A LIHTC UPDATE

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+ A LIHTC UPDATE Noel Henderson-James Richman Housing Resources LLC April 2013 A Market Re- defined LIHTC Since 2007 2007 2013

description

2013. A Market Re-defined LIHTC Since 2007. 2007. A LIHTC UPDATE. Noel Henderson-James Richman Housing Resources LLC April 2013. Overview. We’ll look back, review some trends, & then gaze, however obscurely through our crystal ball, at what’s ahead. - PowerPoint PPT Presentation

Transcript of A LIHTC UPDATE

Page 1: A LIHTC UPDATE

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A LIHTC UPDATE

Noel Henderson-JamesRichman Housing Resources LLCApril 2013

A Market Re-definedLIHTC Since 2007

2007

2013

Page 2: A LIHTC UPDATE

+Overview

We’ll look back, review some trends, & then gaze, however obscurely through our crystal ball, at what’s ahead.

What we’ll see is that the LIHTC market has become defined – is now redefined – by two interconnected characteristics:

Pricing variability, sometimes dramatic; and, Market segmentation, somewhat defined by

geography, and further sub-market segmentation.

Both these characteristics are (or should be) expected & are natural to a rationale, functional market.

They certainly make the world a more interesting place.

Page 3: A LIHTC UPDATE

+Trends: Investment Volume

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Fannie & Freddie, we missed you!

Page 4: A LIHTC UPDATE

+Trends: Pricing Variability

Source: Novogradic

Fannie & Freddie, we still miss you!

Page 5: A LIHTC UPDATE

+Trends: Yields, 1991 to 2012

Source: Ernst & Young

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Tax Credit Fund Yields vs. After-tax Treasuries and Muni Bonds

After Tax Projected Yield - LIHTC Funds

After Tax Yield 10-Year Treasury

Municipal Bonds - Blended

Tax credits plotted monthly where one or more multi-investor funds reported. Treasury and municipal bond data monthly.Tax credits plotted monthly where one or more multi-investor funds reported. Treasury and municipal bond data monthly.Tax credits plotted monthly where one or more multi-investor funds reported. Treasury and municipal bond data monthly.

Page 6: A LIHTC UPDATE

+Trends: Yields, 1991 to 2012

Source: Ernst & Young

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1991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

LIHTC spread to tax-affected Treasuries (in bps)

Spread plotted by month where one or more multi-investor funds reported.

Page 7: A LIHTC UPDATE

+Trends: Yields, 2008 to 2012(for indicative purposes only)

Non-CRA Tax-Adjusted 10-Yr Treasuries

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Non-CRA Spread to Tax-Adjusted 10-Yr Treasuries

Page 8: A LIHTC UPDATE

+Trends: Yields, 2008 to 2012(for indicative purposes only)

CRA Spread to Tax-Adjusted 10-Yr Treasuries

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Red = Heavily-banked

Moderate premium subtracts 50-100bps; Heavy premium subtracts another 100bps.

Page 9: A LIHTC UPDATE

+Trends: What Yield Data Reveals

Among investors, there is clear segmentation within the market, often along geographic lines.

Roughly, very roughly, there appear to be three separate markets: heavily-banked, moderately-banked and otherwise.

Most times, but not necessarily always, these markets will function in parallel to one another.

Sometimes one submarket might disconnect from the broader markets but eventually in back in-line.

Page 10: A LIHTC UPDATE

+Emerging Trends: Early 2013

National market is stabilizing at the yield requirements of economic investors, somewhere likely just north of 7.25%;

Expect moderately- and heavily-banked markets to follow suit, although this may take time.

Prediction #1: National market will lead in defining pricing trends.

Prediction #2: Heavily-banked markets will become more defined around regulatory cycles.

Prediction #3: Pricing variance will be greatest in heavily-banked markets.

Page 11: A LIHTC UPDATE

+Summary

The market has repaired itself; and, it is probably healthier than it was prior to the financial crisis. Capital levels have rebounded and stabilized. More investors and substantially more “economic”

investors… LIHTC is a money making business opportunity. Average pricing has improved and also stabilized. Yields have retreated from recession highs and also seem

to have stabilized.

But the market is radically different from the pre-financial crisis market. More pricing variability around averages and means. Greater segmentation among markets and within markets.

Page 12: A LIHTC UPDATE

+Summary

Deals in different geographies may see radically different pricing.

Deals in the same market may see radically different pricing, especially true of heavily-banked markets.

Characteristics that now matter much more are: Geography, first and foremost; then, Deal size and opportunities; Developer: track record, financials and relationship; and, Novelty.