Affordable housing experts offered strategies to help aging affordable housing properties reach their next stage of life at AHF Live: The Affordable Housing Developers' Summit.
About 10,000 properties built with low-income housing tax credits (LIHTCs) have reached their 15th year in operation, according to Jenny Netzer, CEO of Tax Credit Asset Management and the moderator of “Preservation of Older Affordable Deals,” a session at AHF Live in Chicago.
“The vast majority of these properties are awaiting their next phase of life,” Netzer said.
In booming real estate markets speculative buyers are highly motivated to buy older apartment properties and raise rents. “Multifamily is extraordinarily hot right now,” said Todd Crow, executive vice president and manager of tax credit capital for PNC Real Estate. Affordable housing developers can be at a disadvantage in this environment because they often have to wait to close the deal to buy a property until they win a fresh round of government funding, like housing tax credits.
Fortunately, developers may be able to access new forms of capital that can help recapitalize some types of affordable housing, such as of the federal Choice Neighborhoods program and the Rental Assistance Demonstration program. “RAD is going to be a huge piece of our future,” said Amy Anthony, president and CEO of Preservation of Affordable Housing.
In deeply rural areas, aging LIHTC properties face different problems—with different solutions. "This industry is so fixated on preservation, I don’t know if that is always valid in rural communities," said R. Lee Harris, president and CEO of Cohen-Esrey Real Estate Services, who moderated his own session on debt financing at AHF Live. In many rural towns, the income restrictions could expire at an aging LIHTC property and the property could still be affordable to moderate-income families earning 60 percent to 80 percent of the area median income simply because rents in the local housing market don't go much higher than that.
The challenge in these rural housing markets is often to create new housing since the local housing stock is often old and rental apartments hard to find. "How can you build something new in a smaller rural economy?" said Harris. "One way is to let an aging LIHTC development out of the program at the end of 15 years." A new reservation of LIHTCs that might have been used to recapitalize the old LIHTC property could be used instead to finance a brand new LIHTC property to serve that rural market. After all, that's the original goal of the low-income housing tax credit: to provide new affordable housing.