A New Trend? New Players Invest in Housing Deals for Tax Losses
By Caitlin Jones
2 min read
In what could be a new trend, some new affordable rental housing deals without low-income housing tax credits have attracted corporate investors interested in purchasing the tax losses. These transactions have had federal Section 1602 exchange program funds in them, according to Washington, D.C. attorney Anthony Freedman, a partner in the law firm of Holland & Knight LLP.
Freedman has worked on a small number of these non-traditional transactions in the past five months; all have been direct investments by companies in projects. He said the investors, which he declined to name, “are new to the affordable housing arena as investors.” In the deals he has seen so far the investors have been residential and commercial development firms.
Freedman said these new investors “come in for a role in the project. And part of the incentive for that role is the tax losses that are generated by the project.” In the deals to date, the investors also want a relatively small piece of the cash flow and any future residual benefits. These investors contemplate receiving 15 years’ of losses, but can stay in the deal longer. The developers usually want a buy-out after 15 years, but this is negotiated.
Developers have benefitted in these transactions from the additional equity received from the investors for their project. Additionally, Freedman noted, “I think it strengthens a deal to have an experienced, solid corporate investor.”
He also said the presence of 1602 funds “make a transaction strong; they can make it safe and attractive to investors.”
Freedman indicated that LIHTC developers having difficulty obtaining equity for a new tax credit project might want to consider approaching these non-traditional players.
