Affordable Housing Development - LIHTC - 4% Bond Financial Model

Anyone active on the GP/LP side of affordable housing? If you have funded or developed any of these deals, please feel free to share your experience or thoughts on profitability, risk, or unique structures.

I figure it's a long shot but I am trying to get my hands a 4% LIHTC Bond financial model. Any help would be greatly appreciated.

 
Best Response

From an LP perspective - we have found proprietary (one-off) deals to be the most bang for your buck, but I have noticed that there a lot of dogs out there and you really need to know what you are investing in.

Off the tope of my head, these are some of the first things I glance at when given a deal.. Debt Make Up- One big thing to take notice of is the capital stack on the debt side, often these deals have a lot of soft debt, which is generally a good thing, but eats away at any residual that you would have. The 4% deals typically get a lot of the losses through interest deductions so higher leverage gives you better return (which is typical, but different mechanics at work here) but there is a higher risk of foreclosure..

Developer Fee - the developer fee should always be delayed to some amount of time that makes you feel comfortable about them having skin in the game

Reserves - you want reserved to be set up to carry the property for at least x vacancy for x amount of time (typically through your compliance period)

I have a 'underwriting an LiHTC deal' guide book that I can share if you would like...

 

I used to work on the GP side for a developer, and did a short stint on the lending/equity side as well... I mostly worked in awful markets that couldn't support debt - we made our niche putting together deals with very little or no debt. That strategy allowed us to collect a lot of fee by going after markets others wouldn't touch and thus a high success rate on LIHTC applications. We also did a lot of consulting, application prep, and turnkey for non-profit housing providers. Bonds weren't much of an option for our strategy, sorry.

I got out of affordable and work for a boutique RE equity/private debt firm now. The money is better, you don't have to deal with bleeding hearts, and your income is based on your ability to figure out a deal, not the mood of government employees. It did get me through the recession though.

 
turk8th:

I used to work on the GP side for a developer, and did a short stint on the lending/equity side as well... I mostly worked in awful markets that couldn't support debt - we made our niche putting together deals with very little or no debt. That strategy allowed us to collect a lot of fee by going after markets others wouldn't touch and thus a high success rate on LIHTC applications. We also did a lot of consulting, application prep, and turnkey for non-profit housing providers. Bonds weren't much of an option for our strategy, sorry.

I got out of affordable and work for a boutique RE equity/private debt firm now. The money is better, you don't have to deal with bleeding hearts, and your income is based on your ability to figure out a deal, not the mood of government employees. It did get me through the recession though.

A lot of these deals have negative NOI, right? My question is how you get rid of it once you're ready to get it off your plate.
 

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