LIHTC Market Remains Unsettled

This article from is from Affordable Housing Finance.

LIHTC Market Remains Unsettled
State and local funds look at the year ahead
By Donna Kimura
AFFORDABLE HOUSING FINANCE • MAY 2007

The price for low-income housing tax credits continued to drop in the first quarter of 2007, according to several state and local equity funds.

“They (prices) have not stabilized,” said Bernard T. Deasy, president of Oakland, Calif.-based Merritt Community Capital Corp. “The price per tax credit dollar continued to decrease.”

Two national syndicators reported that prices were settling down, with yields to investors holding at about 5.25 percent, but most state and local fund leaders agreed with Deasy’s assessment in March that prices are still in flux.

“They seem to be dropping some more into the low 90s [cents per dollar of credit],” said Mark McDaniel, president and CEO of the Great Lakes Capital Fund, headquartered in Lansing, Mich. “For deals being priced for fall closings, we see pricing going below 90.”

Prices “are dropping slightly, and we believe they will stabilize by the end of the year around 93 or 94 cents,” added Deborah Saweuyer-Parks, president and CEO of Portland, Ore.-based Homestead Capital.

The price decline continues a major trend from 2006 that started when a few major tax credit investors began demanding higher yields and cut back on their investing. The market responded with yields inching up and tax credit prices dropping. State and local equity funds reported fourth-quarter 2006 yields to investors ranging from 5 percent to 8 percent, with most around the 5.5 percent mark.

“It has not been seen yet if the market has stabilized in 2007 or if that trend will continue or even reverse,” said Hal Keller, president of the Ohio Capital Corporation for Housing (OCCH). “I do think raising equity will be more difficult in 2007 as investors will continue to slice and dice existing portfolios as part of their due diligence.”

Two nonprofit syndicators, OCCH and Homestead, reported raising more money in 2006 than the year before, and the Northern New England Housing Investment Fund said it raised about the same amount. Six regional funds, however, said they raised slightly less than the year before because investors, including Fannie Mae and Freddie Mac, pulled back. One fund attributed its lower amount to just the timing of its own fund-raising cycle.

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