TCG NEWS
INSIDE THE DEAL: Marcus & Millichap Participates in Active LIHTC Property Sales Market
Date: 8/11/2009
By Keat Foong, Executive Editor, Multi-Housing News
Click here to see original article.
Frederick, Md.—The secondary market in Low Income Housing Tax Credit (LIHTC) properties is still attracting buyers despite the economic downturn.
Marcus & Millichap Real Estate Investment Services Co. recently completed the $6.65 million sale of the 120-unit Creekside at Tasker’s Chance. The LIHTC property for seniors is located in a newer development of single-family homes off the Golden Mile.
Confidential marketing of the property was conducted to local, regional and national investors for about 30 days, and received high demand, said Marcus & Millichap.
Jeff Kunitz, director of the The Tax Credit Group of Marcus & Millichap, says that the benefits to investors of purchasing LIHTC properties is reduced competition from other buyers and possibly higher returns, compared to market-rate properties.
“Chances are, buyers would not pay as much as they would for market-rate properties so yields may tend to be higher,” he said.
The property received five offers, including ones from experienced LIHTC players, says Kunitz. The new buyer will hold and maintain the property for its cash flow and management contract.
Creekside at Tasker’s Chance sold at a 7.63 percent cap rate. Conventional apartment cap rates in the market may be about 7 to 7.25 percent, says Kunitz. He said LIHTC apartment properties in the market may fetch a 50-70 basis point spread over comparable market-rate ones.
“Frederick is a very desirable, low velocity and high barrier to entry sub-market of Washington, D.C. and Baltimore,” stated local Washington, D.C. Marcus & Millichap agent David Weber. “Therefore, demand from investors that understand the value and limited opportunities in this market were aggressively pursuing this acquisition.”
The purchaser has to sign a guarantee with the original tax credit investors to protect the investors from potential recapture of tax credits that would occur if the property falls out of LIHTC compliance.
In some states, purchasers of LIHTC property have to be approved by the state housing finance authority, but not in Maryland. Kunitz said that being an experienced LIHTC developer/manager is not necessarily a prerequisite to purchasing the LIHTC properties. Companies can be prepared for the task. Marcus & Millichap, he says, converts about five buyers per year to becoming LIHTC buyers.
The Tax Credit Group of Marcus & Millichap of Kunitz, Robert Sheppard, Armand Tiberio and Spencer Hurst based out of the firm’s Seattle office, along with local agent David Weber in the Washington, D.C., office represented the seller in the transaction.
The purchase was financed through an agency loan, says Kunitz. The property’s occupancy was close to 94 percent, he said. The property has to remain afforable through Dec. 31, 2025.
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