The Portland Mercury in Oregon posted a detailed story yesterday on how the election of President Donald Trump has sent a chill through the affordable housing community:
The reason is Trump’s campaign promise to reduce the federal corporate tax rate from 35 percent. … “The bottom line is you will get less housing, and it will be harder to serve lower-income families,” says Michael Novogradac, managing partner at San Francisco-based accounting and consulting firm Novogradac and Company. “There’s no silver lining to having less funds available.”
For all the details on a very complicated matter, read the entire story here.
I shared the article with DFA Development’s Chris Flaherty and asked his thoughts. Flaherty’s company opened Stockton’s Cal Weber 40 affordable project last year and is in a collaboration with Ten Space on a planned affordable project in downtown’s Medico-Dental Building.
Flaherty responded with these comments in an email:
“The (Portland Mercury) article echoes exactly what we have been experiencing over the last 2 1/2 months on our most recent deals set to close. We have 2 California projects with 102 affordable units that were scheduled to close this week. Following the election, the idea of corporate tax reform eroded the appetite for tax credits. This compressed yields and deleted almost $2 million in equity. Fortunately, we were able to resurrect the projects financing but not without contributing the eroded equity ourselves. The state, recognizing this dilemma, extended the closing dates by 90 days, thus, offering a reprieve. We are on track to close at the end of the month.“It affected many of our peers as well and all of our upcoming projects in Hawaii and California including our Medico Artist Lofts project. We do feel, however, that we will be able to get them done. We are restructuring our financial feasibility models to find ways to make up the gap in credit pricing. The economics are just a lot more difficult. The price for tax credits has dropped almost 20% on most deals for one dollar of credit. This will make if very difficult to develop the much needed housing that not only our country and state need but more importantly our city and county needs.President Trump’s father, Fred Trump, developed many affordable housing units in his life and I think he will remember the need is great and the financing extremely difficult.”We’ll see.