What You Need to Know About Recapitalizing Affordable and LIHTC Housing

By Jessica Fiur, Senior Editor

Did you know that many low income housing developments are coming to the end of their tax credit lifecycle? In MHN’s recent webinar Preserving and Recapitalizing Low Incoming Housing Tax Credit and Affordable Housing, hosted by Executive Editor Keat Foong, the presenters discussed how to reinvigorate affordable housing.

According to David Smith, founder and chairman, Recap Real Estate Advisors, it is currently difficult to get LIHTC for properties, though syndicators are plentiful. “LIHTC is scarce and volume cap is plentiful,” he said. “[But] right now, if you don’t get LIHTC, you don’t get your deal to work.”

Of course, tax credits don’t cover all of the properties in the United States. And getting creative with the financing doesn’t always help. Sometimes, the simplest approach is the best one.

“If you see an affordable property that is physically obsolete, nine times out of 10 it has overly engineered financing,” Smith said.

The best method to ensure a successful transaction is to do your research—look at the local market, similar properties and how the industry itself is faring.

“Markets rise and fall, so what was a good affordability bargain might not be one anymore,” Smith said.

It’s not just for-profit companies that are looking to LIHTC. Non-profit companies also could benefit.

“What makes property development unique for non-profit?” David Schultz, vice president of development, Community Housing Partners, asked. “Absolutely nothing. A good opportunity for a for-profit is a good opportunity for a non-profit.”

A good bet could be to look towards preserving a community. Of course, when doing so, you still have to get a good handle on the market, as you would with any property.

“You want a good market, but not too good,” Andrew Davenport, regional vice president, Michaels Development Company, said. “If it’s in a really good market I probably can’t afford it for a preservation project.”

Joshua Reiss, assistant vice president, Hunt Mortgage Group, also stressed the importance of research—and not just that of the industry, but of your own parameters for the deal. “You don’t approach your lender until you know your goals, timing constraints and your business plan,” he said.

So when you’ve done your due diligence, and you decide you’re ready to move forward, what should you do?

“Determine what your ‘hot buttons’ are so you don’t waste your own time or your agency’s time,” Reiss said.

According to Reiss, when you get down to the nitty-gritty, there are several motivations for a one-step recapitalization, including long-term fixed interest rates, ability to finance moderate to substantial rehabilitation, ability to seek supplemental financing on Fannie Mae or Freddie Mac Loans and reduced transaction costs versus the two-step process.

The most important thing to remember, when trying to secure a loan, is to not get discouraged when you hit bumps in the road.

“If it were easy, everyone would do it,” Smith said.

Watch the webinar here.