Since its inception in 1986, the LIHTC program has helped create more than 3. 1 million units of affordable housing, including
nearly 2. 6 million units affordable to low-income households. But
what happens to these properties when their compliance periods
end at year 15?
It turns out that most property owners—especially non-prof-
its—continue to operate their properties as affordable housing
beyond the term of IRS regulatory requirements. This is mostly
due to the extended-use agreements that run with the land, but
also fits with ownership’s approach to affordable housing preser-
vation. There is also now a wide variety of sophisticated financial
tools to secure the capital needed to preserve affordability.
Looking at LIHTC allocations from 2004 to 2008, there are
7,551 properties comprised of more than 600,000 units approach-
ing the end of com-
from now through
correspond to state
aren’t many sur-
prises when we
look at where these
units are located
New York top the
Though the condition of each property will depend on a myriad
of factors, these properties are all at least 15 years old and in need
of some form of repairs or renovations. For properties with
LIHTCs allocated in the 2004 to 2008 range, 46% of units were new
construction, while 40% were acquisition and rehabs.
While 15 years is a relatively short time in the economic life of a
building, the use, location, quality of construction, and scope of
renovations will all influence the amount of capital needed for
repairs and upgrades.
A new construction property serving families with children in
the northeast, for example, was found to need more than
$100,000 per unit as it hit year 15. These costs—obviously at the
high end of the spectrum—were due to a combination of failing wood siding, trim, and related roof problems, as well as
wear and tear from large families with many children. Or, a
property located in a high crime area may have had operating
expenses skewed towards lighting, surveillance, and security
costs, increasing the likelihood for deferred maintenance in
Once you have an idea of the costs associated with keeping
your property in good condition for your residents, figure out the
new ownership and capital structure. When limited partners seek
an exit, general partners are left with the need to refinance,
resyndicate, or sell. There are several effective financing options
Both Fannie Mae’s Multifamily Affordable Housing and Freddie
Mac’s Targeted Affordable Housing product lines offer a host of
customizable, low-cost solutions for properties with expiring tax
credits. These non-recourse programs start at $1 million and fea-
ture tiered pricing with more favorable terms and higher proceeds
for more affordable properties. You can qualify for preferred pric-
ing if your capital improvements plan incorporates a strategy to
reduce combined water and energy use by 30% or more—with at
least 15% of those savings in energy.
If you are set on a long-term hold, we recommend examining
FHA options. Section 223(f) refinancing is a great tool if you are
looking to ‘set it and forget it’ with loan terms up to 35 years.
Leverage ranges from 85% to 90% LTV depending on affordability.
MIP rates drop to 0.35% for green/energy efficient properties and
0.25% for broadly affordable properties. Have an existing FHA
loan in place? Section 223(a)( 7) was built to refinance affordable
properties with an existing FHA loan. Benefits include a DSCR as
low as 1.05x for non-profit borrowers.
Fannie Mae and Freddie Mac both offer low-cost resyndica-
tion solutions as well. Fannie Mae’s Flexible Choice Bridge starts
at $1 million and comes in two flavors–an ARM 7-6 and
Structured ARM (SARM) Loan–both of which feature a fixed-
rate conversion feature and 80% max LTV. The Freddie Mac
Bridge to Resyndication is a shorter term solution with a
24-month term with one 6-month extension option and a maxi-
mum LTV of 85%.
A LIHTC property approaching year 15 is often a blessing in
disguise. Sure, you’ll be presented with a host of nuances to navi-
gate, but this recapitalization milestone also provides an opportu-
nity to update your asset to align with where the market has moved
over the past decade and a half. ◆
LIHTC Properties After Year 15
BY KEVIN DEEGAN & SUZIE COPE
Suzie Cope and Kevin Deegan are both directors in the affordable housing group at Hunt Real Estate Capital. The views expressed here are
the authors’ own and not those of ALM’s Real Estate Media Group.
There are a wide variety of
sophisticated financial tools to
secure the capital needed to