|CohnReznick, LLP recently released its third comprehensive report on the performance of apartment properties financed with federal low-income housing tax credits (LIHTCs). Using the data provided from a large pool of syndicators, operators, and investors, CohnReznick assembled a database of 18,412 housing credit properties with a total of 1,369,239 units in all 50 states, the District of Columbia, Guam, Puerto Rico and the US Virgin Islands. This was an increase of more than 1,000 properties and 104,000 LIHTC units analyzed in the previous study. Consistent with the prior two reports, the current analysis focused on three basic metrics: occupancy, debt coverage ratio (DCR), and per unit net cash flow.
2008-2010: The prior report analyzed the operations of the LIHTC properties between 2008 and 2010 in comparison to the previous decade. As expected, operations strengthened in direct response to the greater demand for affordable housing units caused by the recession and ongoing economic weakness. While market rate multifamily properties were negatively impacted in the 2008-2010 time frame by the recession, LIHTC property’s key operational indicators improved measurably.
2011-2012 Overview: This third report analyzed the operating performance of the participating LIHTC properties in years 2011 and 2012. In all three metrics measured, LIHTC properties showed consistent, improved performance. One of the most important developments in the performance data is the steep decline in the percentage of tax credit properties operating below breakeven. That percentage fell from its high in 2005 of 35% to 20.2% in 2012, a remarkable improvement of 43%.
Occupancy: At 97% median occupancy, the surveyed properties enjoyed effective full occupancy. Median occupancy was highest in senior-living properties, running at 97.9% in 2011 and 98% in 2012. The major driver of the consistently high occupancy rates in LIHTC properties is the critically short supply of low-income housing units to satisfy the demand for affordable housing. Extremely low income (ELI) renter households (those earning up to 30% of area median income) rose from 9.6 million in 2009 to 10.3 million in 2013 and made up 24% of all renter households. According to a recent report from the National Low Income Housing Coalition, as of 2013, there was a shortage of 7.1 million units needed for ELI households.
Per Unit Cash Flow: From 2002 through 2008, the per unit cash flow, after paying hard debt, ran between $200 and $250 per annum. In 2009, that number increased to $341 per unit per annum, an improvement of 26.7%. By the end of 2012, cash flow increased to $498 per unit per annum, double the 2008 per unit cash flow of $250. Senior properties reported the highest median per unit cash flow in 2012 coming in at $558, 10.8% above the overall median. The report found that a major driver of the improved financial performance since 2008 has been the increasing prices of the tax credits. Rising tax credit prices allow more LIHTC properties to be financed with less hard debt resulting in higher cash flow. Other contributing factors cited for the improved financial performance included more efficient expense underwriting, higher rental rates, and lower collection losses.
Debt Coverage Ratio (DCR): In 2008, the median DCR stood at 1.15, right in line with historic LIHTC industry standards. But in 2009, arguably the worst year for the market rate multifamily industry, the median DCR for the survey LIHTC properties rose to 1.21 and jumped significantly again in 2010 to 1.24. By the end of 2012, the nationwide median DCR had risen to 1.30. The favorable improvement in DCR is directly related to the improved cash flow and lower hard debt reported by the participants in the study.
The CohnReznick LLP study updates and expands upon a similar study done in 2012. This new study includes a larger sampling of LIHTC properties and provides data and analysis for regions, states, and more than 200 metropolitan statistical areas (MSAs). The in-depth report also offers interesting data on topics such as underperforming LIHTC properties, foreclosures, and tax credit investment yields. The full report can be found at:
 A property is operating at breakeven when its net operating income after funding replacement reserves is exactly equal to its debt service.