Experts See Room for Further Price Decline for Tax Credits

This article appeared in the March issue of Affordable Housing Finance.

TAX CREDIT EQUITY
Experts See Room for Further Price Decline
Syndicators discuss market trends, 2006 results
By Donna Kimura
AFFORDABLE HOUSING FINANCE • MARCH 2007

The low-income housing tax credit (LIHTC) market is in flux, looking for the right balance between prices and yields in early 2007, according to several leading tax credit syndicators.

“The market will have to find an equilibrium,” said Andrew Weil, executive managing director of CharterMac’s Affordable Housing Group. “Going into 2007, there is uncertainty about where yields will stabilize. Developers and state agencies will have to adjust to already reduced pricing and must be prepared in case pricing continues to drop.”

Others agreed. “The market is still correcting,” said David Robbins, senior vice president at MMA Financial. “It will be sometime into 2007 until we have a better sense of demand and where yields will be.”

Although there was uncertainty about when and where the market would stabilize, a few LIHTC syndicators are hopeful that much of the correction has taken place.

“Credit prices have already dropped considerably,” said Todd Crow, executive vice president and director of institutional sales and portfolio management at PNC MultiFamily Capital. “We are projecting internal rates of return for large national syndicated funds of 5.25 percent to 5.5 percent for the first half of 2007. It’s possible that yields could go higher in the second half of the year, but I doubt they go up much more. In my opinion, absent an external shock (interest rates, etc.), most of the correction is behind us, and I wouldn’t expect any dramatic change between now and the end of the year.”

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