Boston Jack Manning, one of the deans of the low-income housing tax credit (LIHTC) industry, has several key issues on his radar screen this year.
The president and CEO of Boston Capital Corp. has on his watchlist the rebuilding efforts in the Gulf Coast and possible accounting changes that could affect the overall industry.
Like several others in the LIHTC business, he is also looking for ways to diversify. Boston Capital started a market-rate multifamily initiative in 2002 that has grown to have an asset value of about $500 million.
Affordable housing, however, continues to be the company’s core business. Firm officials recently said they want to raise about $650 million in LIHTC capital and acquire 95 projects nationwide in 2006.
This year, the company is also launching the Boston Capital Affordable Housing Mortgage Fund, LLC, which will invest in fixed-rate, first-priority mortgages collateralized by LIHTC properties.
The fund will originate construction, permanent and construction/ permanent loans between $750,000 and $10 million.
It will target new construction or properties involving substantial rehabilitation in which Boston Capital is the tax credit investor. The terms would be for 20 years, and interest rates are expected to be 235 basis points over the 10-year Treasury and will be fixed for the entire loan period.
Starting with about $125 million, the new fund is aimed at helping developers obtain debt and equity at one place, said Manning. All loans will be underwritten to Fannie Mae Delegated Underwriting and Servicing guidelines.
The LIHTC program is coming off a huge year when there was lots of equity and lots of high prices being paid for tax credits. That led to much speculation that investors would be calling for higher yields this year.
Those higher returns, however, hadn’t materialized as of mid-February, according to Manning, who watches the developing storylines as closely as anyone. Instead, prices and yields were pretty flat, except for the major Community Reinvestment Act states like California and New York, he said.
A clearer picture of where the market is headed should emerge soon, said Manning, who noted that several of the big states will be making their 2006 LIHTC reservations in the next 60 to 90 days.
Developers are going to have to keep a close watch on equity prices and yields, interest rates and the cost of construction and land – all areas that could affect deals in 2006.
The Gulf Coast rebuilding is another important issue for the industry. Congress created a Gulf Opportunity (GO) Zone and has approved special annual allocations of $18 per capita
in housing tax credits for Alabama, Louisiana and Miss-issippi for their GO Zone populations for 2006 through 2008.
“We’re obviously looking at a number of transactions in the GO Zone,” Manning said. “But there are a lot of impediments to getting construction going.”
For example, only about 50% of the demolition work has been completed in Mississippi, a state that has been very aggressive about rebuilding, Manning estimated.
Although the GO Zone credits are available this year, he thinks most developers will be looking to obtain a reservation in 2007 and 2008.
If there is a silver lining to the recent hurricanes, it is the increased opportunity to use housing credits and to show what the program can accomplish, he said.
There’s another potentially troubling development brewing.
It involves recent positions taken by the Public Company Accounting Oversight Board (PCAOB) and the Securities and Exchange Commission (SEC). It stems from the Sarbanes-Oxley Act of 2002 and the accounting standards that resulted from the legislation.
In general, the PCAOB issued guidance saying that audits of operating partnerships in which LIHTC funds have invested must be performed to PCAOB standards if investment in such a fund is offered to the public. The SEC recently interpreted this standard in a manner that could make LIHTC properties sold to the public economically unviable, according to the Housing Advisory Group, an organization started by Manning and other housing leaders to educate lawmakers about the LIHTC program.
The position generally applies the standards developed for auditing large, publicly held corporations to affordable housing partnerships. The concern is that there would be substantially increased costs at both the operating and limited partnerships levels for the annual audits of the properties and the funds that hold them.
RBC buys Apollo Housing, MMA reorganizes
Cleveland RBC Capital Markets has purchased low-income housing tax credit (LIHTC) syndicator Apollo Housing Capital.
RBC had owned 80% of Apollo since March 2000. It recently bought the remaining 20%, announced officials from both companies.
The senior management team at Apollo, including President and CEO Tom Rini and Chief Operating Officer Jack Griffiths, will continue to operate the business. The purchase price was not disclosed.
“We at Apollo recognized the opportunity to build out a housing platform of financial capital markets products,” Rini said.
The alignment will bring together the tax credit equity capabilities of Apollo with RBC’s debt products. It will also allow for greater geographic coverage. Cleveland-based Apollo has four offices in four states, and RBC Capital Markets has 26 offices in 16 states, according to Bill Jandrisits, RBC managing director.
The move will allow the companies to provide financing from predevelopment to the permanent financing stage, according to officials.
RBC Capital Markets is the investment banking arm of RBC Financial Group, the global brand name of Royal Bank of Canada. In 2005, the bank was ranked sixth in the United States in multifamily housing bonds and was the second most active underwriter in the multifamily sector.
Apollo raised roughly $330 million in LIHTC capital in 2005. “In the longer view, we think we can grab a significant market share,” Rini said.
The recent sale to RBC may signal a larger trend in the LIHTC business. Providing tax credit equity is a finite business, so several firms may move to consolidate or offer other products, Rini said. Additional changes or reorganizations in the tax credit market are expected.
MMA announces changes
MMA Financial, one of the nation’s largest syndicators, recently announced a reorganization that establishes two major business groups – affordable housing, and real estate finance and investment management.
Executive Vice President Gary Mentesana will lead the affordable housing group, which combines the tax credit equity and the tax-exempt and taxable lending businesses. Executive Vice President Jenny Netzer will focus on developing new tax credit and affordable housing finance products, and Executive Vice President Frank Creamer Jr. will be responsible for broadening relationships with financial institutions and pensions funds.
Greg Judge will be responsible for national tax credit equity production and underwriting. Chris Tawa will lead national affordable housing debt productions. Chris Levey will be chief capital officer. Jeff Muller will head credit and asset management, and David Robbins will be in charge of raising capital in the tax credit business.
The real estate finance and investment management group, which is responsible for market-rate multifamily and commercial financings, will be headed by Executive Vice President Charles Pinckney.