Worries Grow Over Major Portfolio Sales

AFFORDABLE HOUSING FINANCE • July/August 2009

BY DONNA KIMURA

The possibility of Freddie Mac and Fannie Mae selling a large portion of their lowincome housing tax credit (LIHTC) portfolios looms over the struggling tax credit market.

It’s a scenario that sets off fears because a large secondary sale could sap investor money from new investments.

MMA Financial Sold to JEN Partners

MMA Financial, a prominent low-income housing tax credit (LIHTC) syndicator, is being sold to an affiliate of JEN Partners, LLC, a New York-based private equity firm. The new business will be called Boston Financial Investment Management, a name that recalls the firm’s history when it was known as Boston Financial and emphasizes its investment management business, say the buyers.

Kenneth J. Cutillo will serve as CEO of the company, which will continue to be headquartered in Boston.

The new owners plan to keep most of the firm’s 115 employees, says Allen Anderson, managing director at JEN Partners, noting that some have been there for 15 or 20 years and have built an excellent track record.

JEN Partners invests in firms to help them grow and intends to invest in the new company, says Anderson.

“We would like to grow the asset management business, re-enter the syndication market, and look to take advantage of opportunities to be an industry consolidator,” he says.

The deal involves the acquisition of 1,572 properties plus the asset management contracts for another 166 properties.

MMA Financial is a subsidiary of Municipal Mortgage & Equity, LLC, better known as MuniMae. MuniMae announced reaching an agreement to sell substantially all of its LIHTC business to JEN Partners for an aggregate consideration of about $30.7 million, consisting of $18.7 million to be paid in cash and about $12 million in liabilities to be assumed by the buyer.

MuniMae will keep control of its interests in certain guaranteed funds.

Although the government-sponsored enterprises (GSEs) are tightlipped about their plans, speculation has been growing about a possible sale. The Affordable Housing Tax Credit Coalition (AHTCC) voiced its concerns in a recent three-page letter to congressional leaders, and the National Association of Home Builders also recently penned a letter to key members of Congress, saying that a large sale could further depress tax credit prices.

“We believe that the sale or even the potential sale by either Freddie Mac or Fannie Mae of its existing portfolios is having a chilling effect on the market for new housing tax credits and will affect the production and preservation of affordable rental housing,” says the AHTCC.

A Freddie Mac representative would neither confirm nor deny that a sale is in the works.

In the meantime, industry members are offering some ideas. The AHTCC believes the GSEs should be permitted to use their credits to repay dividend payments owed to the federal government, which would help mitigate their need to sell LIHTCs.

If the GSEs are allowed to sell their portfolios, the AHTCC urges several restrictions be put in place. The most notable is that a sale not be made to current investors or firms that have bought credits in the past 10 years. For more, visit www.taxcreditcoalition.org.

‘Close like a barbarian’

A sale would come on top of an already anemic LIHTC market.

The first half of the year was disappointing, says David Smith, CEO of CAS Financial Advisory Services, explaining that it has taken time to roll out the Tax Credit Assistance Program and the tax credit exchange, two features of the American Recovery and Reinvestment Act intended to jump-start stalled LIHTC projects.

“It’s had the unintended effect of slowing down formation of new demand,” he says. Smith estimates that the market will be about $4 billion to $4.5 billion in 2009. About 70 percent of the 2009 credits would be sold in his estimate, leaving a substantial overhang for 2010. A large secondary-market sale could lead to even more credits being pushed into next year.

The second half of 2009, especially the last quarter, will be interesting. For some investors, if they do not invest their annual budget allocation, they lose it. It doesn’t carry into the next year. “If there is a substantial crunch in the fourth quarter, some investors may decide to close like a barbarian—that is, close it somehow, with whatever protections or adjusters you need—rather than risk missing their internal operating budget allocation and losing a deal entirely,” says Smith.