new construction exemption is at least partially reassuring
• State-level tailwinds: a proposed sales tax exemption on building materials and a fast-track provision for the MEPA environmental review process for qualifying projects

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Transcript

SPEAKER_00 0:00

What's up, everybody? I got Pat here. We're gonna jump into a development deal that he's worked on for our deal segment. This is gonna be a meatier one, I think, than than many of our deal kind of segment deep dives here where it's like we built or we bought multifamily property, we renovated, we leased up, successful outcome, learned a couple things. I think we're I think this is gonna be really interesting, and I'm excited to chat about this. So all right, everyone. Before we get to the rest of this episode, I have one simple and easy request for you, and that is to share this podcast episode or the podcast in general with anyone in your network who you think would find the content valuable. The only way we can grow this show is by sharing it with folks who we think will learn something from its content. So if you have someone in your network, whether it's a friend, a colleague, a business partner, your dog, the guy across the street, I don't care. If you think they would enjoy the podcast, please consider emailing it, texting, or sharing it with them however you see fit. As always, thank you for listening. You guys are the best, and enjoy the rest of this episode. Um, let's start with describing the property, or I guess in the situation, you know, maybe the site of the lot, market, lot size, propose, build, kind of the big kind of bullet points here.

SPEAKER_01 1:21

Sure. So this is a site on Cape Cod, over 20 acres. A local or regional developer bought it several years ago and have been going through the 40B process. Are you aware with that up?

SPEAKER_00 1:36

I was just gonna ask if you could dive into that. Yeah.

SPEAKER_01 1:38

Yes. So 40B is something where if a town doesn't have a certain amount of housing in the municipality that are deemed affordable, um developers can come in and use this state process to relieve them of certain zoning um obligations, and it just allows it's a mechanism to get more housing built. And so they took advantage of that, um, got it fully approved, and then went to sell it.

SPEAKER_00 2:07

And then that's where you guys came in on that?

SPEAKER_01 2:09

Yeah. Well, I actually I paused because I didn't know if I should keep on going. So the first time I saw actually was after they got it approved, and someone messaged me through social media and asked me to take a look at it. I had a meeting with the owners, they asked for terms that I couldn't meet. And then maybe like four months later, it came out with a broker, like a widely mark uh it became widely marketed. And I had done this initial homework, so that was helpful. And then, you know, I made it to the final round, and they picked us, and here we are.

SPEAKER_00 2:41

Got it. And then in terms of like size of like what you guys are planning to build, and yeah, that's the only other thing, too, there. Yeah.

SPEAKER_01 2:46

Yeah, so 300 units, five buildings, wood frame with elevators, slab on grade, all service parking, and then a separate clubhouse for the amendy building.

SPEAKER_00 2:55

So it's kind of it seems like that's like a middle, like down the middle of the fairway type of construction for you guys.

SPEAKER_01 3:00

Yeah, it's yeah, that's how we started. That's a preferred method, especially just because it's lower cost.

SPEAKER_00 3:05

Yeah, exactly. Got we talked about how you found it. What price? So the question I usually ask is what price did you buy it? But I believe you guys are still in the contract here. And and if you gotta hold some info back, feel free. But yeah.

SPEAKER_01 3:16

Yeah, it's it was a marketed deal, so it's not like we stole it. Um, but it it was at a number that was reasonable to us that was in line with comps in the market, like I was saying earlier today when I was speaking with you. Another institutional developer built on the Cape, and and and there were some like South Shore land sale comps, and so we were in the range.

SPEAKER_00 3:37

Got it. And and this isn't aside, this is more of a broad development question. Um like nomenclature or just quick conversational, like how do you define how you even talk about you know what you like the price that you have something like a project like this under contract is how you per approved unit, right? Or entitled to it.

SPEAKER_01 3:56

Yeah, yeah, per unit. So this and the reason we in in my kind of niche talk about that because you usually make an offer before the approvals. So this one's like a little different because it was fully approved, but usually make you go into it before you know exactly what how many units you're gonna have, and you're both buyer and seller motivated to get more units because the economy is a scale for the buyer, and then for the seller they want more money. And so you make an offer on on a per unit basis because you only are gonna pay for the units typically that you get approved. And become, you know, they can charge rent for and everything. And then there's usually a floor because the sellers don't want you to tie it up and then build a 20-unit project when you told them you're gonna build 200. Yeah, and it it's kind of you have a you have a goal, like a target.

SPEAKER_00 4:40

Got it, makes sense. Capitalization here. So let's talk about you know how you guys are, I guess, planning here, or I'm sure this is already like you know in process. You're you're starting to get you know, march towards closing here in some capacity, but debt equity, and and we never really talked about this in the the first episode we recorded, but obviously you guys are working with private investors. I mean, are is the investor kind of prototype, ultra high net worth individual, more retail folks, kind of family office money? Like so, I guess at a high level, how do you guys plan to finance and structure this one? And then maybe some commentary on where the the equity typically comes from.

SPEAKER_01 5:16

Yeah, we what I mentioned earlier to you is that our our platform has a more specialized model, and so we have a team, capital markets team, that does exactly this, both uh the debt and equity side. Uh the debt is traditional bank financing, and then on the equity side, it's typically other institutions, pension funds. Worked with some family offices. I think one of our Boston deals was a was a family office, but it's a range of the typical players you see kind of investing in an institutional-sized multi-family deals.

SPEAKER_00 5:49

Yep. A business plan. So, you know, obviously we're talking about building 300 some odd units or 300 units here. Is it going to be market rate, affordable components? What's the end use?

SPEAKER_01 6:01

So this was 40B, like I mentioned, and one of the requirements that I maybe left out of there is they allow you to sidestep some zoning as long as you include at least typically 25% of affordable units. And so of the 300 units, 25% are deemed affordable based on a certain percent of the local AMI in perpetuity.

SPEAKER_00 6:24

Is it like 80% or 50% or 80? Gotcha. That's actually 25% and 80% is not terrible, just in terms of what I know guys are typically building to, like where they're getting some of this you know, property tax relief in New Hampshire. It's usually some component of 50 or something like that. But but got it, that makes sense. What's gone better than expected, I guess, after you've gone under contract?

SPEAKER_01 6:50

The uh ability to make some changes in the site plans. So we like I said, this was fully, fully approved, but during due diligence, we did some homework and found ways to make the design more efficient. And so we had to go back to the planning board and and ask for some changes. And you know, our land use attorney told us a wide range of how long it might take, and it was like approved on the spot. Um and it kind of supported what the sellers had told us in the beginning was that the town really wanted this to happen, which isn't always the case. And I think part of the reason is that coming back to 40B, if if you get above that 10% threshold, which this project was gonna help them do, uh people can't use 40b to build more projects. So like a lot of towns will strategically, I think people local people call it like friendly 40B, will strategically like work with certain developers with certain land that are trying to get approved and like do help them get somewhere where both sides are happy, and then we'll like lift them out of the 10%, and then they can kind of like not be not be uh open to that.

SPEAKER_00 7:56

Yeah, so it's like this one project checks that box for you know that type of project in in in some ways, right? Where it's like we're gonna build this and then this isn't going to be a discussion point within this town in in the future, so to speak. Is that the thought process?

SPEAKER_01 8:11

Using 40B. They they they might have zoning that allows for housing in other parts of the city. But specifically, but 40B like lets you kind of do anything anywhere, and so once you're above 10%, you can people don't have that power anymore.

SPEAKER_00 8:23

Makes sense. What has gone maybe worse than expected after you've gone under contract?

SPEAKER_01 8:31

Honestly, this deal's gone pretty smooth. Um I guess I guess the the worst.

SPEAKER_00 8:35

I'm gonna knock on what even though the mics are gonna pick it up. Yeah.

SPEAKER_01 8:38

I guess the I guess there was an appeal like the very last day of the last approval. Not site plan, that one's done, but it was a uh uh wastewater treatment plant needed a a certain approval, and on the very last day there was an appeal, and we're working through it, but it just extended the timeline or might extend the timeline a little bit.

SPEAKER_00 8:57

We're kind of seem like a massive snag in its in and of itself, other than the kill the deal at all.

SPEAKER_01 9:04

It's just we think it's gonna be a process and again like add time.

SPEAKER_00 9:08

Yeah, exactly. And result, I mean, obviously you guys have yet to close, but it seems like this is gonna be a Bill Slisa sell situation.

SPEAKER_01 9:16

Uh potentially. Depends on who our equity partner is. They're usually the one that determines whether we stabilize it and and sell it so they can recycle their capital or not. Like I was telling you earlier, there's one one deal in in uh suburban mass up in Wakefield that we own and operate and we refinance a couple years ago, and so it's just in the portfolio. But but we'll see. This is we're excited about this one. It's a unique market, and I think there's a lot of demand, and we're gonna do that.

SPEAKER_00 9:38

A lot of barriers to entry down there on the Cape for housing, especially rental housing.

SPEAKER_01 9:43

So yeah, something that we that we learned throughout this process is like a very large percent of people that work, even though the Cape doesn't have this like huge, crazy growing employment base like closer to Boston, so many people commute onto the Cape for work that even if we capture a small percent of those people, like we could fill the building like this. And we're assuming that most people want to live closer to where they work, they just don't have the options. Yeah. So we're gonna be providing like this new option for people who live.

SPEAKER_00 10:14

Yeah, and then you as you mentioned earlier, and and as we talked about in the first episode there, like you also have the comp of of a similar build being leased up and there being demand and and all of that, which you know further supports that thesis. Exactly. You may have just touched on it, but but maybe you have another takeaway or lesson here. But you know, what what's been your biggest lesson or takeaway, either positive or negative from this deal?

SPEAKER_01 10:39

Also, another challenge I didn't mention is that there's uh there's rent control proposed in Massachusetts right now. Yeah, yeah. And so that we're you know waiting to see how that plays out. And we've we've uh adjusted our underwriting and think we're like looking at things in a conservative way and kind of under it in the worst case scenario of what could happen there, and it's still a strong deal, even with those things considered. Obviously, that's not ideal, and that's definitely a challenge working through. But then there's other some other kind of exciting things happening in in the state. Like they're uh I think considering a sales tax exemption on building material, which could be helpful, and they're they have some new laws that are uh moving the pro certain processes forward. We were past that on this deal, but like there's some other deals we're working on where uh like the MEPA environmental review process can be fast-forwarded if you hit certain criteria. So there's some good things happening too.

SPEAKER_00 11:28

Yeah, well, and it seems as if, well, I'm like, you know, I don't wanna I don't wanna make predictions here that end up not being true and then I look stupid, but um, it's trending towards rent control not passing in November based on all the preliminary voting and all of that, right? Again, we all hope. But um, but even if so, I think and and you probably even know this better than I do, even though I live in Mass, but you know, we only invest in New Hampshire, but the proposed legislation has some type of exemption, right? For for new development, it's yeah, it's a down-the-line, you know, you still have to underwrite that. Sure. And a buyer, if you guys are selling it, is still gonna underwrite that.

SPEAKER_01 12:04

That's a more important thing, yeah, exactly.

SPEAKER_00 12:06

Yeah. The the buyers of all the newly developed housing have to operate it, right? Or you know, newly developed rental housing still to operate it so it impacts, you know, maybe buyer demand and stuff like that. But we are trending in the right direction for that not to pass is you know, all the smart Massachusetts guys who are scared every day when they wake up seem to really believe that, and maybe it's a cope, but but but but it but preliminary like polling seems to be I don't know, positive in that respect. But anyways, who who knows? We we hope it goes it goes well in November.

SPEAKER_01 12:36

Yeah, everyone listening to this should donate again.

SPEAKER_00 12:38

Yeah, right. Um, this has been great. Thanks again for taking the time. Um for the audience, Pat's information is gonna be in the show notes as well as info for for Deal Nav, of which we're a subscriber of and which we use on a daily basis. And then if you're a real estate professional who's playing in the development space or looking at land and the northeast, certainly reach out. I mean, it seems like you guys are ready, willing, and able to pursue new projects.

SPEAKER_01 13:03

We are open for business.

SPEAKER_00 13:04

Love it. Awesome, and thanks again.

SPEAKER_01 13:06

Thank you.