Opportunities & Challenges

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3 min read

In interviewing developers and owners for this month’s theme article on preservation transactions (“Preserving,” p. 24), I was struck by the variety of properties acquired and renovated and the different ways that deals are structured.

For certain, the opportunities for preservation transactions are enormous. In existing federally assisted, financed, or subsidized multifamily properties alone there are a couple million affordable housing units.

This inventory represents a wide range of properties that are candidates for preservation transactions: expiring LIHTC, Section 8, Section 236, RAP, Rent Supp, RD Section 515, LIHPRHA, and public housing (for RAD deals).

As I learned in my research and interviews, developers find their preservation deals in many different ways. It can be a broker approaching with a property (e.g., Year 15 LIHTC). Or, as we see with the Arlington (Va.) Partnership for Affordable Housing, making use of relationships – board members and others – and diligently tracking local LIHTC projects hitting Year 15. Another method is two mission-driven nonprofits coming together with a common purpose, as POAH did to preserve an aging Section 202 property that was the only housing asset of a church-related nonprofit. (“A Providential Match,” p. 4) A final example is a portfolio of general partner interests acquired years ago that is beginning to generate new acquisition/rehab deals.

The housing credit is typically a key part of the funding package for new preservation transactions, and nearly all state housing finance agencies provide a set-aside, extra points, or some other preference for preservation deals in their LIHTC programs.

Yet while the opportunities are almost limitless, there are some challenges to preservation transactions as well.

Many preservation deals are financed with 4% housing credits and tax-exempt bonds. However, the tax reform “discussion draft” recently released by House Ways and Means Committee Chairman Dave Camp (R-Mich.) (“Camp Presents…,” p. 14), would eliminate both of these valuable tools. The plan would also end two other enormously successful and valuable tax incentives – the historic rehabilitation tax credit and the new markets tax credit.

The tax reform plan proposes a number of sweeping changes to the LIHTC program. At this early stage, it is difficult to gauge what impact they might have. Yet any changes that would diminish current LIHTC production levels and make preservation deals less viable do not make for good public policy.

Preservation deals are hard enough to pencil out already. The opportunities are there – but the challenges should not be made even steeper.

Keep on preserving. And enjoy the issue.