Ivan Kaufman gives insight on the Low Income Housing Tax Credit Program (LIHTC), including when it was founded, what it's main objective is, how it's administered, who is eligible to apply, and its reduction on taxes.

1. Ivan Kaufman
Affordable Housing
June 2016
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Low Income Housing Tax Credit Program (LIHTC)
BACKGROUND
• Founded via the Tax Reform Act of 1986
• Objective to Provide Investor Equity
• Program Administered by Each State’s
Housing Finance Agency
• Eligibility is Based on Tenant’s Income
• Credit is a Dollar-for-Dollar Tax Reduction
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LIHTC
ADDITIONAL CONSIDERATIONS
• LIHTC Projects have a 15-year compliance period with additional
extended-use periods (investors typically exit after initial 15 years)
• Recapture rules apply in the first 15 years
• Rent and income restrictions are based on Area Median Income,
which are reviewed annually and set by HUD
• Total development costs funded by a combination of LIHTC equity,
government grants, conventional financing, agency debt and/or tax
exempt bonds
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How LIHTC Works
• The proceeds from the sale
of the tax credit is used as
equity in the project
• The equity reduces the
amount of financing
required allowing the rents
to be lower than market
• The investors return is
based on the tax credits
and passive tax losses
generated by the project
• Investor typically takes a
99.99% interest in the real
estate owning partnership
INVESTORS
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LIHTC by the Numbers
• $100 Billion – Total LIHTC apartment financing
• 90,000 to 95,000 – Apartment units built annually through LIHTC
• 3 Million – Jobs created by LIHTC since program began
• 96,000 – Jobs created annually by LIHTC
Source: Novogradac
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Total Subsidized and Tax Credit Apartments Completed
United States, Buildings With Five Units or More, New Construction Only
0%
5%
10%
15%
20%
25%
30%
0
20,000
40,000
60,000
80,000
100,000
120,000
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Subsidized and Tax Credit Apartments Completed (Units) Percent of Total Apartments Completed (%)
Source: Arbor, U.S. Census Bureau
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Source: Arbor, Alliant
LITEC 9% Application Submissions 1998-2015
0
60
120
180
240
300
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
9% Applicants 9% Awards
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Low-Income Housing Tax Credit Program
• The State Housing Finance
Agencies are required to develop
Qualified Allocation Plans
(“QAP”). The Agencies award 9%
credits to projects best meeting
the goals of the QAP
• Competition for the credit is
fierce, with a 3:1 Ratio
• 9% credits designed to finance
70% of total costs; 4% credits
designed to finance 30% of total
costs
STATE ALLOCATING
AGENCY
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9% Credits vs. 4% Credits
9% OVERVIEW
• 9% credits are limited to
competitive applications
and total availability is
subject to annual volume
caps
• 9% credits are paired with
conventional or agency
(Freddie/Fannie/FHA) debt
• 9% credits designed to
finance 70% of costs
4% OVERVIEW
• 4% credits are available to
rent restricted
developments where more
than 50% of the project
costs are financed by tax-
exempt bonds
• 4% credits designed to
finance 30% of total costs
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Low-Income Housing Tax Credit Program
Competitive Credits:
9% credits are awarded annually
by the IRS (based on $2.35 per
capita) to the State Allocation
Agency
Non-Competitive Credits:
4% credits are awarded when
more than 50% of a project’s costs
are financed by private activity
bonds
STATE ALLOCATING
AGENCY
US TREASURY
IRS
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About Us
Founded by Chairman and CEO Ivan Kaufman, Arbor, LLC and Arbor Commercial Funding, LLC are national direct lenders
specializing in loan origination and servicing for multifamily, seniors housing, healthcare and other diverse commercial
real estate assets. Arbor is a 2013 Top 10 Fannie Mae DUS® Multifamily Lender by volume, a Freddie Mac Program Plus®
Seller/Servicer and Small Balance Loan lender, an FHA Multifamily Accelerated Processing (MAP)/LEAN Lender, a HUD-
approved LIHTC Lender as well as a CMBS, Bridge and Mezzanine lender, consistently building on its reputation for
service, quality and flexibility. With a current servicing portfolio of more than $11 billion, Arbor is a primary commercial
loan servicer and special servicer rated by Standard & Poor’s and holds an Above Average rating from Standard & Poor’s.
Arbor is also on the Standard & Poor’s Select Servicer List and is a primary commercial loan servicer and loan level special
servicer rated by Fitch Ratings.
Arbor, LLC also manages Arbor Realty Trust, a real estate investment trust, (REIT), formed to invest in mortgage-related
securities, real estate-related bridge, junior participating interests in first mortgages, mezzanine loans, preferred and
direct equity investments and in limited cases, discounted mortgage notes and other real estate related assets. Arbor is
headquartered in Uniondale, NY, with full-service lending offices throughout the United States. For more information
about Arbor, visit www.arbor.com.
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