CHICAGO—The low-income housing tax credit (LIHTC) market is better than it was a year ago thanks to additional equity, according to many at the National Council of State Housing Agencies conference.
The entrance of new equity has lifted the general mood of the industry, but LIHTC investors and others continue to take a cautious stand.
“The economy is still in question,” said Patrick Nash, managing director of JPMorgan Capital Corp., adding that high unemployment rates and long-term debt sources remain a concern.
As a result, underwriting continues to be one of the industry’s biggest topics.
It’s important for housing finance agencies and others to factor in stability and structure deals for the long term, said Beth Stohr, president of U.S. Bancorp Community Development Corp.
“The era of underwriting LIHTC projects at 1.15x debt coverage should be declared dead,” added Fred Copeman, a principal at the Reznick Group. “Since the economy is stifling NOI [net operating income] growth in many markets and given that one in every three LIHTC units was already generating negative cash flow, we are overdue to take off the rose-colored glasses.” Head of the firm’s Tax Credit Investor Services practice, Copeman noted a spike in equity demand and the entry of a number of new investors, including four companies with authority to invest as much as $3 billion.
Other highlights from the late June event include:
- The Department of Housing and Urban Development (HUD) is rewriting its underwriting guidelines this summer, with plans to add a chapter on LIHTC transactions for the first time, according to Chris Tawa, senior adviser to the deputy assistant secretary of multifamily housing at HUD, who expects the new guidelines to be released by the end of the year.
- About $2.1 billion in Tax Credit Assistance Program (TCAP) commitments has helped to fund 794 projects with 54,090 units, reported a HUD representative. The average TCAP amount per project is $2.6 million. HUD plans to reallocate some unused TCAP funds, so industry participants should watch for announcements.
- The credit exchange program awards total was $5.47 billion as of June 18. About $1.05 billion, or 19 percent, of the total had been disbursed, according to a Treasury Department representative.
- On the legislative front, the news hasn’t been good. The story in Washington, D.C., is gridlock, said Rick Goldstein, a partner at Nixon Peabody, LLP. That’s left several critical bills, including the “tax extenders” legislation, which would extend the LIHTC exchange program for a year, in limbo as of June 24.