The highest offer may look like the best equity proposal on paper, but it doesn’t necessarily translate into the best deal for a developer.
The fine print—from adjusters to timing to guarantees—can materially change a transaction’s economics and risk. As the equity market shifts, developers also need to understand market conditions, engage potential partners early, and move decisively when the right proposal comes along, according to veteran low-income housing tax credit (LIHTC) syndicators.
Affordable Housing Finance recently asked LIHTC executives what developers should consider when reviewing an equity proposal.
Think Beyond Pricing
“Developers should focus on the total economics and certainty of execution, not simply the headline price per credit,” says Tom Pereira, executive vice president at CREA. “Other economic structural items, terms, and track record of execution can have a significant impact on project economics. The best proposal is often the one that provides the greatest certainty and overall value, not necessarily the highest stated price.”
Josh Ghena, president of Cinnaire Equity Partners, says developers should carefully evaluate other elements of a deal such as adjusters, capital contribution timing, operating deficit requirements, and exit provisions.
“In many cases, two proposals with similar pricing can end up with materially different economic outcomes once you factor in these terms,” he says. “The best proposal isn't necessarily the highest one; it's the one that provides certainty of execution, aligns with the development team's business plan, and minimizes closing and operating risk over the life of the investment.”
It may go without saying, but price per credit is not the only term that matters, agrees Jason Gershwin, managing director at R4 Capital.
“Just like we as a syndicator (along with our fund investors) want to work with developers that are experienced, thoughtful, financially secure, and creative, we would think that developers should be looking for similar qualities from their capital partners,” he says. “Our tip would be to ask questions such as is the equity proposal contingent on the approval of one targeted investor. Will the underwriting and credit review process be coordinated, thorough, and fair? Will the capital partner be willing to work collaboratively to find mutually agreeable solutions if and when complications arise? Are these the partners the developer will be comfortable with for the next 15-plus years?”
Consider the Market
The LIHTC and other financial markets experience fluctuations in price and demand, so it’s important for developers to recognize market conditions. They should also be realistic about timing.
“Don’t immediately compare a proposal today with terms you previously received. Given the supply/demand situation, investors can be more selective with pricing, developer partners, and terms,” says Steve Kropf, president and CEO of Raymond James Affordable Housing Investments.
“Run a sensitivity for pricing that is lower than you hope—just in case—and understand that investors have less appetite for aggressive structures in this environment,” adds Catherine Such, head of Regions Affordable Housing.
Lay the Groundwork Early
“Be realistic about pricing and costs in the application stage. Reach out to syndicator partners early and often in the process as underlying dynamics in the market may change. Anything they (developers) can do to move projects along in a timely manner would be beneficial to the overall process,” says Mark Gipner, director, fund development, at CAHEC.
Jennifer Erixon, senior managing director, affordable housing equity, at Walker & Dunlop, also stresses the importance of starting the conversation early.
“Don’t wait until you are ready to issue an RFP. Share your 2027 and even 2028 pipelines with syndicators and investors now,” she says. “Giving capital partners visibility into future transactions allows them to plan their allocations, reserve capacity, and potentially lock down investments well in advance.”
In a related tip, syndicators share that developers should be aware of their partners’ schedules and timing.
“Be certain in your timeline,” says Julie Sharp, president, equity investments, at Merchants Capital. “When there are more options available for investments, it is helpful to partner with a developer that understands that timing is critical, particularly as it relates to year-end closings.”
Act Fast
“Markets are dynamic with a number of variables impacting the equity pricing and structure of a transaction. If the terms and price of the LOI work today, execute and get the deal into the closing process,” adds Andrew Anania, managing director, head of investor relations, at Berkadia.