Entering the new year, there were some signs that the recent pricing pressure in the low-income housing tax credit (LIHTC) market was starting to ease.

This comes after the price per dollar of tax credit reached new heights in 2005. While good for developers, the strong prices concerned others who worried about eroding terms and the possibility of investors pulling back their participation.

The different interests and forces could converge for an especially critical year for the LIHTC program, which celebrates its 20th anniversary in 2006.

“We’ve seen pricing stabilize in most markets and a continued focus on credit delivery from investors,” said Joe Hagan, president and CEO of the National Equity Fund, Inc. (NEF).

NEF, which had nearly a 15% growth in production in 2005, reports seeing a continued focus on a project’s market advantages, especially when it comes to utility costs and property taxes. “With per-credit prices so high, everyone wants to make sure that these projects will perform as expected in their markets,” Hagan said, noting continued pressure on underwriting terms. “Our approach is to consider each project individually. We’re not willing to take on a host of future asset management problems just to win a deal, but we want to recognize developers’ varying abilities to deal with unforeseen challenges and make adjustments to our underwriting as appropriate.”

Deals will be underwritten and executed even more carefully.

“With yields down, investors are requiring more conservative underwritings,” said Jack Griffiths, chief operating officer at Apollo Housing Capital. “They are asking more ‘what if’ questions and want us to stress the underwriting. This is a positive step for the industry but will widen the spread between the very good ‘trophy’ deals and the deals that may be a little tougher.”

If developers continue to push for the highest prices, investors may get harder on “special requests” from developers post-closing, Griffiths said.

Thinking about how 2006 might differ from last year, Michael Costa, president of Simpson Housing Solutions, LLC, noted that investors are seeing higher returns in other investment vehicles. “Therefore, they will become more selective, paying attention to quality of product, location, market and their returns, specifically related to tax credit opportunities.”

Syndicators point out other issues.

“Our biggest concern is that there will be an inefficiency in the marketplace, between investors’ yield demands and developers’ pricing demands,” said Andrew Weil, managing director at CharterMac Capital. “If the market fails to normalize, there could be some disruption.”

Unsustainable prices and a falloff in investor demand are concerns, said Todd Crow, director of institutional sales and portfolio management at PNC MultiFamily Capital.

Jeff Goldstein, executive vice president and chief operating officer at Boston Capital, also cited uncertainty in prices and yields in a rising interest rate environment as a concern heading into 2006.

NEF’s Hagan added that the Department of Housing and Urban Development’s 2530 process continues to be a big issue for investors. “Investors have been so frustrated by the process that many are only investing below the 25% level that triggers the requirement,” he said.

The industry will also be keeping a close watch for other possible trends.

“Good deals are harder to do,” said Joseph Resende, president of Franklin Capital Group. “Many potential properties are only marginally feasible. Interest rate and construction and utility cost pressures could take a toll.”

Carl Wise, senior vice president at Alliant Capital, said there is increased complexity in deals industrywide. “We are also seeing increased construction costs,” he said, attributing the rise to a demand for materials.

Outside events, including rising interest rates and tax legislation, are also concerns for the market, Wise said.

Alliant Capital raised $480 million and acquired 68 projects in 2005. Forty-five of the projects had 9% tax credits, and 23 were tax-exempt bond deals with 4% credits. In 2006, the firm is hoping to raise $600 million and acquire about 78 projects.

Wise said the firm will continue its movement toward more Web-based reporting and diligence processes.

Like several others in the industry, he predicts that prices will stabilize or moderate. “We do not anticipate the rapid increase in price that we saw in 2005,” he said.

Apollo Housing Capital raised $329 million and acquired 58 projects in 2005, according to Griffiths. The deals included 36 projects with 9% tax credits, 21 with bonds and 4% credits, and one with historic tax credits.

The firm wants to raise about $450 million in capital and acquire about 85 projects in 2006, he said.

Apollo Housing Capital will continue to do proprietary funds for its core investors but will also begin to market a national multi-investor fund in 2006. The company is also planning on providing more debt products for developers this year.

Boston Capital raised $600 million in 2005, including $260 million in the fourth quarter. The firm acquired 89 projects during the year, including 52 deals that featured 9% tax credits. Twenty-two projects utilized bonds and 4% credits, and another 15 were Farmers Home Administration deals.

The company hopes to raise about $650 million in capital and acquire 95 deals in 2006, said Goldstein.

CharterMac Capital, formerly known as Related Capital Co., reported raising $1.1 billion in capital and acquiring 133 projects last year. The firm’s deals included 70 projects with 9% credits, 56 projects with bonds and 4% credits, and seven historic tax credit projects.

It is looking to raise about $1.2 billion and acquire 140 projects in 2006.

The firm is launching Centerbrook Financial, LLC, a joint venture between CharterMac and Ixis Financial Products, Inc., that will operate as a subsidiary of CharterMac and will provide AAA-rated credit intermediation products. “Once Centerbrook is off the ground, we expect that it will wrap our guaranteed funds,” said Weil.

With Centerbrook, the firm will be able to be more active in states that had primarily required a rated execution for 4% bond deals, he said.

Franklin Capital Group raised $50 million in capital in 2005, including $25 million in the fourth quarter. The firm acquired 17 projects during the year. Thirteen involved bonds and 4% tax credits. Four were projects with 9% tax credit deals.

Franklin is looking at raising about $75 million and acquiring more than 20 projects in 2006, according to Resende.

“Equity pricing will stabilize or modestly decrease,” he said when asked how the market will be different this year.

Resende also said “there should be a greater focus on deal quality, markets and underwriting.” But, it was unclear if any meaningful trends had surfaced so far this year.

MMA Financial raised $1.3 billion, including about $555 million in the busy fourth quarter, and acquired a total of 145 projects in 2005. Ninety-three of the projects were deals with 9% tax credits, and 50 had bonds and 4% credits. The firm also had a pair of historic tax credit projects.

MMA Financial hopes to raise another $1.3 billion in 2006 and acquire another 170 projects, according to David Robbins, managing director of tax credit investment sales.

National Equity Fund, Inc. (NEF), raised $630 million in equity and acquired 112 projects in 2005. The company provided equity to projects in 32 states. The acquisitions included 76 deals involving 9% tax credits.

NEF is looking at raising $675 million in capital and acquiring 120 projects this year.

“2006 will see us continue to build on our general market share, with a particular focus on public housing, supportive housing and preservation,” Hagan said. “These are all areas where we think we add value in ways most of our competitors do not.”

NEF has a strong track record in supportive housing. In addition, the company saw an increase in the number of its public housing and preservation deals in 2005.

Traditionally NEF has worked with nonprofit community development corporations to build affordable housing. While that effort continued, the firm worked with for-profit developers as well in 2005, closing some 30% of its deals with these partners.

Paramount Financial Group, Inc., reported raising $524 million in capital in 2005. Out of the 110 projects that the firm acquired during the year, 82 involved bonds and 4% tax credits, 27 utilized 9% credits, and one featured historic tax credits, said Russell T. Ginise, senior vice president of acquisitions. Looking ahead, the firm reported that it hopes to raise about $825 million in 2006.

GMAC Commercial Mortgage Corp. recently made a change when it hired industry veteran David Sebastian as senior vice president/ managing director in charge of the LIHTC division. Paramount is a GMAC subsidiary.

The company is “alive and well” and continues to syndicate tax credits, Sebastian said at the beginning of February. Rumors have been circulating in the industry about Paramount’s status.

Two members of the company’s acquisitions team left the firm toward the end of 2005.

The firm has been known for its guaranteed products and will continue to offer those as well as provide more nonguaranteed funds, said Sebastian, who had most recently served as president of PNC MultiFamily Capital.

He said he joined the GMAC team because its platform represented a great opportunity, and it is one of the firms that can lead the industry.

Looking at the market, Sebastian said the main concern for the industry will be pricing. The issue is “how far we can push pricing and how much investors will accept,” he said.

PNC MultiFamily Capital raised $460 million, including $182.5 million in the fourth quarter, and acquired 62 projects in 2005.

The acquisitions included 38 projects featuring 9% tax credits and 19 with bonds and 4% credits. Five projects utilized historic tax credits.

The firm is looking to raise about $550 million and invest in 75 deals this year.

Some of the pricing pressure may tail off, but it will still be competitive for superior assets in 2006, according to Crow.

Some of the underwriting focus will be on construction costs, operating expenses and the impact of hurricane relief, he said.

Raymond James Tax Credit Funds, Inc., raised $350 million in 2005. Of the 93 projects that the firm acquired, 85 were 9% tax credit deals and eight involved bonds and 4% credits, according to Steve Kropf, vice president.

Looking ahead to 2006, he said the firm hopes to raise more than $400 million and acquire more than 100 projects.

The Richman Group Affordable Housing Corp. closed on $910 million in 2005, including $419 million in the fourth quarter, reported Stephen B. Smith, executive vice president. The firm acquired 114 projects, including 80 deals financed with 9% tax credit deals. Twenty-five projects used bonds and 4% credits, and nine involved historic tax credits.

The Richman Group is looking to raise in the neighborhood of $900 million to $1 billion in capital and acquire around 125 to 135 projects in 2006.

“We are predicting that tax credit prices will stabilize and may decrease modestly,” Smith said.

Simpson Housing Solutions, LLC, raised $141 million in equity, including $80 million in the fourth quarter, and acquired 15 projects in 2005.

The firm’s 2006 funds will have a higher mix of its own developments and products from developers that the firm has had long-standing relationships with, according to Costa.

The firm is looking to raise about $150 million and acquire another dozen projects in 2006, he said. The funds will highlight a targeted focus on the best markets in the West, including California, Arizona, Colorado, New Mexico and Nevada, Costa said.

WNC & Associates, Inc., a longtime LIHTC syndicator, continues to grow its business, said Will Cooper Jr., president and CEO. As part of its diversified approach, one of its efforts has been the resyndication of older affordable housing developments, he said.

The firm has a goal of raising about $350 million in capital in 2006 after raising about $225 million last year, he said.

The company also recently closed on a brownfield tax credit investment in New York.

WNC also announced that it has formed an alliance with the American Bankers Association (ABA) to work with ABA members utilizing New Markets Tax Credits (NMTCs).

The NMTC program is aimed at helping stimulate investments in low-income communities.

Under the alliance, WNC is requesting $150 million in NMTCs from the U.S. Treasury. If the request is approved, WNC and ABA will provide ABA members access to New Markets credits.

WNC received a $50 million NMTC allocation in 2002.

Tax credit activity


Price (cents)

Upfront Pay-in*

2005 Equity Raised (millions)

2005 Projects

2006 Equity Goal (millions)

2006 Projects Goal

Alliant Capital







Apollo Housing Capital







Boston Capital







CharterMac Capital







Franklin Capital Group







MMA Financial







National Equity Fund







Paramount Financial Group, Inc.







PNC MultiFamily Capital







Raymond James Tax Credit Funds







Affordable Housing Corp.   .96   N/A   910   114   900-1,000   125-135            
Simpson Housing Solutions   .90-.94   10-65%   141   15   150   12            
WNC & Associates, Inc.   N/A   N/A   225   N/A   350   N/A            

* ”Pay-in” is the percentage of funds paid upfront (on closing of operating partnerships).

Source: Affordable Housing Finance survey, January 2006