How HFAs Are Responding to LIHTC Market Changes
A number of state housing finance agencies (HFAs) are making moves to help developers through dramatic changes in the low-income housing tax credit (LIHTC) market.
The action comes as some affordable housing deals face unexpected funding gaps this year as investors and syndicators have grown increasingly cautious following the recent election.
To help affordable housing deals, some HFAs are considering reserving some of their 2017 LIHTCs to fill gaps in 2016 projects. Some agencies are also pushing back their 2017 program deadlines to later in the year.
“We’re proposing to take some of the credits we’re getting in 2017 and making them available to the 2016 projects that we awarded back in June,” says Sean Thomas, chief of staff at the Ohio Housing Finance Agency (OHFA).
OHFA and other state HFAs have been hearing that some investors and syndicators are putting their investments on hold and/or are repricing deals based on a lower tax rate in anticipation of tax reform efforts, which is causing some funding gaps.
“We wanted a policy that helps out the 2016 projects but at the same time doesn’t cause too many changes to our 2017 round,” Thomas says.
OHFA expects to have about $27.3 million in LIHTC authority this year. Of that amount, the agency is looking at setting aside $4.59 million for projects that received a 2016 award but due to credit pricing now require additional credits to remain viable.
Owners with “unused eligible basis” would be able to request an additional allocation of credits not to exceed 15% of their initial award. Owners would also have to increase a portion of their deferred developer fee, so everyone is making a contribution.
While $4.59 million would be the maximum available, Thomas thinks the amount may be closer to $3 million because several deals have closed on their financing and do not need additional credits.
In another move, OHFA is also proposing to postpone its 2017 application deadline, which is scheduled for late February, to March 16.
OHFA’s proposal is not final. It still must be approved by its board in February.
Officials at the North Carolina Housing Finance Agency also are considering a plan to allow developers who were awarded 2016 LIHTCs to request an additional allocation to help fill funding gaps created by the recent decline in equity prices.
The plan, which must still be approved by the North Carolina Federal Tax Reform Allocation Committee, would allow an additional $100,000 allocation to any project. The proposed deadline for requesting an additional allocation is Feb. 27.
The market disruption is putting other states in a similar situation. “When projects submitted their applications in 2016, they were expecting a higher equity price,” says Tasha Weaver, manager of the tax credit program at the Colorado Housing and Finance Authority (CHFA).
Her agency is reaching out to developers who received a LIHTC reservation last fall to see the status of the deals, assess any potential funding gaps, and determine what CHFA can do to help, according to Weaver.
CHFA, which has about $12.5 million in annual LIHTC authority, is considering holding back about $500,000 of its 2017 credits, in anticipation of 2016 deals needing additional credits. The agency expects to finalize its plans over the next several weeks.
On a positive note, CHFA leaders have been hearing that demand for their state housing credits remains healthy and will be an important funding source.
Officials at the Illinois Housing Development Authority (IHDA) have also revised their 2017 allocation timeline. IHDA has historically held two application rounds each year. Its first-round deadline was scheduled for Feb. 15, but the agency has pushed that back to June 23 and will hold one round this year, reports Christine Moran, managing director, multifamily financing.
The industry should have a better understanding of the market by then. It also gives IHDA a chance to assess the 2016 projects.
It’s important to note that not all of the 2016 project sponsors have come back to the agency with a change in “net cent raise,” says Audra Hamernik, executive director.
If a LIHTC syndicator had an investor committed for a set of deals, those projects have been holding their prices.
Like the other agencies, IHDA is considering using some of its 2017 credits to assist the 2016 projects that are facing funding gaps. Officials also will evaluate the possibility of using Illinois Housing Trust Fund money, HOME funds, and the state housing tax credit.
Other states report they are evaluating the market and their recent LIHTC deals.
“We are engaged with developers and syndicators to stay current on this evolving situation and have begun discussions with our board about possible measures to address the situation if it does not soon stabilize on its own,” says Kristina Tirloni, spokeswoman for the Texas Department of Housing and Community Affairs. “We are looking at all possible tools, including other available resources, to address gaps.”
Officials at the California Tax Credit Allocation Committee are also exploring different options to help deals. For 2016 awardees only, the committee is “considering allowing the projects to convert to a hybrid 9%/4% structure to bring in additional 4% tax credit equity, which would be made available through monetizing a portion or all of the voluntary basis reduction contained in the original 9% application.”
Committee leaders are seeing if there’s interest in pursuing this idea, and no decisions have been made.