In the Low-Income Housing Tax Credit (LIHTC) program, Year 15 is a critical point where the initial compliance period ends. Senior Managing Director Brandon Grisham joined moderator Cynthia Bast and panelists at the Texas Housing Conference to discuss executions, tactics, and strategies and trends that influence these transactions.
Generally speaking, there are seven strategies owners can explore in year 15. The panelists agreed that there is no one-size fits all approach to determining which strategy is the best option for a particular property, as a 15-year investment will see changes in the market that require ongoing evaluation to maximize value. “The best approach to planning for year 15 is to evaluate annually, not just in year 12 or year 13, which is when many people advise to start planning your strategy,” said Grisham. With the breadth of tax and regulatory implications that affect each partner, it is crucial for operators to understand their options and to be armed with in-depth, up to date market analytics to determine the best long-term solution for their property and for their goals.
The panelists discussed the menu of options, including:
Buyout of Limited Partners: The general partner can buy out limited partners, gaining full control and flexibility in managing the property.
Sale to a Third-Party Purchaser: Selling the property to a non-profit organization, third party or an existing partner can ensure continued affordability and compliance with LIHTC requirements.
Portfolio Sale: Selling the property as part of a larger portfolio can attract institutional investors interested in affordable housing.
Refinancing: Refinancing the property can provide funds for a buyout, renovations or improvements, allowing the general partner to maintain the property as long-term affordable housing.
Resyndication: Applying for new LIHTCs can extend the affordability period and provide additional capital for improvements.
Qualified Contract Process: The owner can request a qualified contract from the state housing agency, which involves offering the property for sale at a formula-based price. If a buyer is not found within a year, the property can be converted to market-rate housing.
Conversion to Market Rate: If allowed, converting the property to market-rate housing can be an option, though this may involve negotiating with the housing agency and considering tenant impacts.
The panelists dug deeper into the current trends in Texas, particularly in Austin, where the supply of housing has increased dramatically in the last few years. “We’ve seen rent advantage shrink across the country as a function of conventional deliveries putting pressure on the affordable housing stock,” said Grisham. “Austin is an interesting example. If you want to look at what has happened in the city of Austin in terms of rent, they’ve come down for everybody. It’s probably never been a better time to be a tenant – whether you’re at 30% AMI or 150% AMI. What’s happening in Austin is a demonstration of what happens when you build a ton of units.”
Whether in high supply areas like Austin, or in more competitive housing markets like New York, maximizing value at year 15 necessitates complex consideration to determine the right path to pursue. Berkadia Affordable Housing provides data, analytics, and advisory services to evaluate the route that makes the most sense for their investment goals.
Learn more about Berkadia Affordable Housing.
– Senior Managing Director Brandon Grisham