If 2016 was a standout year of successful, dependable equity and deal flow for the nation’s largest low-income housing tax credit (LIHTC) syndicators, 2017 looks to be anything but. Uncertainty over Trump administration adjustments to the corporate tax rate has seen LIHTC underwriting peg forward-looking prices from $1-plus highs in December 2016 to lows in the mid–80 cent range, with all kinds of adjustment levers incorporated to hedge an expected tax rate reduction.
“2017 will be a really strange year,” says Joe Hagan, president and CEO of Chicago-based National Equity Fund, which syndicated 101,583 affordable housing units in 2016. “Primarily, we can’t figure out our production budget. Pricing on multi-investor funds averaged $1.03 last year, and if we keep the return the same but go from a 35% to a 25% tax rate, the pricing is 83 cents. That’s the issue, and we’ll need help from various sources, from deferred developer fees to more state credits and soft money, to fill the gap.”
National Equity Fund will bring completely restructured business operations to bear on the pricing challenge: The firm has established tactical units for origination, investor relations, underwriting, and deal closing that Hagan says have been essential to sustaining and growing the company’s LIHTC volume. “I wish we had reorganized like this 10 years ago. We closed 23 deals last December alone, and there’s no way we would have been able to sustain that activity without a reorganization,” Hagan says. “It has worked really well.”
Regional multi-investor funds could also help to prop up the volume lost by proprietary investors waiting on the sidelines to see how the tax rate changes shake out. While smaller banks come into deals with commitments typically lower than $1 million, they’ll usually grow repeat volume to the $5 million and $10 million thresholds as they become comfortable with an originator. “They come in at a low benchmark but tend to increase year over year,” Hagan says.
Still, finding certainty over the corporate tax rate will be a key to unlocking LIHTC deals for all sponsors and syndicators in 2017 and beyond, and will critically depend on when—and by how much—taxes are reduced. “We’re very happy with what we were able to accomplish, with the sharp drop in pricing at the end of ,” says Alden Torch Financial senior managing director Jeffrey Weiss. “With that, 2017 has become an exercise in how we structure deals. A lot of syndicators and investors are underwriting to a lower tax rate. There are investors on the sidelines waiting for the dust to settle. Everyone is searching for good, true guidance.”
|Units Syndicated (as of Jan. 1, 2017)||% Change 2016 to 2017||Corporate
|1||Alden Torch Financial||183456||-4%||Alan Fair||Denver||CO|
|2||PNC Real Estate||136152||1%||Todd Crow||Portland||OR|
|3||Boston Capital||121875||-6%||Jack Manning||Boston||MA|
|4||Boston Financial Investment Management||108717||-14%||Kenneth Cutillo||Boston||MA|
|5||The Richman Group Affordable Housing Corp.||106143||2%||Kenneth J. Valach||Greenwich||CT|
|6||Enterprise Community Asset Management||105407||2%||Charles R. Werhane||Columbia||MD|
|7||National Equity Fund||101583||5%||Joseph Hagan||Chicago||IL|
|8||AIG Affordable Housing Partners||99947||-3%||Douglas S. Tymins||Los Angeles||CA|
|9||Raymond James Tax Credit Funds||96182||42%||Steve Kropf||St. Petersburg||FL|
|10||WNC & Associates||50924||0%||Wilfred N Cooper Jr.||Irvine||CA|