Tax credit equity

Strong activity seen in LIHTC market as new investors show interest

by Donna Kimura

Low-income housing tax credit (LIHTC) investors and syndicators are looking to finish the year off strongly after an impressive third quarter. A surge of activity during the last few months has put several syndicators on their way to beating equity-raising marks set last year.

“It is a possibility that the surge will extend into the current quarter and into 2003,” said Don R. Reynolds, executive vice president of MuniMae Midland. Continued investor interest will depend on stable capital markets, domestically and abroad, plus overall improved corporate earnings, he said.

New investors continue to enter the LIHTC market. Most recently, life insurance companies, an important component of the institutional investment market, have begun showing interest.

New York Life Investment Management officials confirmed that they are weighing various tax credit opportunities. They characterized their status as being in “evaluation mode.” Met Life and Northwestern Mutual have also reportedly invested or shown interest.

It’s unclear how many of these firms have entered the LIHTC market, but there is a “moderate increase” in interest, said Jerry Crute, Jr., associate director of investment research at the American Council of Life Insurers.

Housing tax credits are well suited to the long-term investment strategy of life insurers and would allow them to diversify their portfolios, Crute said.

United Parcel Service has also reportedly been evaluating the market, which is significant considering that most major LIHTC investors are still banks. One industry authority also said that Morgan Stanley has invested in LIHTCs.

Bank One Capital Corp. in Chicago said it plans to expand its tax credit investment activities from about $200 million this year to $300 million in 2003.

Nationally, the average price paid per dollar of tax credit has been about 79 cents. Yields have been about 7.5% for nonguaranteed deals, but many national investors are demanding 8% or higher.

Despite the overall health of the market, said one expert, small deals are facing problems because the big syndicators are focusing on deals that are at least $2.5 million. The recently closed third quarter was a big one for many syndicators.

Apollo Housing Capital raised $20.5 million in the quarter and acquired 13 projects. “Investments in the fourth quarter will be driven by the needs of the investor to add value to the bottom-line earnings of the company,” said Jack E. Griffiths, chief operating officer of the Cleveland firm. “We feel the fourth quarter is going to be strong for Apollo.”

He said that investors continue to be concerned about real estate fundamentals. “Yield is important, but the longevity of the property is critical,” Griffiths said.

Boston Capital raised $75 million in the third quarter and acquired 34 projects, including 20 bond deals; 14 were 9% tax credit deals, said Jeffrey H. Goldstein, executive vice president and chief operating officer. The firm expects to raise about $350 million this year, up from $275 million in 2001.

Michel Associates in Boston acquired four projects during the third quarter. President Kenneth Michel said his firm will raise about $30 million to $40 million in equity this year, doubling last year’s numbers.

MuniMae Midland reported raising $22 million in the third quarter and acquiring 11 projects. The firm, based in Clearwater, Fla., is on track to raise $150 million to $175 million this year, an increase from 2001.

The National Partnership Investments Corp., which was acquired by the Apartment Investment and Management Co. (AIMCO) earlier this year, is finalizing a business plan and “structuring an expanded program as a result of our new relationship with AIMCO,” reported Charles Boxenbaum, chief executive officer of the Beverly Hills, Calif., firm.

Raymond James Tax Credit Funds raised $44 million and acquired 21 projects in the last year, said Steve Kropf, vice president. The St. Petersburg, Fla., firm projects raising about $150 million this year.

Related Capital Co. and its affiliate CharterMac, both in New York, announced that they provided $11 million of debt and equity financing to the PRS Companies of Roswell for the development of Magnolia Commons, a 192-unit affordable housing complex in Vicksburg, Miss. They also provided $10 million of debt and equity to Northwest Pasadena Development Corp. for the rehabilitation of Community Arms, a 133-unit affordable housing complex in Pasadena, Calif. In another deal, the companies provided about $18 million to Picerne Development Corp. for the development of Emerald Bay Apartments, a 248-unit project in Houston. All three projects involved tax credits.

Related Capital is also investing $5.7 million in LIHTC equity in Henson Ridge, the first phase of a HOPE VI project in Washington, D.C. Mid-City Urban and Integral Properties is jointly developing the complex, which will consist of 124 townhomes and apartments.

The Richman Group raised $97 million and acquired 20 projects during the third quarter, reported Stephen B. Smith, executive vice president in Arlington, Va. The company will raise about $525 million this year. “We anticipate that prices will remain reasonably flat,” Smith said. “Investor demand seems to be up, but so is the supply of properties.”

WNC & Associates, Inc., in Costa Mesa, Calif., raised $50 million during the third quarter and acquired 13 projects. “I believe the surge will continue due in part to the increase in available tax credits,” said David Shafer, executive vice president. However, properties that perform well in strong markets are needed to keep investors interested, he said.

WNC has raised more than $110 million of equity so far this year with the closing of three institutional funds in the third quarter. The funds included a $39 million national fund, a $50 million New York regional fund and a $16 million California regional fund. The company raised an additional $8 million with its 17th public fund. This year, WNC has acquired 43 properties in 16 states. Consistent with the firm’s relationship philosophy, 75% of WNC’s property acquisitions this year are being developed by “repeat” developers with the firm.

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