As low-income housing tax credit (LIHTC) projects reach the end of their 15 year compliance period, questions regarding the next stage begin to emerge. Can the property be maintained as affordable housing? Does it need additional funding to remain viable? Does the general partner want to stay involved in the property? Is there a reasonable exit strategy for investors that takes into account the needs of residents and the community?
At NEF, we know that the time to begin thinking about the disposition process is not in year 15 — not even in year 10 or 12. Really, disposition considerations should be a factor even before a deal is closed, at a time when developers are choosing partners and identifying what all the participating parties can bring to the table. Why so early? Because the extra penny per credit your equity partner might pay to win a deal could pale in comparison to the cost to exit the partnership 15 years down the road. Thinking about shared long-term priorities on the front end can mean the difference between a painfully expensive confrontation as a project nears the end of its compliance period or a calm collaboration that offers developers reasonable options for the future.
Over the last few years, NEF has disposed of about 520 LIHTC projects that had reached the end of their compliance period. We are enormously proud of the fact that more than 95 percent of these projects have been maintained as affordable housing. Certainly, none of these is a simple transaction. But, we’re not trying to extract every last dollar out of the partnership at the end of year-15, our partners face much less uncertainty than would otherwise be the case. We understand our dual priorities to make sure our funds wind down in an equitable manner and to support developers as they grapple with whether and how to maintain their property as affordable. We have learned how to effectively balance both.