Q&A: How LIHTC Bill Could Ease the Affordable Housing Crisis

CREA’s Tony Bertoldi on investment strategies and the legislation that’s pending in Congress.

The stark imbalance between demand and supply has been driving housing costs skyward for decades. As a result, affordable housing developers and investors must navigate through cash flow risks and rising costs as they try to meet their business objectives.

Tony Bertoldi, co-president of national low-income housing tax credit syndication firm CREA, serves on the board of the Affordable Housing Tax Credit Coalition and has extensive experience in managing investment portfolios and cultivating investor relations, Bertoldi knows firsthand that patience and strategic partnership-building are critical in the affordable housing sector.

In an exclusive conversation, Bertoldi sheds light on vital financing strategies and pending tax bills that could stem the shortage.

How do you build and maintain strong relationships with investors interested in lower-income housing projects? Why would an investor want to join an affordable housing partnership?

Bertoldi: The basis for any strong client relationship is trust, as well as a solid foundation of knowledge and expertise. Establishing trust starts with clear and consistent communication throughout the investment process, and then delivering on what you promised. Establishing a partnership with investors in the affordable housing space can be a long process and often requires patience.

For both new and new-to-us investors, as long as they’re a U.S.-based C-Corp with federal tax liability, we point to our stellar track record in the industry, conservative underwriting practices and investment advantages, while also highlighting the community impact that comes from developing affordable housing.

What factors do investors typically consider when evaluating opportunities in this space?

Bertoldi: Investors in this space generally fall into three categories: banks, economic buyers such as insurance companies, and government service enterprises—Fannie Mae and Freddie Mac. Bank investors are motivated by several factors but are largely driven by Community Reinvestment Act requirements and their appetite for lending. Economic investors are seeking portfolio diversification and solid returns. GSEs invest under their mission/mandate and appetite tends to fall somewhere in between the previous two.

Within the products, investors are interested in yield, price—or “price per credit”—reputation of the syndicator and the property-level general partner. Factors such as experience, credit, real estate market dynamics and tax structuring characteristics all come into play, as well.

CREA offers a multitude of fund types to address the various needs of investors, including proprietary funds, multi-investor funds, state tax credit funds, enhanced funds—with a credit wrap—and specific impact investing funds that target certain resident populations and services.

What role do you see LIHTC properties playing in addressing the affordable housing crisis?

Bertoldi: LIHTC is critical to addressing the affordable housing crisis. It is estimated that nearly 90 percent of all affordable housing developed in the U.S. since the inception of the program in 1986 has been from LIHTC syndication. The LIHTC syndication business is the most successful and longest-running public-private partnership in the housing sector.

There is a tax bill in the U.S. Senate right now—it has passed the House—that contains some expansion to the LIHTC allocation over the next two years ending Dec. 31, 2025. If that passes, an estimated 200,000 new affordable homes would be created or preserved in the U.S. over that period. This additional supply won’t solve the issue, but it goes a long way in addressing the affordable housing crisis.

How do LIHTC properties contribute to neighborhood revitalization and economic development, particularly in underserved areas?

Bertoldi: LIHTC developments offer the opportunity to redevelop vacant in-fill sites within urban areas, as well as rehabilitate obsolete or dilapidated properties. These developments result in highly improved aesthetics, improved overall security in the immediate area, and contributions to the tax base of the municipality. This is all in addition to the generation of local jobs in construction and management of the properties and most importantly, new, safe, clean, affordable homes for the local workforce and improvement of their quality of life.

What are some best practices for developing or managing LIHTC properties?

Bertoldi: While development and property management are not my core competency, I have enough adjacent experience and exposure in this market segment to understand what works. We see the best success from groups that have the most experience, know their markets very well and have a strong balance sheet to address the inevitable bumps along the way.


READ ALSO: Paving the Way for Equitable Solutions in Affordable Housing


If you had the power to change policies at the federal, state or local level, what would those changes be?

Bertoldi: There are two areas I would focus on: First is the approval, permitting and entitlement process. Moving an affordable housing development from conception to closing can take years, sometimes up to three or four years. Time is the enemy of a deal as costs are incurred along the way and pricing of debt and construction materials can shift with the market in unexpected ways. To the extent that a municipality can help facilitate that process with timely approvals, inspections, permit issuance etc., the developer can put shovels in the ground sooner.

Second, we need to change the public perception of affordable housing. This is one of the main goals in publishing my book American Dream Come True–to debunk myths about affordable housing and to reduce NIMBY-ism that ultimately results in some developments falling through.

In your opinion, what is the main thing driving the countrywide shortage of affordable housing?

Bertoldi: Demand has outpaced the supply of housing, and the cost of housing has skyrocketed while incomes have remained relatively flat. If you track the median home sale price and median wages/income over the past 50 years, you will see the problem instantly. The cost of a home has simply become too high for most people to afford. In basic supply and demand economics, the answer is more supply. If the tax bill I mentioned earlier passes, that is a huge step forward, but not enough. The market is out of balance right now and we need more supply.

Looking ahead, what opportunities do you see for expanding investment in affordable housing, and how do you plan to capitalize on these opportunities?

Bertoldi: The tax bill in Congress is the largest single improvement we can hope for and if it doesn’t pass this year, we will need to continue the legislative efforts to ensure it is on the table for the next rounds of budget discussions and tax bill negotiations.

Separately, I am seeing a shift to increased impact investing. This is specific investments in certain resident populations or certain locations. Investor partners then go the extra step to bring services, products, or other contributions to the property or development participants to enhance the resident experience and improve operations, making an active impact aside from the passive investment.