Affordable-housing projects across Colorado are stalled because the investor market for low-income housing tax credits has dried up.
About 1,800 units that would have provided housing to low- and moderate-income families are going unbuilt because the developers can’t find investors to buy their tax credits.
Those projects would have created an estimated 4,751 construction jobs.
The Colorado Housing and Finance Authority expects to hear as early as next week whether it will receive $27.3 million it applied for under the Tax Credit Assistance Program, or TCAP, to bridge the financing gap.
The low-income housing tax-credit program was designed to encourage construction and rehabilitation of low-income rental housing by providing a federal income-tax credit as an incentive to investors. Both individual and corporate investors may receive 10 years of tax credits in exchange for investing equity capital into the development of eligible housing projects.
But over the past two years, the pool of tax-credit investors has shrunk by as much as 40 percent, largely because Fannie Mae and Freddie Mac exited the low-income housing tax-credit market, said Jaime Gomez, director of commercial lending for the housing authority.
Other investors also have stopped buying the credits, which are selling for about 70 cents on the dollar compared with 98 cents two years ago.
“Earnings are down, so there is less of a need for tax credits to offset tax liability,” Gomez said.
Other types of tax credits also have been introduced since the Tax Reform Act of 1986 created the low-income housing tax-credit program.
The New Market and Historic tax credit programs have a shorter term than the low-income program’s 10-year period, making them more attractive to investors, said Ronne Thielen, managing director of Irvine, Calif.-based Centerline Capital Group, a real estate financial and asset management provider.
“We’re the toughest sell, even though we were the model,” she said.
Those still buying credits are being more selective about the projects they’ll invest in. They’re looking for new construction by a developer with a proven track record and strong balance sheet. They’re also focused on urban deals.
“There is no investor market for rural deals,” Gomez said.
Waiting lists fill up
The Montezuma County Housing Authority, for example, was awarded $750,000 in tax credits for a $5 million project that would have added 48 affordable homes to the market. But the authority hasn’t been able to find an investor to buy the credits, so the project is on hold.
“Our housing authority has a waiting list of 230 families,” said Terri Wheeler, executive director of the agency, which owns 191 units that are nearly fully occupied. “The need is still here.”
Arthur McDermott has three projects in metro Denver that would have added 350 affordable units; they’re now on hold. He’s had to lay off nine people and is on the verge of closing his construction company.
“Even if you are able to secure an investor, the price they’re willing to pay is much lower, and it creates a significant equity gap because the cost of construction has risen appreciably,” he said.
Developer demand high
Despite the lack of investors, there is more demand than ever from developers for the program, Gomez said.
The Colorado Housing and Finance Authority’s annual allocation of tax credits is $11.5 million, which it divvies up in three different rounds. The agency received 17 applications totaling $16.3 million in requests for low-income housing tax credits during the second round of this year’s allocation process.
Projects eligible for assistance through the anticipated TCAP funding must have been awarded a tax-credit reservation in fiscal 2007, 2008 or 2009. The program will provide grant funding for capital investment in low-income housing tax-credit projects. The funds primarily will be used to finance the gaps caused by the collapse of the tax-credit equity market and to assist stalled development.
Cañon City developer Bill Simpson is banking on the program to bridge the funding gap a tax-credit investor would normally fill. Simpson received $300,000 in tax credits to build a 16-unit project in Silver Cliff, which hasn’t seen an affordable housing project built in 20 years.
“I believe CHFA will find funds to fix Silver Cliff, but I won’t have an opportunity to do projects past Silver Cliff,” Simpson said. “Until equity investors come back into the market, I will not be doing any additional rural deals.”
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
