Tax credit opportunites, who is buying state credits??

Hey All,

I have a couple large projects - one being commercial and the other residential with LIHTC.. on both of these projects we’ve applied for EDA funding incentives and will most likely be awarded (knock on wood). Does anyone know who is buying these state credits?? I’m coming to the realization that there aren’t many buyers for these and it may be difficult to get competitive pricing. The LIHTC were very easy and we got good pricing on. If anyone has any tips or know of any syndicators that specialize in this specifically… would be greatly appreciated!

 
Analyst 3+ in RE - Comm

Hey All,

I have a couple large projects - one being commercial and the other residential with LIHTC.. on both of these projects we've applied for EDA funding incentives and will most likely be awarded (knock on wood). Does anyone know who is buying these state credits?? I'm coming to the realization that there aren't many buyers for these and it may be difficult to get competitive pricing. The LIHTC were very easy and we got good pricing on. If anyone has any tips or know of any syndicators that specialize in this specifically… would be greatly appreciated!

They aren't nearly as attractive as LIHTC credits, so no, not as wide of a market.

I'd go ask a syndicator, even if it's a LIHTC syndicator, where these things usually get placed in your area.  They'll probably point you in the right direction

 

OK, so let me preface this by saying the NJ credit programs are not really my focus anymore, though I am pretty familiar with the market generally. With the disclaimer out of the way…

It sounds like what you’re finding is a reflection of (IMO) a flawed program that swung too far in the wrong direction based on NJ’s self-inflicted issues arising from poor oversight of previous iterations of its state tax credit programs. I don’t know of anybody offhand right now that will purchase these credits upfront due to the possibility of recapture should the project outperform. (Almost certainly not a problem on a LIHTC deal but could come into play for market rate). Not to mention concerns about NJ’s general fiscal issues. I could be wrong since I don’t know that the market has really been established yet, but what I think you end up with is a pay-go structure where you get paid for the credits each year as the certificate is delivered to your purchaser. Good pricing but tough to finance.

Tax Incentive Finance is one option. (I like those guys). There are other players as well. Happy to discuss specifics if you want to PM me.

 

Appreciate the responses. You seem pretty knowledgeable on the topic but with this program there is no risk of recapture for outperformance of threshold returns. They structured this program as a waterfall that instead of recapture, will take a percentage of the net cash flow. Unless im misinterpreting it..

 
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I haven’t looked at it since it was initially passed 18 months ago or whenever, so apologies if I misspoke, which it sounds like I did. I need to go back and look at the legislation and regs again.

Regardless, I’m happy to point you in the right direction of buyers if you’d like. Let me know.

And lack of recapture aside, consider this with respect to pricing.

The most common state tax credit syndication business model is to buy multi-year credit streams for a lower upfront price and then warehouse them, selling them off in individual strips to their end user clients each year. For many years now, those syndicators benefited from ultra cheap back end financing that was baked into their pricing at the project level. In competitive states with high demand, anyway. So say they pay you as developer $.70 for a five year stream. They financed it at maybe 4.5% on their end and then sold them for $.90 to end users each year. That leverage can equal BIG profits to them. (It’s also recourse, so risk-reward and all that). But with rates rising, plus NJ’s poor historical track record on running its state tax credit programs and issuing certificates timely, you’re going to see a hit to pricing. And on top of all that, NJ is a 10 year stream, which makes the math that much worse.

 

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