NEW YORK CITY It seemed like old times at the May conference of the New York State Association for Affordable Housing (NYSAFAH), held at the Marriott Marquis Times Square.
Many of the big tax credit investors were there. Bank of America, Citi Community Capital, JPMorgan Chase, and Wachovia bought booths on the exhibit hall floor, while KeyBank, Bank of New York Mellon, and RBC Capital Markets sponsored sessions.
As developers in other parts of the Northeast struggle to get investors to return their phone calls, here in New York, representatives of giant banks handed out business cards and, in some cases, promised to buy more tax credits by the end of this year than in 2008.
“Deals are closing here,” says Deborah Van Amerongen, commissioner of the New York Division of Housing and Community Renewal (DHCR), the state's largest allocator of federal low-income housing tax credits (LIHTCs).
More than a third of the projects that received reservations of LIHTCs from DHCR in 2008 are on track to close their financing by the end of summer—not far off from the program's usual schedule, says Van Amerongen. DHCR reserved LIHTCs for 47 projects in 2008 and early 2009. Of those, nine had closed their financing by the end of June. Another nine are on track to close their financing by mid-September. These numbers provide a stark contrast to many other Northeastern states where advocates and local officials interviewed report as few as one in 10 projects have found investors.
Investors favor properties in the New York City metropolitan area with experienced sponsors, says Van Amerongen.
Deals are also closing in upstate New York, although investor interest is not as strong. Investors tend to avoid smaller projects and properties in which the total amount of tax credits is less than $150,000 per unit.
“People only want projects with half a million dollars or more in annual tax credits,” says Van Amerongen. To help, the agency recently partnered with Great Lakes Capital Fund to create a fund to syndicate LIHTCs from upstate deals, which are often smaller projects, to investors including local banks. The fund organizers plan to close their first deals by the end of the year.
Investor interest is strong enough overall that at press time DHCR did not plan to utilize the federal Tax Credit Exchange Program, which would allow projects to trade their reservations of tax credits for cash equal to roughly $0.80 on the dollar.
“I think exchange is a very dangerous path,” says Van Amerongen. For example, projects that trade in tax credits would not have access to the asset management provided by tax credit investors.
Instead, DHCR plans to use programs like the federal Tax Credit Assistance Program (TCAP) and the state's Affordable Housing Trust Fund Program to fill most gaps in capital budgets. DHCR will distribute about half of the state's $253 million in TCAP grant money, which in practice will behave much like HOME funds, says Van Amerongen.
Both TCAP and the exchange program were established this year under the American Recovery and Reinvestment Act to help stalled LIHTC deals.
Every year a few projects return tax credits to DHCR because they are unable to clear local hurdles to development, and this year will be no different. However, Van Amerongen still sees some reason to hope that none of the projects that won tax credits in 2008 will fail for lack of a tax credit investor, and DHCR is working to help these projects. Pricing now hovers in the $0.80 range in the city, with projects upstate selling LIHTCs in the $0.70 range.
“DHCR has done an exceptional job of dealing with this situation, which changes by the day,” says Bernie Carr, executive director of NYSAFAH. DHCR has carefully tracked deals and has been flexible with project deadlines.
The agency is also moving forward with new tax credit projects. DHCR just announced the winners of this year's round of LIHTCs. The agency received 126 applications—up 20 percent from 2008. Only 40 projects won tax credits. Reflecting the preference of investors, roughly half of the winning projects were in the metropolitan area around New York City.
“We have spent from last November until now searching under every rock for an investor,” says Beverly Bates, senior vice president of The Community Builders (TCB), which is struggling with a $12.8 million tax-exempt bond-financed rehab of Cheriton Grove, a 60-unit, Sec. 202 property in West Roxbury, Mass. TCB and the project's small nonprofit sponsor are in talks with a national tax credit syndicator and has applied to the state for about $1.2 million in additional subsidy.
In Ewing Township, N.J., Lynn Developers, LLC, planned to close tax-exempt bond financing for Ewing Independent Living in December 2007, right after it took out an interim loan and started work. Then tax credit prices tanked and interest rates spiked. It took nearly a dozen funding sources to fill the hole in the project's budget. Enterprise Community Investment, Inc., finally bought the project's tax credits $0.98 on the dollar, plus losses, in January, when the project was nearly finished and ready to lease.
Affordable housing can be preserved even without low-income housing tax credits. A taxable bond mortgage and the $6.4 million sale in January of state and federal historic tax credits to Massachusetts Housing Investment Corp. paid for the rehab of Schoolhouse Kenilworth Williams in Boston's Dudley Square neighborhood. Madison Park Development Corp. and Edward A. Fish Associates acquired the 38 apartments from the Department of Housing and Urban Development in 2008.
The Park Terrace Congregate Apartments in Southport, N.Y. (pop. 7,300), features 32 affordable apartments. In June, WNC & Associates paid $2.8 million for the tax credits—or $0.69 per dollar of tax credit. That's down from an anticipated $0.84 price for the $5.5 million project. The Genesee Valley Rural Preservation Council, Inc., filled the hole in its budget by applying for supplemental tax credits.
Enterprise Community Investment, Inc., paid $13.4 million for the tax credits from St. John's the Evangelist House in Philadelphia in April. That's $0.78 per dollar of tax credits, even though the high-rise, single-room-occupancy, supportive-housing project planned to be built on leased land is exactly the kind of complicated deal many investors now shy away from. “This project enjoys amazing support on every level,” explains Tom Eastman, vice president of tax credit syndication for Enterprise.