With housing on almost everyone’s mind in these challenging times, the buzz at this year’s Texas Housing Conference Texas Affiliation of Affordable Housing Providers was palpable.
Inflationary pressures and rising interest rates are creating tighter markets for property owners and residents across the country. Still, though, optimism and opportunity were also in the air. Affordable housing, after all, remains a necessity during tough economic times and so this year’s smart investors are still finding opportunities to generate profits while contributing to the greater good.
One of the major highlights at this year’s conference was the growing demand by investors for properties in the Low-Income Housing Tax Credit (LIHTC) program. Against that backdrop, industry leaders spoke about which investment sales strategies to consider in this economic climate, how to find the right financing options, and which markets are ripest for buyers and sellers.
The increase in values of LIHTC properties in recent years has created more complicated conversations between General Partners (GPs/developers) and Limited Partners (LIHTC syndicators/investors) on how they exit these investments. Our team spends a great deal of time drafting broker price opinions for partnerships to use in starting conversations on an exit. In the current market volatility, establishing a value can be difficult but our team leans on what we are seeing in the market to give partnerships the most realistic perspective of value.
Despite the pandemic and America’s “Great Resignation,” HUD reported this spring that the national median income rose more than 12 percent year over year to $90,000 in 2022. Perhaps even more notable, out of the 2,602 counties for which HUD calculates income limits, an astronomical 99 percent will see increases in Area Median Income (AMI). Just 24 areas are projected to see decreases, while only one area will see no change in AMI.
For savvy investors in affordable housing, there is confidence in the demand for housing and the AMI increases offering rent growth.
At the same time, from capital to construction materials, rising costs and ongoing economic uncertainty makes every potential transaction more fragile. With the estimated 225 partnerships of Texas LIHTC properties that will discuss divesting of their properties this year, the most common question will continue to be, “Is now the time to sell?”
Though not even the Federal Reserve holds a crystal ball, industry experts are forecasting further inflationary pressures and interest rate hikes, which could make 2022 an opportune time to market a LIHTC property.
San Francisco Fed President Mary Daly noted recently that it would be “reasonable” for interest rates to increase by 50 basis points in September if the economy continues to evolve as expected. In a conversation with Reuters, she made it clear that policymakers are determined in their efforts to combat decades-high inflation.
Our Affordable Housing Investment Sales team at Lument is here to advise our clients on secure and effective sales strategies in these seemingly unpredictable times. Our focus remains national, and Texas is just one of 24 states where we currently are either marketing a property or have a property under contract.
