Report Finds Strong Operating Performance Among LIHTC Sites

According to a new report from public accounting firm CohnReznick, LIHTC sites are operating better than in any period in the program’s 31-year history. For its report, the firm requested the participation of every active housing tax credit syndicator and some of the nation’s largest institutional investors. Thirty-three housing tax credit syndicators and two of the nation’s largest investors participated in the survey. The firm analyzed data collected from more than 22,000 housing tax credit properties.

In 2016, the surveyed portfolio reported, on a median basis, 97.8 percent physical occupancy rate, 1.35 debt coverage ratio, and more than $600 per-unit per-annum net cash flow (cash flow available after paying for expenses, mandatory debt services, and required replacement reserve contributions). According to the report, performance continues to be strong for many reasons, primarily:

• The growing need for affordable housing supports high rates of occupancy for housing tax credit properties and strong operating performance. There are 11.2 million severely cost-burdened renter households (i.e., those who spend more than 50 percent of their income on housing), which is projected to increase to more than 13 million by 2025. Not surprisingly, virtually all housing tax credit properties are fully occupied barring normal turnovers, many with lengthy waiting lists.
• The unique public-private partnership structure of the housing tax credit program supports a very low rate of foreclosure compared to any other type of real estate.
• The housing tax credit industry, as a whole, has made significant strides in improving the quality of underwriting and asset management practices.

The report notes that prices for housing tax credits fell sharply at the end of 2016 as investors worried about potential comprehensive tax reform reducing the value of housing credits. The price at which housing tax credits trade has generally fallen by over 10 cents per dollar of credit between the end of 2016 and the third quarter of 2017. “If this trend continues, properties financed with housing tax credits may be forced to borrow more money from other sources to make up the difference,” cautions the report. “That could eventually weaken debt-coverage ratios and cash flows for tax credit properties,” it warns.