The low-income housing tax credit (LIHTC) program’s strong record of property performance is seen across every project type--large or small, rural or urban, according to a review of 18,412 properties.
“The 2011 and 2012 nationwide median physical occupancy rate reached 97 percent, representing a high water mark for the industry,” according to Housing Credit Property Performance: A Performance Update Analysis by CohnReznick, a leading accounting, tax, and advisory firm.
Notably, there has been a “precipitous decline in the percentage of housing credit properties operating below breakeven,” according to the report, which covers approximately 1.4 million units. A property operates at breakeven when its net operating income after funding replacement reserves is equal to its debt service. “The percentage of housing credit properties operating below breakeven, which reached a high point of 35 percent in 2005, fell by 43 percent to 20.2 percent in 2012,” says CohnReznick.
Although one in five properties was operating below breakeven, only 10 percent of the surveyed developments was incurring per unit deficits in excess of $400.
The cumulative rate of foreclosure also remained just 0.63 percent through the end of 2012. That’s a bit higher than seen in the past, but foreclosure data may have been under-reported in earlier years, says CohnReznick, noting that the foreclosure rate of LIHTC properties continue to compare very favorably with those of other real estate assets.
Among the report’s other key findings:
- The median debt coverage ratio (DCR) climbed to 1.30x in 2012;
- 4 percent tax credit properties are performing as well as 9 percent credit properties;
- Properties set aside for senior tenants outperformed the overall portfolio by all measures in 2011 to 2012 (occupancy, DCR, and per-unit cash flow);
- Only 18.6 percent of properties operated below 1.00x DCR in 2012; as recently as 2002 this figure was 35 percent;
- Larger properties (101-200 units/property) had the lowest incidence of underperformance; and
- Financial performance was more heavily influenced by geographic location than any other factor.
The new report follows a long-term effort by CohnReznick to measure the performance of housing tax credit properties. This most recent study is the third in a series of reports published over the past four years.