The LIHTC equity market continues to see the widening of two distinct investors: the CRA Investors and Economic Investors. This bifurcated market will be difficult to sustain for the LIHTC industry. As more national multi investor funds enter the market this spring, this issue is quickly moving from a “minor distraction” to a “heightened concern”.
Investors in high CRA demand markets are rapidly becoming the “ready, shoot, aim” crowd of corporate investing. This in turn causes unrealistic assumptions. The Economic Investors are retreating from the high CRA demand markets due to yield and term erosion. One can simply argue this is the natural outcome of private enterprise merging with two overlapping public policy initiatives: affordable housing and Community Reinvestment Act objectives. But the laws of capitalism and supply and demand are not suspended when private enterprise invests in assets created by and for public policy. When supply is greater than demand, prices will drop. When prices drop in non CRA markets from the crowding out by “policy manufactured demand” in high CRA markets, the outcome of tax reform can be potentially more severe than just a drop in pricing.
We as industry participants need to refocus our efforts regarding CRA. Any discussion of CRA should include the expansion of the LIHTC the investor base and simplification of CRA. We should focus the discussion so that CRA is uniformly defined and brought into the 21st century. We can do better.