The uncertainty around tax reform continues to make it tough to structure low-income housing tax credit (LIHTC) deals.
During the past several months, the industry has seen deals go through a number of permutations involving upward adjusters, downward adjusters, and focusing on different tax rates, said Jeff Weiss, president of Alden Capital Partners, a LIHTC syndicator.
Entering the second quarter, the search for the right formula continues.
“Investors like certainty, and we’re in a market that is not certain right now,” said Jennifer Seamons, senior vice president with KeyBank’s Community Development Lending & Investment team.
Trying to predict what will happen six months down the road while structuring deals now is tough, she said at the AHF Live: Housing Developers Forum in New Orleans.
For banks, there’s going to be a balance between having an appetite for tax credits and meeting regulatory obligations, according to Seamons.
Banks make up a big portion of the LIHTC investor base. Many of them look to the housing credit as a way to meet their Community Reinvestment Act obligations.
However, the LIHTC market was jolted after the November election. With Republicans in control of the White House and Congress, the prospect of tax reform has increased. President Donald Trump has called for slashing the business tax rate from 35% to 15% while members of Congress will likely be eyeing a rate in the 20% to 25% range. A big drop in the corporate tax rate could make housing credits less valuable to investors.
At least in the short-term, there may be a shift toward proprietary or single-investor funds, said Weiss. This is because the negotiations and execution may be more straightforward than in a multi-investor fund with more participants.
Hana Eskra, Florida market president for developer Gorman & Co., had deals that were priced just prior to the market upheaval. “For the most part, our investors are holding to the pricing,” she said.
“Our challenge is our applications going in right now,” she said. “Where do we price those?”Eskra said she is working with investors to analyze LIHTC pricing at different tax rates.
Another move that she is making is to focus on opportunities in communities that have soft funds.Eskra and the others discussed the LIHTC market during an AHF Live Forum session moderated by Mark Shelburne, policy consultant with Novogradac & Co.