The Real Deal New York

Financing for affordable housing harder to come by

February 11, 2008 04:56PM
By Adam Pincus

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The credit crunch has left developers of affordable housing in New York City scrambling for more financing and considering smaller projects, as the money behind crucial incentives dries up.

Financing for a key driver of affordable housing developments — low-income housing tax credits — has been curtailed, as investors who buy them have shown less interest.

Affordable housing financiers — called syndicators — package the tax credits and sell them to firms that get a return on their investment and a reduction in taxes. Banks that buy the low-income credits also get favorable consideration for investing in underserved communities from regulators under the federal Community Reinvestment Act.

But after the subprime crisis left balance sheets uneven, many investment firms have less need to shelter profits from taxes.

“These credits are a shelter that provide a tax benefit. But if [investment firms] don’t have as much income, they don’t need as many credits,” said Abby Jo Sigal, a vice president of Enterprise Community Partners Inc., whose affiliate Enterprise Community Investment is a major syndicator of tax credits in New York City.

Tax credit pricing could fall by as much as 10 percent from its peak last summer, said Denise Scott, vice president of New York Equity Fund, an affiliate of the national Local Initiative Support Corp.

The city, too, is keeping an eye on the market.

“There is some concern in this area,” said Richard Froehlich, senior vice president and general counsel to the city Housing Development Corp., which provides capital to affordable housing projects. “It might require the use of additional subsidies in the future.”

Residential developers are considering fewer units in future projects in response to the changing market.

“I think there is a potential risk of a reduction in units because you have one of the major sources of financing being reduced,” said Enterprise’s Sigal. “However, that reduction can be countered by bringing additional sources of funding to [affordable] housing development.”

Several banks, including Citigroup and JP Morgan Chase, said they have continued to invest heavily in the credits.

But the country’s biggest buyers of tax credits — Fannie Mae and Freddie Mac, the huge government-sponsored investors — apparently stopped buying them last year, several tax credit syndicators said.

Fannie Mae reduced its annual investment in tax credits from $2 billion in 2006 to $1.1 billion in 2007, a spokesman said. The change pre-dated the subprime crisis.

Fannie Mae officials would not say whether the financier had temporarily left the tax credits market, but senior vice president Ed Neill said it plans to participate in the future. Officials at Freddie Mac did not return calls for comment.

David Muchnick, coordinator of the New York-based advocacy group Housing First!, said the tax credits were critical for Manhattan, where they were used to develop 14,150 apartments in the 1990s.

Without them, “the borough would have seen a net loss of nearly 13,000 rental units,” he said.

Martin Dunn, the president of Brooklyn-based affordable housing developer Dunn Development, said syndicators were warning him to expect less from the sales of tax credits.

To bridge the gap, Dunn said he must get creative.

“The government can put in more money, private capital funds could give more, or we could raise the rents some,” he said.
 

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