With the recession broadly impacting private sector needs to invest in Low Income Housing Tax Credits (LIHTC), the New York Division of Housing and Community Renewal (DHCR) is hoping community banks might help fill the void. Using a model that has proven successful in other states, New York is encouraging smaller banks to contribute equity to the general fund so DHCR can meet its obligations under the Community Reinvestment Act while gaining access to affordable housing investments and the tax credits that accompany them.
New York State Housing Commissioner Debra VanAmerongen just completed leg one of a state-wide road show to promote the fund, stopping in Albany, Buffalo, Rome, and Syracuse for stakeholder meetings. "We've done the four regional forums to introduce it both to the affordable development community and to the financial community, and we plan to do more," VanAmerongen says.
Markets for LIHTC credits have waned in the past few years as companies that traditionally sought the tax credits as a shelter vehicle no longer have taxable profits due to the recession. Smaller community banks have traditionally not played a role in raising real estate equity due to the limitations on their ability to generate larger sums of cash. "The major financial institutions and national banks were the players, and people were not all that interested in talking to a smaller bank that might only have $500,000 to invest," VanAmerongen explains.
All that has changed along with the economy, and New York is seeing broad-based support to re-energize its LIHTC program with the fund. Even as DHCR began public discussion of setting up a fund, Lansing, Mich.-based Great Lakes Capital Fund, which manages similar programs in Illinois, Indiana, Michigan, and Wisconsin, stepped forward to manage the effort. Likewise, New York State Superintendent of Banks Richard Neiman threw his muscle behind the equity fund, writing a letter to every financial institution in the state encouraging them to participate in the program.
"The primary economic benefit of a LIHTC investment is the opportunity to claim a federal tax credit for 10 years," wrote Neiman in the letter. "The Upstate Equity Fund would also help keep your investment 'local' and add to the economic stability of the communities your institution serves."
Since its inception, the LIHTC program has been responsible for adding some 50,000 units of affordable housing to New York State, according to DHCR. Great Lakes?which itself has generated $1billion worth of investment across 21,000 units in the last 15 years?will look to build on that. Although a Great Lakes spokesperson was not available at press time for an update on the equity raise, the company is already listing underwriting details and pro-formas for deals eligible under the fund on its Web site.
VanAmerongen will be carrying the torch forward with additional regional forums, as well. "To the extent that people are interested in hearing the New York State Commissioner of Housing speak, I'll make myself available to generate interest and connections," she says. "We need to get these investments going as soon as possible."