The low-income housing tax credit (LIHTC) helps finance the vast majority of affordable housing being built in the county. Each year, it spurs the construction or rehabilitation of approximately 75,000 or more units of affordable housing.
The program has an impressive history of both providing needed housing and strong financial performance that can be attributed to rigorous underwriting at multiple levels.
“Developers are famous for optimism, but too much optimism can result in unachievable pro formas and ultimately bad deals,” says Mark Sween, vice president and project partner at Dominium, explaining that his firm has implemented practices to make their development pro formas realistic.
He and other industry leaders share how they are underwriting their LIHTC projects and keeping them on track.
1. Be Conservative on Pricing
2. Review Comparables
Herman & Kittle Properties has three different models to evaluate new construction, acquisition-rehab, and general partner acquisition opportunities, says Jeff Kittle, president and CEO. Each one is programmed to evaluate the nuances of each investment type, such as credit delivery schedules, post-rehab net operating income adjustments, utility conversions, etc.
3. Know Your Guarantor and Sponsor
4. Schedule Review Meetings