The question of the hour that everyone in our industry is asking. Thankfully, we have a solution for you! The threat of tax reform has sent investor pricing down by over $.10, which inevitably will make deals, especially deals awarded pre-election, much harder to successfully develop. Further, there is discussion that tax credits will be completely eliminated as part of tax reform. How can we solve this issue together?
The Sherbert Group has been working diligently to create strategies to minimize adverse impacts of tax reform for our LIHTC developer clients, and we hope to provide some insightful feedback.
In June, we had the opportunity to meet with several members of Congress in Washington D.C. to discuss the tax reform issue. We were very encouraged by the bipartisan support to protect the current LIHTC incentives in tax reform. Most of the Congressional members are supportive of successful public-private partnerships, and we can alleviate any concern that those tax credits will be eliminated in tax reform. We are also excited that our Public Policy team reports that Sen. Orrin Hatch (R-Utah), Finance Committee Chairman, and Sen. Maria Cantwell (D-Wash.) have introduced legislation (S. 548) which expands and protects the LIHTC Program.
The industry has been spoiled over the last few years by terrific investor pricing. It is easy to develop a successful LIHTC project when investor pricing is greater than $1 per credit. There was a time when investor pricing was in the $.70’s, and the deals were still successfully completed. Deals will continue to be successfully completed, but developers will need to be more diligent and look for ways to improve financing and lower construction costs.
One method, which we have worked successfully with our clients, is our approach to obtaining the best investor pricing. We have developed a methodology that analyzes an investor’s benefit streams and identifies benefits that the investor had not factored in their return calculations. Through the identification of these missed benefits to the investor, we can usually improve investor pricing by $.02 to $.05 per credit. This additional amount, by itself, is not enough to make up for the investor price reductions that have occurred due to the threat of tax reform, but it is often sufficient to make the difference between a successful and a struggling project.
The Sherbert Group has worked with several clients using our methodology of analysis, and we would be excited to discuss your projects with you or even have a general discussion regarding tax reform with your team. If we can be of any help please let us know by emailing Bill Sherbert at bsherbert@sherbertgroup.com.