LOS ANGELES—The second half of 2009 will be better than the first for the low-income housing tax credit (LIHTC) market, according a panel of investors and other industry experts.
How much better will depend on the ability to deploy the new money and programs provided under the recent stimulus bill. If there are any delays in getting these programs up and running, deals and capital will slip into 2010.
There’s little doubt that the first six months of the year have been anemic in the wake of a sputtering economy and the pullback of several leading investors.
The LIHTC market was roughly $5 billion last year, but it has seen only about $1.5 billion so far in 2009, estimated speakers at the National Council of State Housing Agencies (NCSHA) conference.
Going back three years ago, the market was even bigger at about $9 billion, said Richard Goldstein, a partner at the Nixon Peabody law firm.
There is little expectation that the industry will match last year’s $5 billion figure, but several people are confident that the market will pick up in the coming months. “$4.5 billion is my over-under,” said David Smith, CEO of CAS Financial Advisory Services.
To help stalled LIHTC deals, the American Recovery and Reinvestment Act provided $2.25 billion in gap funding. It also created an exchange program that allows state housing agencies to exchange up to 40 percent of their 2009 volume cap at the rate of $0.85 per credit. They can also exchange unused credits from prior years.
There is still some confusion about the programs, so the timing of potential deals could be affected, said Charles Werhane, president and CEO of Enterprise Community Investment, Inc.
Kevin Costello, executive vice president and director of institutional investing at Boston Capital, added that several states have delayed their reservations at this point so those deals are not in the market. There’s a lot of work to get done in a short time, he said.
Beth Stohr, president of U.S. Bancorp Community Development Corp., added that she is also more optimistic about the second half of 2009.
Another big change in the market is a shift toward proprietary funds, which have a single investor, and the decline of multi-investor funds. With a limited number of investors in the market today, there hasn’t been as much demand for multi-investor funds.
That could change if new investors are enticed into investing in housing tax credits. New investors will likely desire a multi-investor fund because these companies won’t have the structure or experience needed for a proprietary fund, said Rick Floreani, senior manager at Ernst & Young’s Tax Credit Investment Advisory Services.
Goldstein added that industry groups are pushing for a LIHTC program change that will allow investors to “carry back” their unused tax credits from new investments for up to the past five years. The Affordable Housing Tax Credit Coalition and other supporters hope this move will increase the attractiveness of the credits to investors.