NEW ORLEANS—While a marching band played ragtime and former residents cheered, New Orleans Mayor Ray Nagin cut the ribbon to open 30 rebuilt seniors apartments at Wisdom Manor in January. Affordable housing developer Humanitas even hired a caterer for the event to feed nearly 100 neighborhood residents.
“Before Katrina, ribbon cuttings used to be quiet affairs attended by the developers and a few friends,” says Jeff DeGraff, public information director for the Louisiana Housing Finance Agency (LHFA). But all that's changed as the first wave of rebuilt projects opens in the parts of Louisiana and Texas hardest hit by the hurricanes of 2005.
Affordable housing demand is high throughout the Gulf Opportunity (GO) Zone hurricane disaster areas. New properties rapidly fill to 100 percent occupancies, according to local experts.
Work to replace housing damaged or destroyed by the hurricanes is far from complete in Louisiana and Texas, but funding is running low. The states have used the extra low-income housing tax credits (LIHTCs) awarded by the federal government in 2006, 2007, and 2008 to help them rebuild housing stock destroyed by the storms. The federal government also will provide new funds to rebuild from Hurricane Ike, which struck both states in September 2008, but the pot is much smaller.
Adding to the dilemma, affordable housing projects already under construction face deep holes in their budgets as LIHTC prices fall and state and local soft funding sources run dry.
The conditions have resulted in some deals not being able to close on their financing. Developers of nearly two dozen projects in Louisiana recently returned their tax credits, which were then reserved to other deals.
The view from Louisiana
Louisiana officials will have far fewer resources in 2009 than the previous year, though the state's rebuilding needs are still great, according to Brenda Evans, program administrator for LHFA, which expects to reserve just $12.5 million in LIHTCs in 2009. That includes $3.1 million in extra tax credits to repair damage caused by Hurricane Ike. In comparison, the state distributed $172 million in GO Zone credits to planned affordable housing developments from 2006 to 2008.
As of January, developers had finished 2,600 affordable apartments at 48 communities financed with GO Zone credits. That total will climb to 14,000 affordable housing units by the end of 2010, officials say.
To handle the extra business, LHFA officials worked past midnight and into the weekends. The agency hired 13 new staff members and borrowed more staff from other agencies. Thanks to their work, all the state's GO Zone tax credits have been allocated to projects that have closed their financing—no easy task considering that each year's tax credits can't be carried over to the following year.
These developments have been hit by a range of issues. Prices for LIHTCs have fallen from the mid-$0.90s to the low $0.80s, according to officials. Also, some projects needed to be altered in their scope or the population they planned to serve as neighbors realized the scale of what was being built next door and local officials responded.
“Because of the amount of destruction, communities have become much more vocal,” says LHFA's DeGraff.
In November, the agency reclaimed $15.2 million in LIHTCs from the developers of 20 projects that couldn't close their financing. These developers will be able to reapply for LIHTCs in the future without any black marks on their records from the failed deals. However, they will have to compete for a much smaller pot of tax credits.
LHFA combined the $15.2 million in reclaimed LIHTCs with another $13.3 million in tax credits that had already been returned or had never been allocated. The agency immediately re-reserved these tax credits in what officials called a “lightning round,” using rules already written into the program's qualified allocation plan.
The winners of the reclaimed LIHTCs will produce 2,800 units of affordable housing statewide. LHFA's board announced the winning projects at the same meeting in which it announced that it was taking the credits back.
The new projects all closed their financing before the end of 2008.