Fiscal Cliff Law Benefits Affordable Housing
- Feb 12, 2013
By Gail Kalinoski, Contributing Editor
When Congress passed the fiscal cliff legislation on New Year’s Day, Will Cooper Jr. and others in the affordable housing industry breathed a sigh of relief.
The bill, which had earlier passed the Senate but needed the House of Representatives’ approval to send it on to President Obama, extended two important federal tax credits considered crucial to creating funding sources for affordable housing in the United States: the Low Income Housing Tax Credit (LIHTC) and the New Markets Tax Credit (NMTC) programs.
“The entire industry was holding its breath,” said Cooper, president & CEO of WNC & Associates Inc., a national investor in real estate and community renewal initiatives.
Created as part of the 1986 Tax Reform Act to encourage private investment in affordable housing, LIHTC is considered the most successful program for developing and rehabilitating affordable housing in the United States. The Jan. 1 legislation extends the 9 percent fixed-rate floor for properties receiving allocations before Jan. 1, 2014, and maintains its status as a fixed rather than a variable rate.
“It really gives developers more predictability, more stability,” said Cooper. “We definitely would prefer the 9 percent. It takes one underwriting conversation off the table.” And keeping it fixed rate “allows more tax credits to flow into the properties.”
The LIHTC part of the bill was important to the multi-family housing industry but the NMTC extension was even more crucial because it is considered a temporary program and had expired. Congress agreed to extend it for two years, which should alleviate some industry concerns, Cooper said.
WNC is actively involved in the NMTC program, which was enacted as part of the Community Renewal Tax Relief Act of 2000 to encourage revitalization of low-income and distressed neighborhoods and is administered by the U.S. Department of Treasury. One of the original recipients of New Market funding, the company received an allocation in the program’s first year and has had four allocations to date. “We have applications in to Treasury for our fifth allocation, but we won’t know until March,” Cooper said.
WNC’s core business is providing LIHTC equity. Founded in 1972 and based in Irvine, Calif., it has acquired more than $5.5 billion worth of assets representing more than 1,100 properties in 45 states, Washington, D.C., and the U.S. Virgin Islands. It ended 2012 with the closing of a $124.5 million LIHTC fund that will be invested in 20 affordable housing projects across the United States and a Hawaii state tax credit fund for almost $5 million that will be used for a 160-unit seniors housing project in Honolulu. The larger LIHTC fund is known as WNC Institutional Fund 37 and will help build or rehabilitate nearly 2,000 units of affordable housing. One of the first projects Fund 37 is investing in is the development of 32 new single-family homes in tornado-ravaged Joplin, Mo.
Other highlights of 2012 were the closing in March of WNC Institutional Tax Credit Fund 35, a $100 million LIHTC fund that financed 18 affordable housing communities with 1,134 units in 11 states and the closing in June of a $50 million California state tax credit fund used to finance eight affordable housing properties with 445 units. This year, WNC plans to pursue more state tax credit funds, particularly in California and New York, where it has been particularly active over the years. Other states where Cooper expects to pursue specific tax credit funds include Hawaii, Georgia, Iowa, Massachusetts and Missouri. WNC will also be exploring investments in non-tax credit affordable housing projects, specifically low-income housing deals with subsidized lending.
Cooper does expect to see investor interest continue in the federal and state tax credit markets. The WNC Institutional Fund 37 and Hawaii state fund attracted a total of 10 investors, three of which were new to WNC. They were split equally between banks and insurance companies. WNC Institutional Fund 35 attracted seven institutional investors—five banks and two insurance companies.
Since 2010, insurance companies and other financial institutions have started looking at LIHTC and state tax credit investments again, Cooper said. “Yields started coming down again,” he concluded. “Last year (at) this time, yields hit another new low: 6 percent for non-CRA (Community Reinvestment Act) funds. Yields have come up to 6.5 to 7 percent. … If it gets as high as 8, I would be surprised.”
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