Dan O’Connell held back his celebration after learning Wisconsin Housing Preservation Corp. received $2.57 million in state tax credits Thursday.
Getting the credits clears the first hurdle, said the vice president of Astar Capital Management Inc., which manages WHPC. The second, and significantly higher, hurdle is finding investors to buy the credits so WHPC can afford to build two new apartment buildings in Green Bay.
“The investor market is pretty dead,” O’Connell said.
The dearth of investors, mixed with confusion over stimulus money for housing projects, created uncertainty over the usefulness of the 37 tax credits the Wisconsin Housing and Economic Development Authority awarded Thursday to developers around the state. The credits are worth $30.7 million and will raise about $300 million for projects over 10 years, said Kate Venne, WHEDA director of communications.
Although developers know they have the credits, they are choosing to hold off on their search for investors until the federal government explains how housing construction stimulus money can be spent, said Jerome Sullivan, senior vice president of Great Lakes Capital Fund, Madison.
“It’s something which is hanging over the entire industry to some extent because those are significant resources that are available on paper,” he said. “But we don’t know how to use them yet.”
The American Recovery and Reinvestment Act gave WHEDA about $35 million to spend as loans or grants on construction projects. The act also let WHEDA give its tax credits back to the U.S. Treasury in return for cash, Venne said.
The U.S. Department of Housing and Urban Development was supposed to release its rules for the stimulus grant money weeks ago, but has not done so yet, she said. The U.S. Treasury also has not said how many tax credits can be exchanged for money, Venne said.
“We literally don’t really know anything yet in terms of how much we could trade back,” she said.
Developers receiving tax credits cannot put together financing deals to pay for projects until the federal government answers those questions, Sullivan said. The rules will determine whether developers keep the credits and follow the traditional method of finding investors to buy them, or instead ask WHEDA to sell them back to the Treasury, he said.
If developers decide to trade in the credits, they’ll also want to know if they can get grants from the stimulus money to fill budget gaps, Sullivan said. Developers are not likely to spend money finishing their engineering or designs until their financing is in place, he said.
“We’re all anxious to see the information get loose, and we’re kind of chomping at the bit and we don’t want to lose our good construction season,” Sullivan said.
O’Connell said he does not know where the money will come from to cover his organization’s tax credits.
The WHDC will apply for stimulus money but is not relying on it to pay for construction, he said.
“We hope to participate as much as possible, but it won’t be the answer to everything we’re doing,” O’Connell said.
Other developers expected their projects to find investors.
Dustin Bowie, a developer participating in WHEDA’s Mentor-Protégé Program, said he is looking forward to finding investors for a 66-unit senior housing project in Menasha. Bowie is working with Fond du Lac-based Commonwealth Development Corp. LLC, which received a $383,440 WHEDA tax credit.
“This is my first project, so it’s really special and really exciting for me,” Bowie said. “I’m probably foolishly optimistic because I’m so green. But I’m still optimistic.”
WHEDA has $8 million of tax credits remaining that it plans to award in June to developers submitting projects, Venne said. The authority received 18 applications, totaling $14.5 million, in the second round.
Developers will have a third opportunity to apply for credits later this summer, she said, and WHEDA will use that round to redistribute credits from projects that fall through.