Tax credits get investors' attention

Unique perks of affordable housing

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jul. 8, 2011

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Among other developments, Michaels is undertaking a residential tower in Wilmington, Del., and a high-rise refurbishment in Honolulu, and constructing a 68-unit multifamily structure in Sarasota, Fla.

For developers, competition for tax credits has become intense, or as Outcalt said, "cutthroat." In Georgia, Adams reports there were 70 applications for 30 projects that got tax credit awards in 2010 and he expects even more demand in 2011.

Tax credits are only part of the financing for affordable housing. As Pratt pointed out, there are usually multiple layers of financing, with much of the rest coming from what is called "soft funds," or funding from various city, county or even federal entities.

Soft funding to some extent remained available through the heart of the recession, but with local and state governments having to squeeze down budgets, these types of funds are endangered.

"If you eliminate any of these sources, such as local government support, it has to be made up somewhere else," Pratt explained. "These are the challenges many developers are facing."

Outcalt added, "We have concerns with respect to soft funding."

Unfortunately, that's not Outcalt's only worry. He has also been keeping a watchful eye on what's happening in Washington, D.C.

"This program has been the most significant driver of affordable housing construction, far surpassing any of the other Department of Housing and Urban Development-based programs that were created," he said.

And historically the tax credit has been supported on both sides of the aisle.

However, with all the pressure in Washington to find ways to reduce deficits and balance budgets, "there is always concern that things like tax credits may be reduced or eliminated," Outcalt said.

"Even though this program has been highly successful in meeting a small part of the huge need for affordable housing, there is always the fear that tax credits could fall out of favor."

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

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