On January 15, OCCH held the 7th Annual Development Symposium to provide our partners with current insight into the Low Income Tax Credit Housing development world. A range of speakers provided the latest information on equity pricing, gap financing, polices updates from the Ohio Housing Finance Agency (OHFA), underwriting guidelines, and tips and strategies to help get your 2009 projects funded. The symposium was very well attended again this year with over 130 people braving the snowy weather to come to Columbus.

Trends In Our Housing Portfolio

In the morning, after Sean Thomas, the Director of Planning, Preservation and Development at OHFA, discussed the agency’s broad policy goals, a panel discussed trends currently happening in our existing portfolio of affordable housing. Overall, occupancy is strong and improving in Housing Credit properties across Ohio. The OCCH portfolio had a median occupancy of 96% for the third quarter of 2008, a testimony to the hard work by all of our partners. Rob Vogt with VWB Research, Inc. described that while there are some stagnant markets in Ohio, demand continues for affordable housing. Although the market conditions remain strong, the portfolio of affordable housing continues to be challenged by operating expenses. Rents and incomes have remained relatively flat in Ohio, but operating expenses have risen at rates higher than projected. The three top expense categories (maintenance, administrative, and utility costs) all continue to rise. Efforts to impact the State’s policy on real estate taxes continue since this is an extraordinary expense for many properties. Tony DiBlasi, Chief of Asset Management, encouraged applicants to underwrite with very conservative operating assumptions and to implement strong tenant policies to combat expenses. Another item Tony DiBlasi expressed concern is “to be keeping a very close eye on tenant receivables”. As things remain difficult in the economy projects have to be very careful not to let your tenant receivables get too high as the likelihood of getting those repaid quickly diminish.

Review of 2008 Applications

In the afternoon, a panel analyzed the results of OHFA’s 2008 application round and provided advice for preparing applications for the 2009 funding round. Brian Langmeyer, Vice President of Development, said ”In 2008, OHFA selected projects to receive credit reservations through a subjective review process.” This meant that OHFA staff actually went and visited every proposed site and produced a subjective evaluation of site, design, and market. OCCH’s analysis of winners showed that more experienced developers fared pretty well, senior projects outnumbered all other product types, and OHFA really preferred clean sites with no unpleasant surroundings. Even though OHFA awarded approximately $23 million in credits, they still received requests for over $83 million. This meant that over 75% of the applications submitted did not receive funding in last year’s competitive round.

2009 Application Process

The panelists also predicted that 2009 application round will remain very competitive. OHFA will continue to subjectively evaluate and select what they consider to be the strongest deals in each of the eight different funding pools that categorize submissions by project type and location. Doug Klingensmith, Vice President of Development, said “Project scoring for 2009 has been completely eliminated, and all former point categories have now become threshold items”. For 2009, all projects must commit to provide supportive services, to incorporate universal design, to achieve energy efficiency, and to meet a variety of design threshold criteria spelled out in the Qualified Allocation Plan (QAP). Ryan Landi, Vice President of Development, commented “Green building from both a social and economic aspect will become much more of a critical issue as operating costs continue to increase”. OHFA fortunately will allow projects the opportunity to receive additional funding if they get certified according to the Ohio Green Communities criteria. In an effort for OHFA focusing on being “Green” this year, development teams will submit all of the application electronically by March 19. Given the intense competition, the panelists provided applicants with tips to present projects in the best light to OHFA. The tips included strong design, experienced development teams, appropriate amenities, and compelling presentation. John Kircher, Senior Vice President of Development said ”This year, I believe OHFA will really be focusing on the strength and quality of the development team. OHFA is looking at who can get the deals done.” Interested partners should contact a member of the OCCH Development team for more specific strategies on any particular project

Equity Markets

Finally, Jack Kukura, Chief of Acquisitions, discussed how the current economic crisis is making equity much harder to obtain to invest in LIHTC projects. Jack said “Our Goal is to deliver the maximum amount of capital to our development partners while satisfying the return requirements to our investors.” With Fannie Mae and Freddie Mac currently absent from the market the remaining investors are pushing for higher yields and thus lower pricing for the tax credits. At the same time, investors are asking for much stronger underwriting and due diligence. Investors want as little risk associated with deals as possible and are carefully examining development team capacity, guarantees, contingent liability construction contingencies, operating assumptions, and timing. OCCH continues to assist our partners in structuring deals in the strongest manner possible to make the projects attractive to investors while continuing to meet the Development Teams overall project expectations.