Affordable Housing Finance

FINANCE

Tax Credit Equity

Goldman Sachs Plans for Growth

AFFORDABLE HOUSING FINANCE • October 2009

BY DONNA KIMURA

NEW YORK The Goldman Sachs Group has stepped up to fund several notable low-income housing tax credit (LIHTC) transactions, a sign of the company’s growing community development business.

The firm’s increased activities follow its recent conversion to a bank holding company and the emergence of Goldman Sachs Bank, which has meant a growing Community Reinvestment Act (CRA) obligation.

However, firm officials note that the company has been active in community development for years.

The Goldman Sachs Urban Investment Group (UIG) dates back to 2000 when it was formed to make principal investments in minority-owned and/or urban companies and real estate.

“Essentially, our Urban Investment Group is a double bottom-line real estate fund targeting private equity investments in underserved areas, focusing on emerging neighborhoods and emerging developers,” says Dan Nissenbaum, COO of the group. “This commenced before the firm had a regulatory obligation like CRA as we do now.”

To date, UIG has committed $700 million to businesses and projects nationally. Its investments have facilitated the creation of more than 5,000 units of housing as well as commercial and community space.

The corporation will do more in the wake of establishing Goldman Sachs Bank USA at the end of last year.

“Since that time, we’ve increased staffing in this area and built out a community development finance team,” says Nissenbaum. “At a time when there is a general contraction across the industry in lending and in investments, particularly in the LIHTC, we’ve actually been increasing the volumes in our community reinvestment programs, and in particular the LIHTC.”

The tax credit market continues to struggle as key investors have left or reduced their activities.

UIG officials did not disclose how much they invest in LIHTCs, but with new CRA requirements and increased opportunities, the level of investment will be significantly higher this year than in the past.

“Given that Goldman Sachs Bank has maintained average assets of roughly $130 billion to $140 billion, we’re ramping up a CRA program that’s commensurate with the size of the bank, so there will be a significant expansion,” says Nissenbaum. “Other areas of the firm, which focus on tax-advantaged investments, are also making LIHTC investments. Across the firm, we’re looking at primary purchases and secondary-market purchases.”

The group recently became the sole investor to fund a major New York City-sponsored redevelopment that is co-managed by the Local Initiatives Support Corp. and Enterprise, according to officials. Responding to a significant capital gap, UIG agreed to fully finance a nearly $60 million equity fund via the purchase of LIHTCs.

“Across the firm, we expect to be involved in a significant number of LIHTC transactions by the end of the year,” says Nissenbaum. “We expect to close somewhere between five and 10 deals on a direct basis.”

Goldman Sachs Bank, based on the bank’s footprint, will focus the investment program in New York City, northern New Jersey, and the Salt Lake City metropolitan area in addition to federally designated disaster areas, including the Gulf Coast. It recently made a $60 million investment in the rebuilding of the C.J. Peete Apartments complex in New Orleans.

However, between UIG and other units in the company, Goldman Sachs makes LIHTC investments nationally.

New post at NHC

Nissenbaum stepped into another role this year—chairman of the National Housing Conference (NHC). “NHC’s leadership will continue to promote and propel key focus areas, including, first and foremost, foreclosure prevention and neighborhood stabilization,” he says. “That’s the issue of the day.”

In concert with other groups, NHC successfully advocated for about $4 billion of federal funding for post-foreclosure neighborhood stabilization efforts. In addition, the organization is working to coordinate a policy response to really address the issue of foreclosure prevention, particularly looking at approaches to loan modifications.

A second issue will involve the reform of the secondary market. “We’ve got to get back to a place where the secondary market serves the affordable housing industry whether that’s the government-sponsored enterprises or the Federal Home Loan Banks or other participants,” says Nissenbaum. “We need to make sure the mainstays remain in place, and that strong and sustainable long-term capital sources exist to support state and local housing goals.”

On a third front, transit-oriented development and green initiatives will continue to be important topics for NHC. “It’s a crucial moment in time when we have a president who knows the importance of these issues, a federal housing secretary who is well steeped in affordable housing, and financial-sector and banking regulators who want to promote community reinvestment,” says Nissenbaum. “That alignment provides us with an important opportunity.”