Low-income housing tax credit (LIHTC) properties continue to show their strength, with improvements in several key metrics, according to the latest performance study by CohnReznick.

“Overall, the risk level in LIHTC investments has fallen to historically low levels,” said Fred Copeman, CohnReznick principal and leader of the firm’s Tax Credit Investment Services Practice, in a statement.

Fred Copeman, a principal at CohnReznick.
Fred Copeman

The Low-Income Housing Tax Credit at Year 30: Recent Investment Performance (2013-2014) is the company’s fourth survey of properties benefiting from the housing credit. It takes the firm’s earlier work and updates it through economic performance data reported for calendar year 2014.

The new report finds the national median physical occupancy was 97.5%, and median economic occupancy was 96.6%, proving that the demand for affordable housing units has lowered the turnover rate in housing credit properties, reduced the costs associated with units turning over, and lowered the loss in rental income associated with rent skips.

“Not only is there extraordinarily high occupancy in major cities, but the same has become true in suburban and rural areas. LIHTC housing is fully occupied and working well,” Copeman said. “Meanwhile, the need for more affordable housing still exists in virtually every part of the country.”

The report was released shortly after Congress authorized the permanent extension of the 9% fixed rate.

Among the report’s key findings:

·         Physical occupancy improved from 97% in 2012 to 97.5% in 2014;

·         Debt-coverage ratio (national median) improved from 1.3 to 1.33 over the same period;

·         Per-unit per-annum cash flow improved from $498 to $597;

·         The number of housing credit properties that are “underperforming,” either reporting physical occupancy below 90% or failing to achieve breakeven operations, is decreasing.  In 2005, roughly 35% of all housing credit properties were operating below breakeven; that percentage fell to 16.9% for calendar year 2014, and the deficits, where they existed, were typically modest amounts;

·         The average housing credit investor has realized 98.4% of the credits it was promised through calendar year 2014; and

·         Despite a modest increase in recent years, the foreclosure rate reported by LIHTC properties continues to compare very favorably with every other real estate asset class.

The report notes that the favorable growth in per unit cash flow and debt-coverage ratios likely cannot be sustained in future years. “With economic occupancy at the level it was in 2014, there is very little room for additional growth in rental income,” according to the report. “In addition, the favorable interest rate environment we have been the beneficiaries of will not last forever.”

Over the years, CohnReznick, a leading accounting, tax, and advisory firm, has been asked about the differences between properties operated by for-profit and nonprofit firms. In response, the study team looked at the occupancy, debt coverage, and per-unit cash flow metrics of the two groups. It found that occupancy is slightly higher in properties developed by nonprofit developers, and cash flow is slightly higher in properties operated by for-profit developers.

“Given the subtle differences in the types of housing credit projects each group gravitates toward, we conclude that there is no meaningful difference in performance between the two groups,” said the report.

The full report is available for review, and a free webinar discussing the key findings will take place from 1 to 2 p.m. EST on Jan. 21.  To register for the webinar or for more information, visit www.cohnreznick.com.