Ever since Fannie Mae and Freddie Mac were put into conservatorship in September, their purchases of LIHTCs have all put ceased. To be sure, developments dependent on LIHTCs have slowed considerably in the last year as the value of these tax credits have dropped significantly. But this issue is dwarfed by Fannie Mae and Freddie Mac's de facto withdrawal from the market – the two agencies are among the largest buyers in the market. Indeed, earlier this month the National Association of Counties, the National Association of Local Housing Finance Agencies, the National Community Development Association, and the U.S. Conference of Mayors reportedly asked Treasury Secretary Henry Paulson and Federal Housing Finance Agency director James Lockhart, to direct the GSEs to start buying these credits again.
"There has been a flight to quality in the LIHTC market for over a year," Gary Downs, a San Francisco-based attorney with Pillsbury Winthrop Shaw Pittman, tells GlobeSt.com. "And it has become even more acute over the last few months, as Freddie and Fannie decreased their purchases and at some points even ceased them all together."
The problems have worsened as other institutional buyers have stepped back as well – largely for similar reasons. With the credit markets frozen, investors are hanging onto their cash. For affordable housing advocates and developers, this state of affairs is particularly frustrating because the Housing and Economic Recovery Act, which passed in July, increased the amount of credits available to these projects. But with the subsequent huge disconnect that has developed between supply and demand, Downs says, these new regulations are irrelevant – at least in the current market.
This environment – painful as it is – though has fostered talk of developing what could be an entirely new source of demand. "There is discussion of creating what would be essentially a retail market for tax credits that would be sold to individuals if the supply and demand issues in these traditional markets don't resolve quickly," Downs says.
These informal talks are being spearheaded by developers that are having difficulties accessing this part of the capital market, he says, declining to name them for reasons of confidentiality. The crux of the discussions focus on creating a retail network in an attempt to sell the credits they are producing for their projects, he explains.
Few participants in this segment of the CRE industry are willing to discuss the plans other than in the most general of terms. "We are all trying to figure out how to engage any entity that wants to invest in LIHTCs," Dana Bourland, senior director of Baltimore-based Enterprise Community Partners, tells GlobeSt.com. "There is a lot of discussion around how to keep this vehicle alive in current economic situation.
"Clearly something needs to be done," Joel Harden, CEO of the HCFD Corp., a Philadelphia-based developer, tells GlobeSt.com. "The demand for these credits is simply not there anymore –at least at the levels it was a few months ago."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
