Curious if any of the groups that operate in this space are still able to get deals done.
My group is looking to do one - spearheaded by me. There’s plenty of stuff and red tape I don’t know about how these deals get done. I’ll have to figure out a lot along the way. I do know to expect at least one year of pre-development, but probably more like 18 months.
| +67 | Hiring Analyst/Associate - Advice | 31 | 2h | |
| +40 | Current CRE Phase | 19 | 1d | |
| +36 | Laid Off - Multifamily Acquisitions Help | 8 | 17h | |
| +26 | Capital Formation | 9 | 2d | |
| +26 | Best Brokerages in South Florida | 18 | 15h | |
| +25 | PART 2: Increasing RE Industry's Cash Compensation, Collectively | 1 | 4d | |
| +24 | URGENT - a list of Halal/Islamic real estate funds and investment companies for potential applications | 9 | 1h | |
| How many days a week are you expected to be in the office? | 22 | 15h | ||
| +23 | NYU MSRE Program | 7 | 2d | |
| +22 | UK Development | 4 | 6h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Based on the most helpful WSO content, LIHTC deals can still be done today. However, it's important to note that these deals are not typically evaluated based on their long-term cash flows or IRR. Instead, the primary concerns are the ability to get the credits and collect a fee without contributing any equity.
The process involves spending as little money as possible on predevelopment, getting it all reimbursed when your Limited Partner (LP) closes into the partnership, and then collecting a six or seven-figure developer fee over the next 2-year period from construction through stabilization.
It's also worth noting that the process can be complex and often requires legal consultants due to the maze of local laws. So, while it's possible to get these deals done, it's important to be prepared for the challenges and complexities that come with it.
As for the timeline, you're correct in expecting at least one year of pre-development, but it could indeed stretch to around 18 months.
Remember, the goal is to support affordable housing development, which is a public good. So, while the process may be challenging, the end result can be very rewarding. Good luck with your venture!
Sources: LIHTC during the next recession, Q&A: Affordable Housing Acquisitions
This AI stuff is getting pretty good.
Hearing they can’t be done with 0 equity any longer so economics look a bit different.
(1) I went to UW so I know a bunch of people in RE and who work on LIHTC properties. From what I hear, there are two main things.
First, and this is probably pretty obvious, the interest rate environment. The math is very different. Second, it depends on what state you are in. The LIHTC is ran at the state level and some states have done a lot to help developers and others have been far more hands off.
(2) If you don’t have any experience in LIHTC work reach out to the state organization that runs the program. They should be willing to help you. They tend to want people interested in building affordable housing. Although the degree to which they can help varies. Like they may just direct you to reading material and other organizations or they may walk you through how the entire process works. It just depends.
Also, you should be able to look up the criteria the state organization uses in judging who should get the tax credits. Well, at least in Wisconsin you can do that but I think that’s generally the case
This is going to be super frustrating to hear... but it depends.
It's certainly getting tougher. The interest rate environment, but even more important the insurance market, is making the economics really tough. Some states give liberal amounts of subsidy on top of the LIHTCs themselves, and in those municipalities you're going to have a far easier time making your numbers work. If your local housing agency can blend your cost of capital down with a cheap slug of grant money/soft debt, the interest rate issue isn't as pressing. Not everyone does that, though.
As far as timing, some places it can take years, and in some places you can be done in 9-12 months from application submittal to construction closing. Depends on availability of volume cap, of other regulatory agencies to navigate, of the structure of the deal itself.
NYC, for example, takes forever. With some extreme exceptions, I'd argue 18 months is an aggressive timeline from site acquisition/control to closing for a 4% deal (9%s obviously have a little more urgency). 24-30 is probably more realistic, and even that... depends on circumstances. However, the City also has billions of dollars to plug budget gaps, so even if your deal started going sideways you may get some help in righting the ship. New York is probably at the extreme end of the scale in both those ways, though. Things won't take that long elsewhere, I'd guess, but you also are probably looking at a much smaller and less robust menu of options for help.
Happy to chat through the process in greater detail if that is helpful
Thanks for the thoughtful response Ozy. I kind of expected you to blow me up when I admitted that I know very little about the process and am basically getting thrown in the deep end here haha.
Ozy, what is your background? Are you in development?
Why in the world would I do that?! Not having knowledge is not a crime - I'm sure there is a ton of things in the real estate world that you're an expert on and about which I am completely ignorant. Trying to learn new stuff is awesome! I get frustrated with people who provide bad advice and insist it's good, or ask downright stupid fucking questions and then get upset when they don't get the answer they want.
I touch a little bit of everything as long as it is affordable, it's a small shop and sometimes roles are a little blurry. I spent more time on LIHTC development earlier in my career and now, on balance, do a little bit more on the acquisitions side.
I do LIHTC lending. Tons of deals still happening especially as the year ends.
Most have significant subsidies, yes. I should see what % of total costs that the subsidies pay for.
How many of the deals have significant delay in the projected financial closing date? Deal are definitely getting done but the delays I've been seeing are anywhere from 4-6 months for various reasons to get to closing.
Yes, almost all will have delays and 4-6 months delay sounds about right!
A number of helpful comments above but it should be noted that LIHTC deals are no walk in the park. The amount of hoops and hurdles required to get deals in certain areas can be extensive and even though there is capital set aside, why would municipality go with a new developer as opposed to a Domain, Related, etc. that has been doing this for a while. You should speak to local consultants in the area with strong track records of getting these done. They are oftentimes former politicians, non-profit heads, or lawyers. Again, this is area dependent but just be cautious because even though there is a dire need for affordable housing, you still have to deal with irrational politicians to get the money.
'I can think of a couple reasons. Maybe the big players aren't in that market. Maybe they aren't looking at small deals, and local developers are. Maybe housing officials are interested in avoiding the appearance of colluding with institutional shops and therefore want to give more volume cap to smaller firms. There are lots of reasons a municipality might actually be interested in not using a Related or a Domain.
Sometimes politicians are irrational. Most times they're not. They're just responding to pressures from their constituents and from other areas that we as developers don't have a lot of insight into. Claiming that politicians are "irrational" only makes sense if the definition of "rational" is "what is best for the developer."
The process can sometimes be irrational when taken as a whole. That's because there are a lot of moving parts and a lot of stakeholders, all of whom are pulling in different directions, and the attempts to forge a compromise that satisfies most parties often looks pretty ugly. If you don't understand that (speaking generically) then this isn't a good business to be in. When the local community board tells you that they don't want a new affordable housing project in their neighborhood, you have to be able to understand where they're coming from and be able to craft a compromise, because you can't just bulldoze your way through every objection
Quibusdam omnis voluptatum perspiciatis non fugit voluptatem. Nesciunt ratione temporibus cumque sit. Voluptas animi aperiam voluptatem aliquam veritatis.
Corporis dolorum vitae odio quibusdam quis ipsum dignissimos molestias. Incidunt eum error aut suscipit dolorum fuga. Nisi quae aut voluptas maxime hic adipisci omnis blanditiis. Reiciendis sit officiis qui dolorum vel vitae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...