The biggest syndicators of low-income housing tax credits (LIHTCs) are trying to adjust to changes in their business caused by the reform of the U.S. tax code passed by Congress at the end of 2017.

“It’s our hope that the market has settled, or is at least at the tail end of settling,” says Mike Jacobs, senior vice president of the originations group for National Equity Fund (NEF), which rose to No. 6 on NMHC’s 2018 Top Syndicators list from No. 7 in last year’s rankings. The prices investors are willing to pay for LIHTCs have fallen 10% to 15% since the 2016 election.

LIHTC prices dropped as the Tax Cuts and Jobs Act reduced corporate tax rates from the top rate of 35% to a low single rate of 21%. “Obviously, the tax legislation had an impact on pricing, due to the reduced corporate tax rate combined with changes to depreciation methods,” says Anil Advani, executive vice president of syndications and finance at WNC, No. 10 on both this year’s and last year’s top syndicators lists.

Tax experts are still assessing how some provisions of tax reform will affect deals. Tax reform fixed the depreciation of LIHTC assets at 30 years, which is causing some capital account issues for projects involved in preserving or recapitalizing old affordable housing properties.

Some syndicators are still working to please investors in funds that raised their capital before tax reform passed. “Funds that were previously providing a high return are now all well below the original targets,” says Karen Przypyszny, managing director of special initiatives for NEF.

Syndicators are also trying to help developers who planned affordable developments before tax reform and now are struggling to close their financing at lower LIHTC prices. “Right now, it’s about helping developers structure deals at $0.90 pricing that were originally underwritten and awarded credits at $0.98 pricing,” says NEF’s Jacobs. “Gaps are plentiful right now, and we’re working diligently with our partners to make sure the deals that can move forward do move forward.”

New uncertainties for 2018 include potential changes to the Community Reinvestment Act, which help motivate many banks to buy LIHTCs. Regulators probably won’t finalize any changes for some time.

Rising interest rates are also likely to put pressure on LIHTC investments. “The potential for a rise in interest rates has the potential to adversely impact tax credit pricing in 2018,” says WNC's Advani.

The Federal Reserve is expected to raise its benchmark rates several times in 2018. “This will stress deals by making debt more expensive and theoretically putting pressure on investors to require higher yields,” says Jeff Goldstein, COO and director of real estate for Boston Capital, which held its position at No. 3 on this year’s NMHC Top Syndicators list.

* The Hunt Cos. bought Alden Torch's syndication business in October 2017; it is now called Hunt Capital Partners.