It seems like there has been more interest in the affordable housing sector in this forum over the last 6 months or so and wanted to give others an opportunity to ask questions. I spent 3 years at a LIHTC syndicator investing as an LP in LIHTC transactions where I saw a wide variety of transaction types including everything from a ground up 9% transactions, 4% acq rehab of project based section-8 properties, to adaptive re-use deal that combined LIHTCs, historic credits, and solar investment credits. We also acted as a development consultant tot he GP on deals of the same types. I currently work at a family owned holding company focused on buying affordable assets nation wide.
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I got interested in affordable housing during undergrad fter a family friend introduced me to a colleague of theirs who is a LIHTC developer. Out of undergrad I took a job as an associate at a local developer working on site acquisitions and leasing. Met with a VP from the syndication firm (I didn't know what a syndicator did at the time) when I was networking and they reached out to me about a year and a half later when they were hiring an analyst.
The most complex deals I worked on as a syndicator were a tenant in place RAD conversion (public housing to lihtc) and adaptive reuse transactions that involved layering LIHTCs, Historic Credits, and Solar Investment Credits to create new housing. In both cases we also acted as the development consultant and that was when I confirmed I wanted to get over to the principal side. Learning the finer points of structuring these transactions can put hundred of thousands or millions in the GP/ Developers pocket but not make much of a difference to the syndicator or investor.
There are sharp people at every major syndication firm you can find, but I will say that I have heard from multiple sources that Alden Torch is a nightmare to work at.
As far as getting your start, I would recommend syndication (acquisitions not asset management), working on the development/lending team at an allocating agency, or shooting for associate roles at nonprofit developers.
Yes, the investor will typically acquire a 99.99% interest in the partnership and get that % of profits and losses. LIHTCs follow dpereciaiton so this structure is essential to delivering the benefits to the investor. 99/100 times the developer will deal exclusively with the syndicator to determine credit pricing, terms, etc. The work involved for the GP on the equity raise is really in negotiating docs answering DD questions and getting to a close. It is much more similar to securing agency debt than it is to raise LP equity for a ground up market rate multi family project.
There are hard and fast rules/formulas for determining how much credit you can qualify for. Google "LIHTC eligible basis" if you want to learn more. The kicker is that of you are trying to do a 9% transaction the allocating agency can somewhat arbitrarily decide how much credit they are going to give projects based on their Qualified Allocation Plan (QAP). On a 4% transaction you are awarded the credits by right so long as you use Tax Exempt Bonds. The use of bonds comes with it's own layer to regulations as well. In some states bonds are a scare resource so you have to compete for those as well, in other states they get used up so you can just walk in and meet the minimum requirements.
The credit period is 10 years and the compliance clawback period is 15 years. This basically means your investor will be in the deal for 15 years. After that they are usually looking to be bought out. 30 years is the statutory minimum to maintain affordability unless you go through a qualified contract process. Most states now make you sign away your rights to the qualified contract process and also require longer affordability periods. I have seen many deals that come with 99 year affordability restrictions.
Except for some instances in major markets for deals with HAP contracts most LIHTC developers are not looking at the profitability of these deals based on the their long term cash flows nor do they give a shit about their IRR. More so than any other type of development, LIHTC developer fees are earned income. The goal is to spend as little money as possible on predevelopment, get it all reimbursed when your LP closes into the partnership, and collect a six or seven figure developer fee over the next 2 year period from construction through stabilization. Cash flow and residual value would be important if you were comparing two deals but the ability to get the credits and collect a fee without contributing any equity are the primary concerns.
If you are looking at adding an affordable component to a luxury development you will not be using credits. You'll just need to think of the affordability as a concession to get the deal approved. Perhaps you can get some sort of density bonus that will actually make the affordable scenario more attractive, but most municipalities don't go far enough to actually incentivize developers IMO. I have experience working in NYC working with HPD so feel free to PM me if you have more specific questions.
Yes it would be fair to say that. The only exception being some larger deals with project based HAP contracts. In those cases the fee and CF can be large enough to consider promoting off of LP equity to get the deal under control and take it through syndication.
If you can get out from under the affordability restrictions then yes it is absolutely a no brainer. A lot of the deals done in the 80s and 90s went that way, but the state allocating agencies have since wised up to the fact that they can have restrictions much longer than 30 years attached to the credits and still be oversubscribed. As a developer in a market with a high rent to wage ratio you still benefit because you have an almost unlimited supply of potential tenants who will want to get into your building. If you go to a rural market you might find that the maximum lihtc rents are equal to or higher than market. Good look trying to get tenants to fill out all the necessary compliance paperwork, provide paystubs, and sign affidavits..
Under the CRA investor appetite is pretty steady. They hit the pause button and adjusted pricing after tax reform, and now they are hitting the pause button to reavaluate their UW standards post COVID. As long as banks have to meet their CRA obligations then there will be buyers for credits. Most developers I talk to say they are able to do better deals during downturns. There is less competition for sites and GCs are just looking to keep their guys busy.
I've thought about breaking off. I don't have a ton of experience on the entitlement and construction side of the business so I would probably need a partner who comes from that world. Lately I have though more about finding a way to capture the appetite for social impact investing and creating a platform for LPs to invest in the GP portion of the capital stack on LIHTCs and Section 8 deals.
Very steep. Understanding multifamily basics will give you a decent foundation but you would basically be learning an entire new business on top of that. I have seen a couple people who think that it's all about the underlying real estate and think the credits are just gravy, they don't last very long. Every developer I have spoken to said that they will gladly take anyone who understands LIHTCs and show them the ropes on development, but they would be much less likely to take a seasoned developer and try to train them in LIHTC financing.
You need a track record working with the program, a predevelopment capital source (minmum $250k cash) and enough guarantee capacity to satisfy your investor. The syndicator I worked for typically required combined NW of the gaurantors equal to the LP investment amount and liquidity equal to half the developer fee at a minimum. If they were new to the LIHTC world or had recently had staff turnover we required a development consultant and 3rd party property manager.