Housing Tax Credits Find Home In Market

KANSAS CITY, MO - Low-income housing tax credits are drawing renewed interest in Kansas City as one of the few bright spots in an otherwise dim housing market. The tax credits, designed to give developers capital with which to renovate historic buildings or build new complexes for rental properties, have come as welcome relief for individuals and families who can't afford homes of their own or obtain loans in the current housing crisis.

Erica Dobreff, president of the Kansas City Equity Fund, said low-income tax credits have been a steady investment for local banks. Kansas City Equity Fund raised about $4.5 million and made its first investment in Westside Apartments in 2007. "I wouldn't call it a hot market; I would call it a program that is every bit as necessary today as it has been in the past, particularly in light of the fact there are people who are not able to remain in their houses, so they are going to be looking for more affordable opportunities," she said.

State and federal low-income housing tax credits are opportunities to reduce a business's tax liabilities in exchange for an investment in rental housing that's designed to be affordable for individuals and families who make 50 percent to 60 percent of the median income of the county in which they live. The returns on the investments vary from slightly less than 6 percent to about 8 percent and vary on a number of factors, including when the investment is made and the price that is paid for the credit.

In Kansas City, such developments have redesigned aged and previously unoccupied buildings in Downtown and Midtown into lower-rent housing units. As an example, Eagle Point Enterprises LLC, a company based in Portland, Maine, acquired three buildings along Armour Boulevard in 2006 for $8.9 million. With the help of historic and low-income tax credits on the buildings, new apartment units recently have become available to tenants.

Laura Burns, president of Eagle Point Cos., said the Armour projects had direct investments from a national syndicator in Centerline Capital. "Both (tax credits) were used, and they've been a big part of the reason we've been able to do the quality development we've done," Burns said.

The IRS allocates about $11 million annually in low-income housing tax credits to Missouri, but an omnibus housing bill in Congress that the Senate passed would make more available to each state in 2009.

Lynn Craghead, head of U.S. Bank's Community Development Corp., said the program is risky for investors because they're locked in as owners of the property for at least 15 years as part of the IRS compliance rules on the tax credit program. "Until we get through that whole 15 years, anything could happen that would change that return," Craghead said. Large national investors have a decreased appetite for tax credits in recent months as lower profits have meant lower tax liabilities.

But the upside for local and regional banks, such as U.S. Bank, is it helps fulfill the banks' Community Reinvestment Act requirements, a requirement for banks that have deposits in a given city. U.S. Bank invested $4 billion nationwide and $121 million in Missouri in low-income and historic tax credits during the past 11 years.

That's why banks have been the primary investors in Missouri and virtually the only investors in the Kansas City Equity Fund, which is little more than a year old. Companies in St. Louis, such as Monsanto Co., have made investments in the St. Louis Equity Fund, the Kansas City Equity Fund's parent. Dobreff said she hopes local companies may follow suit in the coming year. "I'm hopeful in our 2008 fund that we will have some corporate investors," Dobreff said.