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February 9, 2010 |
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| March 26, 2008 |
By: Paola Iuspa-Abbott |
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he upheaval in the nation’s financial markets is creating uncertainty over the future of low-income housing in South Florida and the tax credit program that helps fuel the projects.
For years, some of the country’s largest financial institutions — including Fannie Mae, Freddie Mac and Bank of America — helped pay for the construction of low-income apartments by purchasing tax credits in exchange for a reduction in their federal tax liability. But now, as financial institutions report lower earnings and even losses, their appetite for tax credits is rapidly fading. The lower demand is hurting the budgets of low-income housing developers.
When Miami-based Carrfour Supportive Housing applied for tax credits in April 2007, the low-income housing developer hoped to raise $23.47 million by selling credits to corporate investors on Wall Street.
Carrfour wants to build a 100-unit apartment building for low-income families and homeless people at Northwest 14th Avenue and 54th Street in Miami’s Liberty City. The project, named Dr. Barbara Carey Shuler Manor, carries an estimated cost of about $28 million. Carrfour hoped to subsidize most of the project by selling tax credits.
But as the credit crunch began to unfold last year, tax credit pricing took a dive. A year ago, tax credits were trading at 95 cents each, said Doug Mayer, Carrfour’s vice president of housing development. By late 2007, credits were trading at around 87 cents and are now selling for 82 cents, Mayer said.
The current depressed rate would generate $20.26 million for Carrfour, down from $23.47 million when tax credits were priced at 95 cents, Mayer added. “Every penny decline per tax credit is a loss of about $240,000 of equity,” he said. “It is a huge hole in the budget.”
Carrfour plans to sell tax credits in the next four months and Mayer hopes their prices will stabilize by then, otherwise, the nonprofit may not get enough money to build the apartment complex.
A long-time boost for rehab
The low-income housing tax credit program was created in 1986 as an incentive to the private sector to fund the construction, acquisition or rehabilitation of housing for low-income households.
Developers who are issued tax credits by their states sell the credits to corporate investors seeking a dollar-for-dollar reduction in their federal tax liability. Investors can claim a credit on their federal income taxes over a 10-year period.
Until late 2007, Fannie Mae and Freddie Mac were the largest buyers, investing nearly $2 billion a year. But amid the credit crisis, federally chartered Fannie Mae, the largest source of mortgage capital in the U.S, and Freddie Mac are reassessing their participation in the program.
“They announced they wouldn’t buy tax credits in 2008; they are sitting on the sidelines, waiting to see what happens,” said Allan Schnier, vice president of Boca Raton-based Hudson Housing Capital. Hudson is an equity syndicator that brings together corporate investors and low-income housing developers.
Smaller investors are still buying tax credits, but they are paying less to get better rates of return, he said.
“It is supply and demand,” said David Deutch, vice president of Miami-based Pinnacle Housing Group. “There used to be a strong supply of capital but not anymore.”
Deutch wants to build a 100-unit, low-income apartment complex targeting the elderly on Southwest 14th Avenue and Flagler Street in Little Havana. His company received tax credits in September and hoped to sell them sometime this year. The rapid drop in tax credit pricing has put his budget a “couple of millions” in the red, Deutch said. He is trying to get some additional money from Miami-Dade County to move forward.
“We planned to start construction in the summer, but as a result of this crisis, we are exploring our options to see if we can make the project feasible.”
Tax credit syndicator Chuck Newcomer said the velocity in which prices declined caught everybody by surprise.
“Instead of creeping down, it just dropped nearly 10 percent in one year; that’s a huge setback,” said Newcomer, vice president of acquisitions and underwriting with Community Affordable Housing Equity Corp. in Raleigh, N.C.
Under the tax credits program, developers have to structure rents so they’re affordable to people who earn 60 percent or less of the area’s median income for 15 years.
Carrfour plans to set the rent at its Liberty City apartments at $264 to $344 a month for homeless people. Families with low income would pay between $544 and $760 a month. A family of four earning $35,580 a year or less would qualify to live at Dr. Barbara Carey Shuler Manor, Mayer said.
Pinnacle plans to rent the units at the planned Little Havana project from $296 to $721 a month, Deutch said.
Wait lists grow
The need for low-income housing in Miami-Dade County worsened during the recent real estate boom in South Florida, as the cost of living in the region jumped about 12 percent more than the growth rate of the average worker’s wages, according to Florida International University’s Research Institute on Social and Economic Policy for Labor Research and Studies.
Housing costs grew almost 20 percent faster than the average wage, cutting into such basic needs as food, clothing, transportation and medical care. In the worst cases, the increasing costs led to eviction of renters and foreclosure for low-income homeowners.
Curtis Taylor doesn’t know about the finer points of financing low-income residences, but he has benefited from tax credits.
Taylor recently moved into an apartment built with money raised through tax credits. He is thankful to have a “comfortable” place in a complex that also provides counseling to the residents, a critical service to Taylor, who is recovering from substance abuse.
Taylor had to wait eight months for a unit to become available in the project at 207 NE 62nd St. in Little Haiti. He pays $360 a month for a studio in the community built by Carrfour. The on-site counseling helped him register for Spanish and French classes at Miami-Dade College. He hopes language skills will help him land a job in sales, Taylor said.
“This place enhanced my life a great deal,” he said. “They gave me a helping hand.”
Taylor hopes that more affordable housing is built because he has six friends on waiting lists to get low-income apartments.
Miami low-income housing developer Matt Greer said uncertainty over the tax credits pricing is making it hard to plan ahead. Greer, the chief operating officer of the Carlisle Group, said the future of some of Carlisle’s planned projects may be in limbo until pricing stabilizes.
“If tax credit prices keep going down and construction costs stay high, we many not be able to get those projects done.”
Paola Iuspa-Abbott can be reached at piuspa@alm.com or at (305) 347-6657.
Doug Mayer photo by Jill Kahn
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