Low-income housing tax credit (LIHTC) properties continue to improve on their performance, according to a new report by CohnReznick.

Cindy Fang
Cindy Fang

In 2016, LIHTC portfolios, on a median basis, had a 97.9% occupancy rate, a 1.40 debt-coverage ratio (DCR), and a $688 per-unit per annum net cash flow (cash flow available after paying expenses, mandatory debt services, and required replacement reserve contributions), reported the firm, which recently examined data collected from about 23,000 properties with nearly 1.7 million LIHTC apartments.

As a result, housing credit properties are operating better than any period in the program’s 32-year history, says the firm.

The strength of LIHTC properties can also been seen in a foreclosure rate that continues to be below 1%.

In addition to releasing the Housing Tax Credit Investments: Investment and Operational Performance report, CohnReznick launched the new LIHTC Interactive Study by County, an online tool to access and compare affordable housing data down to the county level.

“With more than 20,000 properties analyzed in an annual report along with an interactive online platform, these tools give significant resources to investors, developers, and others involved with LIHTC properties,” says Beth Mullen, partner and leader of CohnReznick’s affordable housing practice.

The high physical occupancy rate for LIHTC apartments confirms the pent-up demand for affordable housing in virtually all parts of the country, according to the firm.

“The housing tax credit has become the most significant source for creating, rehabilitating, and preserving affordable housing in the United States,” says Cindy Fang, CohnReznick partner and leader of the firm’s Tax Credit Investment Services group. “But due to statutory authorization and other limitations, the program’s production is unable to keep up with the rising demand for affordable housing. Thankfully the omnibus spending bill included two key improvements to the program, which were needed to offset the impact of a reduced corporate tax rate.”

This is the seventh in a series of periodic reports issued by the firm that address the performance of properties financed with housing tax credits.

“Surveyed properties reported a steady increase in median DCR between 2008 and 2016,” reports CohnReznick. “National median DCR historically hovered around 1.15 between 2000 and 2008, increased to 1.21 in 2009, and has taken off since then. As a result, the national median DCR was 1.40 in 2016, representing another high-water mark for the asset class.”

The national per-unit cash flow rate has also increased to $688 in 2016 from $660 in 2015 and $597 in 2014. However, the study points out that the trend needs to be put into context.

“Because the median tax credit project was comprised of 78 units in 2016, the total sum of positive cash flow per property—also on a median basis—is less than $55,000 per year,” explains the report. “Further, any excess cash flow is typically run through the cash flow waterfall specified under the property’s partnership agreement to pay deferred developer fees, asset management fees, and/or interest on soft loans rather than distribute to the partners.”

In another finding, respondents reported a 0.71% cumulative foreclosure rate, measured by the number of foreclosed properties divided by the total number of properties in respondents’ portfolios.

For more information, read Housing Tax Credit Investments: Investment and Operational Performance.