affordable housing (LIHTC)

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Dorfman Capital is a leader in providing tax credit equity for affordable housing.   Our non-profit and for profit developer clients rely on us to provide this critical project equity.   Our investor clients benefit from the ability to utilize these credits to reduce income tax as well as premium tax liabilities.  Urban and rural communities across the Commonwealth all benefit from the addition of affordable housing units.

The MA LIHTC has been in effect since 1999. The benefits of MA LIHTC investments include:

     · Low Risk, High Yield

     · Investment in socially and economically favorable projects

     · Provides a 5 year stream of tax credits usable against MA income and premium tax

     · Solid track record of success with numerous examples

Dorfman Capital has particular expertise and experience with the MA Low Income Housing Tax Credit (MA LIHTC), which is available annually over a five year stream.  Under the federal guidelines, each participating state has its own rules, process and governing structure for the LIHTC program.  In Massachusetts, the Department of Housing and Community Development (DHCD) is responsible for allocating awards and overseeing compliance for qualifying projects.

The need for safe, affordable, low-income rental housing has never been greater.  The Low-income Housing Tax Credit provides equity to owners and investors that enable them to complete these important projects.  Addressing financial goals and ensuring that compliance requirements are met requires expert planning, structuring, construction, operation, and exit strategy.

 An average of over 1,411 projects and 107,000 units were placed in service annually between 1995 to 2017.  Foreclosures have occurred in less than 1 percent of all LIHTC properties since 1986, better than all other classes of real estate. 

The equity raised with LIHTCs can be used for newly constructed and substantially

rehabilitated and affordable rental-housing properties for low-income households, and

for the acquisition of such properties in acquisition/rehabilitation deals. LIHTCs provide equity equal to the present value of either 30 percent (referred to in this report as the 4 percent credit) or 70 percent (referred to as the 9 percent credit) of the eligible costs of a low-income housing project, depending in part on whether tax-exempt bonds are used to finance the project.

To qualify for the credit, a project must meet the requirements of a qualified low-income project. Project sponsors/developers (project sponsors) are required to set aside at least 40 percent of the units for renters earning no more than 60 percent of the area’s median income (the 40/60 test) or 20 percent of the units for renters earning 50 percent or less of the area’s median income (the 20/50 test).6 These units are subject to rent restrictions such that the maximum permissible gross rent, including an allowance for utilities, must be less than 30 percent of imputed income based on an area’s median income.

The Low-Income Housing Tax Credit (LIHTC) is the most important resource  for creating affordable housing in the United States today.  The LIHTC  database, created by HUD and available to the public since 1997,  contains information on 47,511 projects and 3.13 million housing units  placed in service between 1987 and 2017. 

Low-income housing tax credit (LIHTC) properties continue to improve on  their performance, according to a new report by CohnReznick.  In 2016, LIHTC portfolios, on a median basis, had a 97.9% occupancy  rate, a 1.40 debt-coverage ratio (DCR), and a $688 per-unit per annum  net cash flow (cash flow available after paying expenses, mandatory debt  services, and required replacement reserve contributions), reported the  firm, which recently examined data collected from about 23,000  properties with nearly 1.7 million LIHTC apartments.  As a result, housing credit properties are operating better than any period in the program’s 32-year history.

Created by the Tax Reform Act of 1986, Internal Revenue code section 42, the LIHTC program provides tax credits for the acquisition, rehabilitation/preservation, or new construction of rental housing targeted to lower-income households.