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.