COLUMBIA, MD.—Charles Werhane has taken over Enterprise Community Investment, Inc., at a critical time.
The organization is best known as a syndicator of low-income housing tax credits (LIHTCs), the prime source for affordable housing funding for more than 20 years. However, the tax credit market has been reeling for the past year from the withdrawal of two of its most prominent investors, Fannie Mae and Freddie Mac. The economic downturn has also forced other companies to curb their LIHTC investing.
“I think the biggest challenge is maintaining stability with our developers and our investors given the financial climate that's out there,” says Werhane, who took over as president and CEO from Jeffrey Donahue, who retired in April. “They each have different issues. The development community, which we're very close to, they're shocked as to what's happened in the last two years. We're working with them to get the pipeline going again.”
Part of that will be to work with others in the industry for legislative changes aimed at making the LIHTC more flexible and appealing to new investors.
Despite the tough market conditions, Enterprise raised approximately $660 million in tax credit equity last year. The firm's recent funds included a $40 million California green fund that will help finance 500 energy-efficient housing units in Los Angeles, Oakland, and San Francisco. The investors were U.S. Bancorp Community Development Corp., Wells Fargo & Co., Merrill Lynch Community Development, and MetLife, Inc.
“2008 was a good year for the company, but we recognize the dislocation that's going on in the market,” says Werhane. “We realize this year may not be as good as that.”
That understanding is reflected in the company's early projections: Enterprise hopes to raise in the neighborhood of $400 million to $450 million in LIHTC capital this year.
Following the success of the California green fund, Enterprise plans to launch a similar fund this year that will target green projects throughout the West Coast.
It is also exploring the idea of creating some smaller, regional funds, possibly in the Midwest and the West Coast.
Werhane says the LIHTC market is about where he expected it to be at this point but notes that some investors have been a little more optimistic than he anticipated.
Growing FHA business
In addition to managing Enterprise's tax credit syndication, Werhane will oversee the company's multifamily mortgage finance and structured finance products.
The firm's biggest area of growth has been in Federal Housing Administration (FHA) loans.
“Over the last two years, we have really tried to grow our FHA debt business,” says Werhane, who has been with Enterprise since 2001 and was recently vice chairman and COO. “That was a start-up business for us, but now it is generating a significant pipeline of deals.”
The FHA pipeline has grown from zero loans two years ago to just under $200 million, with some of those transactions closing in 2009 and others in 2010.
FHA loans have become a preferred product for the industry as private institution loans have become more difficult to obtain. Roughly 70 percent of Enterprise's pipeline is the refinancing of existing properties, and 30 percent is new construction.
Looking ahead, Werhane says another big part of his job this year will be implementing a new strategic plan that calls for further blending of all of the Enterprise entities.
The company will also examine new areas for Enterprise to grow, including funds, such as one for green retrofitting, that may come out of the recent economic stimulus bill. For more information, visit www.enterprisecommunity.com.
Boston Capital Closes LIHTC Fund
Boston Capital announced the closing of Boston Capital Tax Credit Fund XXXI, with $120 million in total equity invested. The fund's portfolio includes 12 developments for seniors and 18 properties focused on families in a dozen states.
“At a challenging time for the U.S. economy and the credit markets, we are very pleased to close a fund, consisting of high-quality assets and strong investor interest in these assets,” said Jack Manning, president and CEO of Boston Capital, in a statement.
The properties in the recent fund will add 2,109 apartments to the firm's holdings, which total more than 170,000 apartments. With the closing, Boston Capital has invested $640 million in equity since January 2008.
For the balance of 2009, the firm expects to launch and close two multi-investor national funds totaling $200 million to $250 million.
It will also continue to close business with its proprietary fund relationships, which will account for a significantly larger portion of business this year than in the past.
For more information, visit www.bostoncapital.com.
Upstate New York Fund Launched
Albany, N.Y.—An equity fund aimed at helping finance affordable housing projects in upstate New York has been established.
Other regions of the country have had their own funds to raise capital, but this will be the first for the upstate area, which has not been as strong a market as New York City and other parts of the state.
The low-income housing tax credit (LIHTC) fund also comes at a time when affordable housing developers have had a hard time raising equity for their deals.
“We felt we needed to do something, and we started looking at a model for an equity fund,” said Deborah VanAmerongen, commissioner of the state Division of Housing and Community Renewal (DHCR).
DHCR developed the fund with the New York State Association for Affordable Housing. The regional fund will be managed by the Great Lakes Capital Fund, a longtime LIHTC syndicator that has a portfolio with more than $1 billion in equity investments throughout Michigan, Indiana, Wisconsin, and Illinois.
“All the signals are favorable for the point we are at now,” said Jim Logue, COO at Great Lakes, in May, noting that the fund is still in the early stages.
The group has been talking with a broad range of potential investors, including national firms as well as community banks that have a presence in upstate New York. The fund is being designed to allow some smaller investors to participate with an initial investment of $250,000, said Logue.
Fund supporters have a target of raising about $30 million.
The group has a strong pipeline of deals, according to Logue. About 28 properties have been submitted to the team for possible inclusion in the fund.
For more information, visit www.capfund.net.