Navigating Today's LIHTC Market: Key Takeaways from Adam Lavelle at the Indiana Housing Conference
At the Indiana Housing Conference, industry leaders gathered to discuss one of the most pressing topics in affordable housing today: the state of the Low-Income Housing Tax Credit (LIHTC) equity market. During the Equity Markets Roundtable, Adam Lavelle, SVP, Originator at CREA, offered a candid assessment of current market conditions and what developers, investors, and housing stakeholders should prioritize moving forward.
A key takeaway: while affordable housing demand remains strong, success in today's market requires relationships and a renewed focus on fundamentals.
An Investor Market Defined by Interest Rates
Lavelle noted that today's equity market remains closely tied to broader interest rate movements.
"The equity markets are a reflection of the interest rate markets," he explained. As investors continue to seek higher yields, pricing for housing credits remains under pressure. While there is optimism that the market is approaching a bottom, Lavelle emphasized that future activity will largely be influenced by the direction of the 10-year Treasury and investor expectations.
For developers, this means underwriting conservatively and recognizing that capital providers are operating in a more selective environment than in recent years.
Location, Debt Opportunities, & Relationships Matter More Than Ever
When asked what makes a deal attractive in today's competitive environment, Lavelle pointed to three factors:
Location
Debt opportunities
Relationships
Community Reinvestment Act (CRA) investment activity continues to drive capital deployment, making geography and market characteristics increasingly important. At the same time, lending opportunities paired with equity investments, remains a main driver for bank investors. Most notably, tax exempt debt opportunities both short term and long term in today’s environment.
Perhaps most notably, Lavelle stressed the importance of long-term relationships.
"In today's market, developers have to set themselves apart," he said. Building strong relationships with lenders, investors, and syndicators can be just as important as the financial structure itself. As competition for capital increases, trusted partnerships often become a differentiator.
Strong Portfolios Are Becoming a Competitive Advantage
Investors are no longer evaluating deals in isolation. Instead, they are reviewing the health of an entire organization and portfolio. Because equity investments generally lack collateral protection, investors rely heavily on sponsor liquidity, net worth, and operating performance to mitigate risk.
"The new deal is always more fun than the old deals," Lavelle remarked, "but the developers that are hyper-focused on their current portfolio are very attractive from an investment standpoint."
Developers with healthy debt coverage ratios, stabilized properties, and demonstrated operational discipline are finding themselves better positioned to access capital. In contrast, struggling assets elsewhere in a portfolio can create additional scrutiny during the underwriting process.
Flexibility Is Key to Unlocking More Housing Production
The panel also explored the impact of reduced bond financing thresholds and evolving state housing policies. Lavelle advocated for greater flexibility in bond test requirements and funding structures, arguing that affordable housing finance solutions should adapt to the realities of individual transactions rather than applying a one-size-fits-all approach.
He also suggested that state agencies consider ways to maximize production through policy adjustments, including:
Increasing 9% credit allocations
Providing larger reservations in higher-cost urban markets
Reevaluating unit set-aside requirements where market conditions support additional operating income
Reviewing operational requirements that increase expenses without directly enhancing project viability
Supporting Permanent Supportive Housing Remains Essential
Lavelle also addressed the unique challenges facing permanent supportive housing (PSH) developments.
While acknowledging growing investor caution around service funding and long-term operating stability, he emphasized that the need for supportive housing remains significant. He praised Indiana's commitment to subsidizing PSH projects and highlighted the importance of structuring these developments carefully.
Key considerations include:
Avoiding hard debt.
Ensuring service providers have long-term financial capacity.
Stress-testing assumptions around Medicaid, Medicare, and other support funding sources.
Despite market headwinds, Lavelle believes supportive housing continues to play a vital role in addressing homelessness and housing instability, particularly in communities prioritizing these outcomes.
Looking Ahead
While panelists shared varying opinions on when pricing will stabilize, Lavelle pointed to one key indicator - the 10-year Treasury.
His outlook suggests that meaningful improvements in investor activity are likely to follow sustained declines in interest rates. Until then, market participants should expect continued discipline from capital providers.
The overarching theme from Lavelle's remarks was one of pragmatism. Affordable housing continues to be a critical need across Indiana and the nation. Developers who focus on portfolio performance, cultivate strong relationships, and approach developments with flexibility will be best positioned to succeed in the current environment.
As the affordable housing industry works to address growing demand, Lavelle's take offers a timely reminder that strong fundamentals remain the foundation of successful housing development, regardless of market cycles.
