Low-income housing tax credit (LIHTC) syndicators are hoping for more of the same this year. They want and expect the stability seen through much of 2019 to continue at least for the near term. If that’s the case, LIHTC prices to developers should hold firm for the first half of the year, according to an overwhelming majority of syndicators surveyed by AFFORDABLE HOUSING FINANCE.

“It feels like the market has found a point of equilibrium, and that pricing and terms are stable as a result,” says Todd Jones, senior vice president of institutional sales at Boston Financial Investment Management (BFIM). “As such, we anticipate both to hold steady the first half of the year and for the market to continue to be robust.”

At this time, there’s nothing on the horizon that will shake up the market, adds Tammy Thiessen, managing director of equity sales at RBC Capital Markets. “Nothing will happen in D.C. concerning the tax credit this spring,” she says. “There’s no separate housing bill, and the budget is already approved. There is no mechanism for change at this point.”

The average price paid for credits in the recent fourth quarter was about 93 cents per dollar of credit, up from 91 cents in the same period in 2018. Yields to investors averaged about 4.6%, unchanged from a year ago, according to the survey of 2019 activity.

“Demand for credits remains strong,” says Stephen M. Daley, executive vice president at The Richman Group Affordable Housing Corp. “At the moment, there does not seem to be much in the way of easing.”

Nineteen syndicators took part in our January survey. Together, they closed more than $10.7 billion in LIHTC capital and acquired 979 projects last year. Four firms—Enterprise Housing Credit Investments, Raymond James Tax Credit Funds (RJTCF), RBC Capital Markets, and Red Stone Equity Partners—each reported closing more than $1 billion in housing credit capital in 2019.

It was a significant jump for Red Stone, which more than doubled its prior-year activity. The firm saw a bit of a down year in 2018, but entered last year with a robust pipeline of business, according to president Ryan Sfreddo.

“Notably, our average deal size in 2019 was 75% larger than what it was in 2018 due to a couple of very large LIHTC equity investments we closed into and which really moved the proverbial needle,” he says.

Several other firms also reported big years, including CREA, which raised more than a $1 billion when you add the $852 million it closed with the $355 million it secured and scheduled to close in funds in 2020.

Income Averaging

Looking at the year ahead, several syndicators expect to see more deals using the new income-averaging option.

“Income averaging is a large priority for the housing finance agencies (HFAs), and there is a growing knowledge throughout the industry that the population at 80% of the area median income (AMI) has an affordability crisis that we should be addressing,” says Stacie Nekus, senior vice president of investor relations at Alliant Capital. “Workforce housing is something our industry—developers and investors—is embracing.”

In general, income averaging allows LIHTC-qualified units to serve households earning as much as 80% of the AMI as long as the average income limit at the property is no more than 60% of the AMI.

“Many communities are seeking ‘workforce’ housing–not necessarily ‘low-income’ housing—so they are more inclined to support mixed-income developments that include 80% AMI units,” says Mark McDaniel, president and CEO of Cinnaire. “Developers like the flexibility of being able to rent units to people earning more than 60% AMI.

We have, however, seen several deals struggle to reach the 80% rent levels they expected and, as such, are underwriting the rent determination more carefully on these deals.”

More income-averaging deals will come forward as additional states roll out the option, investors become more comfortable with it, the Internal Revenue Service issues more guidelines for clarity, and sponsors decide it’s beneficial to them despite the extra oversight needed in compliance, adds Peter Sargent, director of capital development at Massachusetts Housing Investment Corp.

Several syndicators are eager to see more federal guidance on how certain program rules will apply to these developments as well as how some of the compliance monitoring will occur. In the meantime, many are carefully doing their due diligence and putting their own guidelines in place.

For example, CREA has adapted its internal policies for these deals. “We are most comfortable proceeding on projects that are 100% LIHTC, in which the unit AMIs are fixed at closing, and there is an appropriate cushion below the 60% threshold,” says Tony Bertoldi, executive vice president of syndication and investor relations.


Out of the total projects acquired by the surveyed syndicators last year, about 44% were 4% credit developments. That’s up from the 40% figure seen a year earlier, according to an AHF survey of 2018 activity.

Steve Kropf, president and CEO of RJTCF, was among the syndicators to report seeing “more and larger 4% deals being viable in secondary markets due to increased AMIs and low borrowing cost.”

“We are seeing an uptick in the number of 4% LIHTC/tax-exempt bond transactions, which tend to be larger projects,” adds McDaniel. “We are seeing more 4% and 9% hybrid projects as state HFAs try to spread their resources and support as many projects as possible. Some states are incentivizing these hybrid projects by awarding points for them in 9% LIHTC applications.”

Many eyes will be on California this year. The state passed legislation providing for an additional $500 million of state tax credits designed to be attached to 4% new construction deals this year, says Christine Cormier, senior vice president of investor relations at WNC. “This will certainly have an impact on 4% deals in California, and it will remain to be seen whether the large increase in tax credit supply will impact pricing,” she says.

Matt Reilein, president and CEO of National Equity Fund (NEF), also expects to acquire more 4% deals this year. “We see states giving more soft money,” he says. “And with state tax credits, 4% deals are structured like 9% deals more than they have [been] in the past. As more and more deals come off initial compliance, we anticipate resyndications to grow as well.”

In addition, more 4% Rental Assistance Demonstration conversions “seem to be popping up on the pipeline as more housing authorities become acquainted with the process,” says Jack Kukura, chief investment officer at Ohio Capital Corporation for Housing (OCCH). “Some of these conversions are even 4% resyndications of 9% deals.”

Overall, OCCH expects to see more resyndications come on line over the next couple of years as the LIHTC program matures and 9% projects syndicated 15 to 20 years ago look to complete moderate rehabs with 4% credits.

Industry stakeholders will be keeping a close watch on the shortfall of private-activity bonds in some states this year. “In fact, in some 4% deals we are seeing, there has been a shift to taxable financing making up more of the capital stack as developers deal with the scarcity of bond cap,” says Jason Gershwin, executive vice president of R4 Capital.

Secondary Sales

In addition to more bond deals, the industry could see more activity in the secondary market.
“As we get further away from tax reform, which impacts investor yields, the secondary opportunities should present themselves more frequently,” says NEF’s Reilein. “The number of discussions around secondary purchases and sales increased in 2019, and we expect that to continue in 2020. Continued bank consolidation—both large and midsized—also contribute to investors rebalancing their portfolios.”

Secondary sales were up substantially in 2019, says WNC’s Cormier. “And, we would expect this business to continue in 2020.”

R4 Capital’s Gershwin describes the secondary business as “steady” in 2019. “With that said, some in the industry feared that tax reform would cause the secondary market to materially cannibalize the primary LIHTC market in 2019, and we did not see evidence of that occurring,” he says. “We expect the volume of secondary-market transactions to be slightly lower in 2020 (as compared with 2019), but the results of Community Reinvestment Act (CRA) reform could materially impact this prediction.”

CRA Reform and Other Concerns

CRA reform looks to be one of the biggest concerns for LIHTC supporters. A plan to overhaul the long-standing law was released at the end of 2019 and drew quick criticism from the affordable housing industry amid fears that the proposal would weaken CRA efforts.

One of the ways that banks meet their CRA obligations is by funding affordable housing, and they’ve been the main investors in LIHTCs.

“We would encourage developers and other stakeholders to weigh in on the proposed CRA rules,” says Scott Hoekman, president and CEO of Enterprise Housing Credit Investments. “We are very concerned that as proposed they would ultimately have a negative impact on the LIHTC market.”

The 2020 presidential election could also shake things up in the second half of the year and into next year. The last presidential election and the subsequent threat of tax reform jolted the industry, sending LIHTC prices falling in 2017. In addition, high construction costs continue to be a major problem for many.

“We are seeing a lot of projects running into trouble as construction bids are finalized, and, post-closing, many projects are struggling to stay on schedule in large part due to labor shortages,” says Boston Financial Investment Management’s Jones.

In the coming months, developers should continue to be conservative when pricing LIHTCs for their applications, says Gayle Manganello, senior vice president and manager of originations at PNC Bank. “Given the lengthy process in preparing apps, submitting, receiving an allocation, and then closing, the equity market may have changed. It is not expected that the equity pricing will be increasing next year, so to be conservative, developers should price their apps a penny or two less than current market conditions.”

“Focus on strong fundamentals when structuring deals as if there is a scarce amount of competitive equity chasing a few deals in a market, the deals with the strongest partner, structure, reserves, reasonable construction costs, and reasonable operating assumptions will demand the highest price,” adds Lori Little, president and CEO of National Affordable Housing Trust.

Alliant Capital 527 32
Boston Capital 821 56
Boston Financial Investment Management 748 59
Cinnaire 210.7 34
CREA 852 86
Enterprise Housing Credit Investments 1,023 80
Hudson Housing Capital 615 45
Massachusetts Housing Investment Corp. 58.2 6
Merritt Community Capital Corp 40 4
National Affordable Housing Trust 57 12
National Equity Fund 948.7 77
Ohio Capital Corporation for Housing 400.2 52
PNC Bank 403 44
Raymond James Tax Credit Funds 1,270 126
RBC Capital Markets 1,226 74
Red Stone Equity Partners 1,030 61
R4 Capital 596. 3 42
The Richman Group Affordable Housing Corp. 650 57
WNC 319 32
Source: AHF Survey, January 2020