Stunted market stymies affordable housing

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Sean Ryan
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Developers are scrambling for new ways to raise money for affordable-housing projects because the old methods are broken.

A $3.8 million apartment project in Brillion, for example, has not started this year because nobody wanted to buy the federal tax credits given to the project. Developers raise money for such projects by finding companies to buy the credits and reap a return on the investment.

But interest is waning among those investors because the credits pose a long-term risk.

“They have to project on something that is really hard to project,” said Ronne Thielen, president of the Affordable Housing Tax Credit Coalition in Washington, D.C. “Then, with this whole economic crisis, they’re saying, ‘Well, nobody can project anymore.’”

The Brillion Housing Authority got $352,000 in tax credits from the state to renovate 23 apartments. But the authority cannot pinpoint a start date because the credits are not selling, said Executive Director Marlis Trochta.

“We had the project just about ready to go, within a month, probably,” she said. “Then the whole world fell apart.”

The federal government now is letting developers exchange hard-to-sell credits for public grants. Trochta said the Brillion housing authority and its partner, Fitchburg-based Dimension Development LLC, are trying to trade in the credits.

But federal deadlines to use the grant money are stunting interest in the exchange program, which was included in the American Recovery and Reinvestment Act, said Thielen, managing director of Irvine, Calif.-based Centerline Capital Group, which finds investors for tax credits. In the spirit of getting projects started as soon as possible, the federal government originally required the money be spent before 2011.

The deadline discouraged developers from exchanging their credits and further hampered projects, Thielen said. So the federal government Monday proposed extending the deadline to 2012.

The original deadline was especially difficult in northern states such as Wisconsin, where projects that have not yet started must wait until spring 2010, Thielen said.

“Deals that couldn’t start until next spring likely weren’t feasible deals,” she said.

The only Wisconsin project to exchange the credits is the under-construction Grand River Station in La Crosse. The project, which includes a bus station and affordable apartments, is a partnership between Gorman & Co. Inc., Oregon, and the city of La Crosse.

The project can meet the 2011 deadline because La Crosse is paying for the early stages, and Gorman will come in later to use the federal grants for a $13.6 million project to build apartments in the structure, said Ted Matkom, Gorman’s Wisconsin market president.

Extending the credit-exchange deadline would help, Thielen said, but it will not solve the root market problems that force developers to exchange credits in the first place. Three years ago, investors spent about $9 billion annually on tax credits, but the amount was cut in half for 2008 and 2009, she said.

Now, developers only can exchange tax credits awarded in 2009, which incorrectly assumes the market will recover enough to support future credits and the projects, Thielen said. So the Affordable Housing Tax Credit Coalition and other organizations are lobbying to extend the exchange program into 2010.

The same groups also are lobbying to make it easier for companies to turn a profit when they buy the credits, Thielen said.

“It just makes it an easier sell,” she said, “an easier thing to contemplate.”