Multi-Housing News - July 2009 - (Page 21)

finance Tax Credit Industry Strives to Survive By Keat Foong, Executive Editor shortage of financing has virtually choked off much Low Income Housing Tax Credit (LIHTC) development. The situation on the ground may not have improved much since late last year, but housing credit players that have not been sidelined are meanwhile learning to survive. And the industry is hopeful that measures contained in President Barack Obama’s recently passed stimulus package will help to ease the way to more development. Created in 1986 under the Tax Reform Act, the LIHTC program has produced about 1.3 million apartments through 2005. The annual production levels under the program have been between 60,000 and 80,000 units in the mid-2000s. In 2008, $815 million in tax credit allocations were made, according to the National Council of State Housing Agencies (NCSHA). LIHTC allocations for a total of 74,663 apartment units were made in 2007, the latest year for which production data are available. The financial crisis of the past year removed one A of the top investors in tax credits: the financial companies. Because they suffered from lower profits, if not substantial losses, they no longer had the incentive to purchase the tax credits from developers, since these credits are usable only if the entities have taxable income. At the same time, gap financing may have become more difficult to obtain, as well as tax-exempt bond financing. As a result of the difficulty in obtaining financing, many developers could not commence with development, or make the numbers pencil out. Michael Massie, housing development manager at non-profit developer Jamboree Housing Corp., says that prices investors are paying today on quality tax credit housing developments have dropped to the mid- to high-70 cents per $1 range of tax credit—compared to more than $1 two years ago. And investor yield expectations for their investments in LIHTC housing have also increased to 9, 10 or 11 percent. “This does make the deals’ penciling out more difficult,” says Massie. And although tax credit investors that are still active are reportedly being attracted by the higher investment returns, they are being more selective. Massie observes that there is a flight to safety. Rural deals, deals in weaker markets and deals that come with a story are all harder to sell to investors, says Massie. “Even if the developer can make the deal pencil out at prevailing equity prices, some deals cannot sell because they are in unfavorable markets,” he says. And the Tax Credit Advisor reports that investors are also requiring larger and longer guarantees and larger reserves from developers. “Most of the investment entities have closed their doors and are not issuing commitments,” agrees Robert Greer, president of Michaels Development Co. “The remaining players are very, very selective. They only make the largest and best deals.” Among the developers who are still active, Greer says his company currently has 44 LIHTC projects underway in some stage of development, located in 27 states, Washington, D.C. and the Virgin Islands. The 71-unit Granite Court in Irvine, Calif. was developed recently by Jamboree Housing Corp. The development cost for the LIHTC project was $32.34 million. The architect is KTGY Group Inc. Photo by Juan Tallo.

Table of Contents for the Digital Edition of Multi-Housing News - July 2009

Multi-Housing News - July 2009
Contents
From the Editor
Executive Insight
Market Pulse
Profile
Market Report
Management
Case Study: Luxury
Finance
Kitchen & Bath
Products & Services
Tech Trends

Multi-Housing News - July 2009