WASHINGTON, DC—During the recession, lowincome housing development and financing—like all commercial real estate projects— went into hibernation. Demand was there, but the Treasury Department's tax credit program that funds many of these projects was not being used much, largely because firms did not have robust profits to offset with the credits. With the recession over, all that is changing—just in time to face another, perhaps fatal challenge: Congress and its army of budget-cutters.
In the low-income housing community, the fear that this tax credit program will be severely scaled back or even completely eliminated is palatable, says Amy Dosen, vice president and equity sales manager at Key Community Development Corp. "Because it's an expenditure, everyone I have talked to feels there's a good chance it'll be impacted," she says. Such a move would be short sighted, she adds, since lowincome multifamily is among the betterperforming asset classes. "Default rates are extremely low, even lower in some cases than market-rate multifamily."
Cutbacks wouldn't affect deals in the pipeline but would impact transactions from 2013 on. Adding insult to injury, LIHTC investments are showing clear signs of strength. Take Merritt Community Capital Corp.'s Multi-Investor Fund XIV. At $73 million, it is the largest LIHTC fund closing in the Oakland, CA-based company's 23-year history. This fund exceeded last year's fund by $15 million.
The market's strength is also evident on a deal-by-deal basis, like the individual transactions Key Community Development underwrites. Dosen cites a recent deal in Vermont that entailed the acquisition and rehabilitation of 11 apartment buildings. City Neighborhood Housing LP, a partnership of Housing Vermont and Champlain Housing Trust, obtained capital from at least seven supporting community agencies, Dosen explains. Historic tax credits were also used. However, without the tax credit equity portion of the deal, which came to $3.5 million, it never would have gotten off the ground. "This equity enables the general partners to charge affordable rents," she says.
On Capitol Hill, the National Multi Housing Council is urging Congress to maintain current tax treatment of carried interest, retain the deduction for business interest, protect the LIHTC program and extend current estate tax legislation.
NMHC president Doug Bibby says an ongoing federal backstop is critical to ensure sufficient capital. "This isn't about new apartment construction," he says, in a statement. "It's about the $30 billion to $45 billion in multifamily mortgages that mature each year and need to be refinanced."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
