Low-income housing fund raises $25.75M
Northern New England Housing Investment Fund, a Portland-based tax credit syndicator that helps to create affordable housing in Maine and New Hampshire, expects to close its 17th fund, the $25.75 million Community Capital 2014 LP offering, by the end of this year, company President William E. Shanahan told Mainebiz.
According to its U.S. Securities and Exchange Commission filing, $13,605,000 of the $25,750,000 is sold, but Shanahan says the rest is spoken for by investors and is expected to close by the end of 2014. The minimum required from outside investors was $515,000.
More than 90% of the money raised goes into the housing projects, Shanahan said. The SEC form notes that $1.6 million of the offering’s gross proceeds are targeted toward executive officers or promoters.
Shanahan said the company’s 18th fund, also for $25 million, is in the process of being raised, and will close in 2015. Since the company raised its first fund in 1996, it has pulled in a total of $500 million that was used to create about 5,000 affordable housing units on 175 properties in the two states, including the old Brewer high school and a senior housing project in Topsham.
Most investors in the funds are banks, including KeyBank, People’s United, Gorham Savings, Norway Savings and Bank of America.
“They invest partly for the investment and partly because of the Community Reinvestment Act,” Shanahan said. The CRA is a federal regulation intended to encourage banks and other depository institutions meet the credit needs of their communities. The federal government occasionally monitors compliance.
The federal government typically allocates $3.2 million in CRA tax credits annually to both Maine and New Hampshire, according to Shanahan. The credits go to developers, and credit syndicators like Northern New England compete to manage a developer’s assets. The banks that have invested in the syndicated fund, in turn, get tax credits against their federal tax liability when they file income taxes.
Affordable housing tenants typically earn less than 60% of the median gross income in their area as determined by the federal government. Rents are then 30% of their income. Shanahan said typical tenants are firefighters and school teachers.
There are about 40 such low-income housing syndicators across the country, Shanahan estimated, but competition is stiff for even a $5 million to $6 million project.
One potential boon to the low-income housing business is a proposed $65 million bond initiative by Maine Speaker of the House Mark Eves to increasing housing for the elderly, Shanahan added.
One of the drawbacks to investing in such low-income housing syndicates, he said, is that typically an investment needs to be held for 15 years. However, the asset class is very stable, he says, with around a 6% to 7% rate of return. Additionally, the default rate on low-income housing, he said, is low, at less than half of a percentage point.
“This is a public-private partnership that avails itself of a federal resource implemented at the state level, and with private capital applied,” he said. “These are attractive investments.”
He noted that in 2008 the credits helped sustain the construction business in Maine and created jobs in a market lacking them.
The Maine State Housing Authority every two years decides where the credits will be applied, he said, adding that one project for 2015 is slated for downtown Lewiston.
Northern New England Housing started business in 1993, and now has 12 employees in Portland. About half of them are involved in asset management oversight, Shanahan said.
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