The deal between Fannie Mae and the Citigroup Inc. subsidiary sparked debate about the emergence of a secondary market for LIHTCs. There is little mystery why one hasn't developed before now since, at 20 years or so, the industry is still quite young. Citibank, for one, though, would like to see such a development occur sooner rather than later.

"One of the great things about this transaction is that it demonstrated the liquidity in the LIHTC market," says Andy Ditton, managing director of Citibank Community Development, a business unit of Citigroup. "That has never really been demonstrated before. Until now, there have largely been one-off secondary market sales on an idiosyncratic basis."

He says he hopes this transaction will bring more players to the market, especially if they believe a secondary market is developing. "Investors that don't feel comfortable with a 15-year time horizon for their tax needs will not invest, but if there was a secondary market, they might step in," he says.

Other observers are more cautious. "Let's wait and see if other large buys are made before we start saying a secondary market has arrived," Werhane says.

It is difficult to say when another large portfolio will come to market. The portfolio Citibank acquired from Fannie Mae consists of 12 funds that own 382 properties with a total of 31,050 units. Ed Neill, senior vice president of Tax Advantaged Equity for Fannie Mae, reports the agency is talking to a number of other investors about additional transactions, but cannot predict timing, size or even whether another similar sale will take place.

Stephen Ryan, a partner with Cox Castle & Nicholson's San Francisco office, is betting that one will. "Fannie Mae has traditionally been a buyer and a holder. I think we will see other financial institutions making similar acquisitions from Fannie Mae." His reasoning? For starters, LIHTCs are becoming increasingly attractive investments. "LIHTC investing is now a maturing industry with a marketplace that has become much more efficient," he says. "The relatively low returns presently available in the public debt markets make LIHTC investments, which recent studies show to have historical default rates well below the average for real estate investments, a sound economic alternative on a yield driven basis."

Werhane adds, "From the investor's perspective, LIHTCs will likely offer better opportunities for a little extra yield going forward. These credits are becoming an entrenched part of the investment landscape."

Ryan says another factor driving investment for some financing institutions is the desire to fulfill regulatory requirements for affordable housing and community investments created by the Community Reinvestment Act. Specifically for Citibank, he adds, it may well be more than coincidence that its $676-million investment follows its recent acquisition of what was once GMAC's national affordable housing lending platform, headed by Steven Fayne, and GMAC's affordable housing investment banking arm, run by Hal Kuykendall and Larry Dale.

"Adding this equity component on such a large scale certainly demonstrates a comprehensive commitment to affordable housing in all its facets," Ryan says. "We have heard Citibank's traditional competitors have taken note of this new capacity and are working to beef up their own affordable housing platforms."

For its part, Citibank is also continuing to ratchet up its platform. The institution was rather late to the game, Ditton says, and did not begin investing serious volumes until the early 2000s. The bank expects to make an additional $600 million to $700 million in new LIHTC investments this year, he says. "Because our operations are highly profitable we can use the tax benefits. At the same time we are also stepping up our general involvement in the affordable housing market."