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Low-Income Housing Tax Credits Present A Wealth of Opportunity for Banks

By Deborah VanAmerongen

The Federal Low Income Housing Credit (LIHC) is an important investment vehicle available to banks and other investors for financing the creation of affordable rental housing and revitalizing communities. Despite its success, the LIHC is an investment opportunity that many banks are unaware of.
The LIHC is a national program that makes federal tax credits available to investors in affordable rental properties as a way to bring private equity into the development of affordable housing. Credits are allocated to states and administered by state housing agencies such as the Division of Housing and Community Renewal (DHCR) in New York.
In New York, LIHCs have been directly responsible for the construction or rehabilitation of nearly 50,000 affordable rental units for low and moderate-income families and seniors. Nationwide, about one million affordable rental-housing units have been produced using the LIHC.
The recent collapse of the credit and mortgage markets, however, has taken a toll on the value and effectiveness of the LIHC and jeopardized the ability of affordable housing developers to secure financing. This is particularly problematic in Upstate New York communities where the real estate market is not as strong as it is downstate, making it difficult to find investors.
The devaluation in the equity market may result in the loss of $60 million in affordable housing investment in New York State this year alone, putting low- and moderate-income families, employers, and economic health of entire communities in jeopardy.
With challenge comes opportunity in the form of an Upstate Equity Fund.
DHCR is working with our partners in the affordable housing industry to facilitate the creation of an Upstate Equity Fund to secure funding for projects in the upstate region that have become more difficult to finance. The fund would pool investments from new participants in the market and allow banks to:

Significantly reduce federal and state taxes: For the investor, LIHCs are a long-term way to reduce taxes because they generate credits for 10 years, increasing earnings and significantly reducing tax liability.
Funnel investment dollars into their own communities: Modeled after larger national equity funds, an equity fund specifically for Upstate New York would help those investors who prefer to see their investment stay “local” and add to the vibrancy and economic stability of their own communities. Investing in affordable housing through a pooled fund would also provide new investors with insight into the real estate development process, which could prove beneficial as a means to help banks assess the differences between investing in individual developments and pooled investments.
Earn CRA credit: Participation in an Upstate Equity fund would provide community and regional banks with a great opportunity to earn CRA credit by allowing bank investors to take advantage of tax benefits of LIHCs, while simultaneously qualifying as a CRA activity.
Derive all the benefits and assume less of the risk: While investors in LIHCs may contribute equity directly, less risk is involved with equity funds, making them a good choice for the new investor. The investment is spread across multiple developments, so once a corporation invests in an equity fund, it becomes a limited partner or investor member in the fund and the syndicator assumes primary responsibility for monitoring the portfolio.
Enjoy the option of increasing their investment : To compliment its participation in a pooled fund, a bank can increase its commitment to a specific development by providing a “side-by-side” investment with the equity fund.  For example, a bank can help generate investments in a given market by identifying a need and then making an additional side-by-side investment in a specific project. An Upstate Equity Fund then becomes a terrific tool for targeting markets and proactively seeking investment opportunities.

Tax credits are a powerful means of improving the supply of safe, affordable housing in our communities and stabilizing neighborhoods. For two decades, New York’s financial institutions have been an important part of this effort, facilitating the development of tens thousands of units of affordable housing in their communities and reaping the many rewards of their investment.
Soon, new investors in Upstate New York with have the chance to participate in the LIHC through the Upstate Equity Fund. It’s an opportunity they shouldn’t pass up.
For more information, visit DHCR’s web site at: 

Deborah VanAmerongen was appointed Commissioner of the New York State Division of Housing and Community Renewal in 2007. Before becoming Commissioner Deborah, served as Director of Multifamily Housing for the Department of Housing and Urban Development’s NYC region and prior to that worked in the New York State Assembly on issues including housing and consumer affairs. Ms. VanAmerongen holds a B.S. from Utica College of Syracuse University and a M.A. of Public Administration from Rockefeller College of the State University of New York at Albany.

Posted on Monday, January 19, 2009 (Archive on Sunday, April 19, 2009)
Posted by Scott  Contributed by Scott


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