Big Investor Demand Pushes LIHTC Market

Developers should stay in close contact with their low-income housing tax credit (LIHTC) partners as they head into a new year filled with several unknowns.

Sharing information will be key to staying ahead of any market changes, advised investors and syndicators.

“Communicate early and often,” said Ryan Sfreddo, managing director, investor relations, at Red Stone Equity Partners. “These deals take 24 to 36 months from the time of the QAP (qualified allocation plan) launch, site selection, structuring your deal, applying for credits, and putting a shovel in the ground. It’s a long process.”

While there’s an abundance of investor capital today, that may not be true 24 months from now, he said, advising that developers should not get too aggressive on their early assumptions.

Beth Stohr, director of LIHTC investments for U.S. Bancorp Community Development Corp., also stressed that communication will be key to staying on top of market changes. “Short of keeping a fortune-teller on staff, stay in touch,” she said.

That means talking with investors, syndicators, and housing finance agency officials.

Sfreddo and Stohr were among the participants on the Tax Credit Equity Outlook Power Panel at AHF Live: The Affordable Housing Developers Summit in November.

Investor demand outpaces supply

Heading into 2015, developers were receiving strong prices for their housing tax credits while investor yields continued to tick down.

It’s a period where demand for high-quality Community Reinvestment Act (CRA) investments exceeds the supply, said David Leopold, senior vice president and tax credit executive at Bank of America Merrill Lynch. His bank, which also invests in historic and New Markets Tax Credits, was on track to do a little more than $1 billion in tax credit investments in 2014.

“The combination of a decrease in federal and local subsidies means there is a declining number of transactions that are closing,” he said. “At the same time, banks are increasing their tier-one capital.”

This is resulting in higher credit prices to developers across the country, especially in hot CRA markets like New York City and San Francisco. A few recent deals in Boston reportedly broke $1.08 per dollar of credit, and a Northern California developer revealed receiving $1.12 per dollar of credit.

The current demand for credits will continue as long as there’s some marginal benefit over alternative investments like CRA-qualified mortgage-backed securities, Leopold said during the panel discussion.

As investors pay high prices to win needed housing credits, yields have fallen to between 6.25 percent and 6.5 percent at the end of 2014, according to syndicators.

During the conference, there was talk that yields had fallen even lower into the 4 percent neighborhood. Such low yields are likely unique to some deals in the very top markets, explained Raoul Moore, senior vice president, syndicator, at Enterprise Community Investment.

Moore reported seeing increasing interest from corporate investors who are looking for socially responsible investments. “As affordable housing becomes higher on the list of priorities in this country, you’re going to see more and more of those socially responsible investors coming into the marketplace,” he said.

Tony Alfieri, managing director of tax credit investments at RBC Capital Markets’ Tax Credit Equity Group, added that a number of his investors have been keen on veterans housing deals.

Looking ahead to 2015, Alfieri said he sees the possibility of yields dipping to about 6 percent by mid-year. RBC buys credits about nine months in advance of selling them, and he’s watching the pricing trends and the orders coming in from investors. “If you work through the equation, yields are coming down,” he said.

Even in this heated market, deal terms have held steady, according to Stohr, explaining that top bank investors need to maintain strong underwriting terms.

While no one predicted any immediate changes in the market, panel members noted that a rise in interest rates would lead to lower pricing. If there is a change in interest rates or property performance, “you will see investor demand fluctuate with the realities of the market,” Leopold said.

The return of tax reform

Moderator Michelle Norris, president of National Church Residences Development Corp., also quizzed the panel about the prospects of tax reform and what it would mean for the LIHTC program.

“The whole tax reform is back in the forefront with the Republicans winning both the House and the Senate,” said Dominick Buffa, managing director at First Sterling Financial, a LIHTC syndicator.

Citing a 2013 report by the national accounting firm Novogradac & Co., Buffa described how changes in the tax code could result in a reduction in LIHTC prices and overall equity.  Specifically, Novogradac looked at what would happen to prices if the corporate tax rate were to drop below the current 35 percent level.

The firm determined that a reduction in the top tax rate to 25 percent could reduce LIHTC investor equity prices for a 9 percent new construction investment between 4 and 8 cents, or more. And, a reduction in the tax rate to 25 percent combined with extended depreciation periods could reduce investor equity prices for a 9 percent new construction deal between 6 and 9 cents, or more.

In its report, Affordable Rental Housing After Tax Reform: Calculating Corporate Tax Reform’s Possible Effects on Equity Raised from Low-Income Housing Tax Credits, Novogradac also raises concerns that tax changes could result in a loss of $221 million to nearly $1 billion in annual equity raised, which would significantly reduce the total number of affordable housing units built or rehabilitated each year.

“What I’m concerned about is the amount of uncertainty that it’s going to raise in the market,” Buffa said.

First, the affordable housing industry has to make sure the LIHTC program survives tax reform, said Sfreddo. That means keeping in front of the issue and continuing education about the benefits of the program.*


Merchant Capital to be Acquired

Stifel Financial Corp. has entered into an agreement to acquire Merchant Capital, a public finance investment banking firm headquartered in Montgomery, Ala.

Merchant Capital is well known in the affordable housing industry for its work in underwriting and structuring bonds and other financing. It has offices in Atlanta; Columbia, S.C.; and Seattle.

Terms of the deal, which is expected to close this month, were not disclosed.

“For 27 years, we have dedicated ourselves to the public finance and affordable housing sectors of the economy,” said Thomas Harris, chairman and CEO of Merchant Capital, in a statement. “We have consistently been ranked as one of the top underwriting firms in the Southeast region in public finance, and a leader nationally in affordable housing. We are excited to partner with Stifel to continue providing our clients with an extraordinary level of service, experience, and commitment to success.”

All of the senior leadership team has executed continuation agreements in support of the combination.

The move is expected to strengthen Stifel’s position in several key markets in the Southeast. Stifel (NYSE: SF) is headquartered in St. Louis.

“The addition of Merchant Capital marks our third public finance acquisition following Stone & Youngberg in 2011 and De La Rosa in April of this year. As we look to build our public and corporate finance expertise nationwide, the Merchant team will further enhance our capabilities in the Southeast. This is a high-quality team with a great reputation in the markets they serve,” said Ronald J. Kruszewski, chairman and CEO of Stifel.*  


HUD’s Budget and Multifamily for Tomorrow

Affordable housing industry leaders discussed some of the latest news coming out of the Department of Housing and Urban Development (HUD) at a panel devoted to the federal agency at AHF Live in November.

With Julian Castro taking over as HUD secretary this past summer, Shel Schreiberg, senior partner at the Pepper Hamilton law firm, said the agency’s two primary targets for the remainder of the Obama administration will be the maturing inventory and making the Federal Housing Administration (FHA) work with the low-income housing tax credit (LIHTC).

“Shaun Donovan was probably the smartest HUD secretary we’ve ever had,” said Schreiberg. “But there are still good people at HUD.”

HUD’s decision to switch the project-based rental assistance program funding cycle from fiscal year to calendar year to result in more predictable funding raised some concerns.

“Where I disagree with HUD is how to handle project-based Sec. 8 renewals,” said Denise Muha, executive director of the National Leased Housing Association. “Rental subsidy is 84 percent of the budget and getting bigger while everything else is getting squeezed.”

Muha said HUD is creating a gap by underfunding the project-based rental assistance in fiscal year 2015 to go to the calendar year cycle.

“They are drawing a line in the sand for fiscal year 2016. You have to fund the full amount in 2016,” Muha said. “Both the Senate and the House acknowledge that it’s not enough. There will be a time when it’s going to come to light that there’s not enough money for one contract here or one contract there. If you don’t fund vouchers, you affect people.”

She urged owners and developers with Sec. 8 projects to make sure their legislators know where those developments are, meet the residents, and hear their stories.

Dan Burke, HUD’s multifamily hub director in Chicago, provided an update on some of the agency’s latest initiatives, including its Multifamily for Tomorrow plan.

“This reorganization is a real rebuilding of the organization from the ground up in the sense that we’re going to a new business model and geographic model,” said Burke. “One of the compelling reasons to recognize FHA’s changes is to make it leaner and more effective moving forward in light of how we have aged in place.”

HUD’s Office of Multifamily Housing is pursuing four initiatives: the underwriter model, the account executive model, workload sharing, and streamlined organizational structures. There also is a new five-region field structure.

Headquarters and the Southwest Region have launched under the new model, with the teams complete and training underway. The Midwest Region transformation has started, and Burke said HUD was actively interviewing in-house employees as well as outside candidates for about 100 new jobs.

The Southeast Region relaunch is slated for spring/summer 2015, Northeast Region relaunch is slated for summer/fall 2015, and the West Region will see changes in 2016.

Other positive news, said Burke, is the FHA Tax Credit Pilot program, which has seen average processing times drop from 76 to 59 days since last year. Dedicated LIHTC teams are expected to be created in production and asset management in the five regions.

The Rental Assistance Demonstration program received initial applications for 180,000 public housing and mod-rehab units proposing to undertake $6 billion in capital repairs, and HUD has closed/converted 58 projects with more than 5,000 units, said Burke.

Burke said the Sec. 8 Renewal Guide is in substantial revision and currently under review, adding that it has some very beneficial changes for preservation within it.

Another focus for HUD right now is energy efficiency. Burke encouraged the affordable housing owners in the audience to join the Department of Energy and HUD’s Better Buildings Challenge to cut energy waste and help families save on their utility bills. Affordable and market-rate owners who sign on to the challenge must be committed to cutting their portfolios’ energy use by 20 percent in 10 years.*


Top 150 Nonprofit Senior Living Providers

LeadingAge and Ziegler have teamed once again to release their collaborative analysis of the largest not-for-profit senior living providers in the U.S., but this year the rankings go beyond the traditional top-100 to include the 150 largest organizations in the first-ever LZ 150.

Now in its 11th edition, the LZ 150 ranks the largest nonprofit senior living providers in the U.S. by order of their total owned market-rate units as of December 31, 2013. The genesis of the expanded report was the result of a need to illustrate the growing size of the not-for-profit senior living sector and its evolution to date.

“This report, like the ten LZ 100 editions preceding it, presents a snapshot of the longstanding story of our members’ enlightened leadership, transformation and good works,” said LeadingAge President and CEO Larry Minnix in the report. “Since the first report’s focus on the 100 largest multi-site organizations, the report has expanded over time to tell the story of the nation’s largest government-subsidized housing multi-sites and single campuses, as well.”

The top-10 largest nonprofit multi-site organizations (by total units):

Evangelical Lutheran Good Samaritan Society (SD) —18,286 units

National Senior Campuses (MD) — 17,682 units

ACTS Retirement Services, Inc. (PA) —8,051 units

Presbyterian Homes and Services (MN) —6,782 units

Covenant Retirement Communities, Inc. (IL) —4,703 units

Retirement Housing Foundation (CA) — 4,104 units

Lifespace Communities, Inc. (IA) —4,072 units

The Kendal Corporation (PA) — 3,727 units

Lutheran Senior Services (MO) —3,359 units

Westminster Communities of Florida (FL) — 3,312 units

Collectively, the largest 150 providers represent over 235,000 units throughout the country, said Dan Hermann, senior managing director and head of investment banking at Ziegler.

“As we continue to partner with LeadingAge on this publication, we strive to expand upon new areas of research,” Hermann said in the report. “This year’s publication continues to include the core sections with the number of units and communities, but has also been expanded to reveal trends in home-and-community-based services, technology adoption, joint venture, and future growth plans to name a few.”

The comprehensive 208-page report also ranks providers by the number of independent living, assisted living units and nursing beds they operate, as well as the largest providers of affordable senior housing and single-campus communities, among other notable rankings criteria.

“We look forward to the ongoing development of the LeadingAge Ziegler 150 and the opportunity to enhance this tool even further to assist the not-for-profit senior living provider not only to survive, but thrive,” Hermann said. **

View the LZ 150 report.



Events (2015)

  • Gill Group plans to attend CARH’s Midyear Meeting January 27th – 29th in St. Pete Beach, FL.
    • Cash Gill will be speaking on a panel Wednesday, January 28th entitled Preservation Challenges and Opportunities

Events (2014)

  • Gill Group attended 40+ meetings and conferences throughout the United States in 2014.

GROWTH (2014 - Highlights):

  • Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
  • Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
    • Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff. 

Events (2013)

  • Gill Group attended 22 conferences and meetings throughout the United States in 2013

GROWTH (2013 - Highlights):

  • Gill Group expanded our cutting-edge market analysis software and added our own in-house developed needs assessment software for CNAs, PNAs, PCNAs, PCAs, RPCAs, and every other acronym for this type of service.  
  • Gill Group added 4 offices with appraisers, market analysts, engineers and architects.
    • Within the offices are three architects, one MAI appraiser, two general certified appraisers, five market analysts and 10 additional support staff. 
  • Gill Group expanded the footprint of its subsidiary, National Title & Escrow, to cover the entire United States with a local presence.

Events (2012)

  • Gill Group attended 20 conferences and meetings throughout the United States in 2012

GROWTH (2012 - Highlights):

  • Gill Group developed cutting-edge market analysis software that will allow us to do preliminary analysis that is subject-specific in any market in the United States within minutes.  
  • Gill Group added 11 offices with appraisers, market analysts, engineers and architects.
    • The offices now employ an additional 34 people.
  • Gill Group expanded coverage of its subsidiary, National Title & Escrow, to cover the entire United States.
  • Gill Group expanded coverage of its subsidiary, Gill Insurance Group, to cover the entire United States.

  Gill Group has published the following:

  • New York Real Estate Journal - How can low-income housing facilities translate into high profits?
  • New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
  • Tax Credit Advisor - Boston MSA Market Snapshot
  • Tax Credit Advisor - Seattle MSA Market Snapshot
  • Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
  • Affordable Housing Finance – Urban and Rural Market Studies.
  • Tax Credit Advisor – LIHTC Appraisals 101

Cash Gill, MAI has had the opportunity to speak on the following topics:

  • (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
  • (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
  • (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
  • (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
  • (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
  • (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
  • (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
  • (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
  • (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
  • (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
  • (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
  • (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
  • (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
  • (Chicago, IL) AHF Live – Strategies for Rural Deals.
  • (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
  • (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
  • (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
  • (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
  • (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
  • (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
  • (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
  •  (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
  • (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
  • (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
  • (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
  • (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
  • (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities





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