April 12, 2013
CohnReznick, LLP recently released a comprehensive updated report on the performance of the LIHTC program over the course of its 25+ years of operation. Using the data provided from a large pool of syndicators, operators and investors, CohnReznick was able to assemble a database of 17,118 housing credit properties with a total of 1,264,353 units in all 50 states, the District of Columbia, Guam, Puerto Rico and the US Virgin Islands. The analysis focused on three basic metrics: occupancy, debt coverage ratio (“DCR”) and per unit net cash flow. The report found the following performance highlights:
Overview: In all three metrics measured, LIHTC properties showed consistent, positive performance. For the past 10 years, median occupancy at the LIHTC properties in the study has been at or near 96 percent. For the same period, the median DCR held steady at 1.13 to 1.15. Since 2002, per unit cash flow was consistently between $200 and $250 per annum.
2008-2010: The report analyzed the operations of the LIHTC properties in the study during the recent recession in comparison to the previous decade. As might be expected, operations strengthened in direct response to the greater demand for affordable housing units caused by the recession and ongoing economic weakness. While market rate multifamily properties were negatively impacted in the 2008-2010 time frame by the recession, LIHTC properties key operational indicators improved measurably.
Occupancy: At 96 percent median occupancy, the subject properties enjoyed effective full occupancy. The 2008 through 2010 median occupancy in the surveyed properties ran at 96.4 percent, 96.3 percent and 96.6 percent respectively. The major reason for the consistently high occupancy rates in the LIHTC properties is the severe shortage of affordable housing in the country. The data suggests that the recent downturn in the economy may have created greater demand for low-income housing than ever before. According to a recent report from the National Low Income Housing Coalition, as of 2010, there was a shortage of 6.8 million units needed for just the extremely low income households (those earning up to 30 percent of area median income) segment of the population.
Per Unit Cash Flow: From 2002 through 2008 the per unit cash flow, after paying hard debt, ran between $200 and $250 per annum. In 2009, that number increased to $341 per unit, per annum, an improvement of 26.7 percent. By the end of 2010, cash flow increased to $419 per unit, per annum, 18.6 percent better than the previous year. The report found that a major driver of the improved financial performance since 2008 has been the increasing prices of the tax credits. Rising tax credit prices allowed more LIHTC properties to be financed with less hard debt resulting in higher cash flow. Other contributing factors cited for the improved financial performance included more efficient expense underwriting, higher rental rates and lower collection losses.
Debt Coverage Ratio (DCR): In the midst of a national recession, high unemployment and the housing market collapse, the significant increase in the DCR for the properties in the study was unexpected. In 2008, the median DCR stood at 1.15, right in line with historic LIHTC industry standards. But in 2009, arguably the worst year for the market rate multifamily industry, the median DCR for the subject LIHTC properties rose to 1.21 and jumped significantly again in 2010 to 1.24. The favorable improvement in DCR is directly related to the improved cash flow and lower hard debt reported by the participants in the study. Interestingly, the report found this improvement in DCR to be “pervasive” trending across “…virtually every state, property type and financing type.”
The CohnReznick LLP study updates and expands upon a similar study done in 2011 by its predecessor, the Reznick Group. This new study includes a larger sampling of LIHTC properties and provides data and analysis for regions, states and more than 200 metropolitan statistical areas (MSAs). The in depth report also offers interesting data on topics such as underperforming LIHTC properties, foreclosures and tax credit investment yields. The full report can be found here.
