New Study Supports Viability of Housing Tax Credit Program for Lenders, Investors, Developers; Ernst & Young Study Confirms Low Foreclosure Rates, Good Returns, Solid Performance.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 25, 2002

The most comprehensive study of the performance of the federal low-income housing tax credit program ever undertaken has reaffirmed the program's value both in the development of affordable housing in the U.S. and as a sound real estate investment. The study by Ernst & Young's Affordable Housing Services and Quantitative Economics Statistics groups also appears to go against the conventional wisdom concerning housing credit properties. For example, in contrast with the perception that tax credit properties are a marginal investment, the study found they are less likely to be foreclosed upon than other types of real estate.

"The Low Income Housing Tax Credit Program been responsible for as much as 40 percent of all new multifamily product developed in the last 10 years," says Fred Copeman, national director of Affordable Housing Services, Ernst & Young. "Our survey -- the first comprehensive study of the sector -- shows that this market continues to enjoy by far the lowest foreclosure rates and delivers solid returns to its investors.

In jointly conducting the survey, Ernst & Young's Affordable Housing Services and Quantitative Economics Statistics groups created the largest database of housing credit properties ever assembled, representing approximately half of all housing credit properties. Over 7,800 properties representing more than 500,000 apartment units were evaluated, comprising half of all housing credit properties ever developed during the period. Data sources for the survey included direct and fund investors, guaranteed and non-guaranteed investments, for-profit and non-profit syndicators, and a wide variety of portfolio sizes.

"Until now, few studies have assessed the long-term performance of housing credit properties, and none has undertaken large-scale sampling to assess performance characteristics. In terms of attracting investment capital, this has put the housing credit industry at a disadvantage with other real estate classes," according to Rick Floreani, a manager with Ernst & Young's Affordable Housing Services group. The study found that only 0.14 percent of the surveyed properties had undergone foreclosure since the program's inception, for an annual rate of 0.01 percent. This compares favorably to other real estate classes, where annual foreclosure rates range from 0.4 percent to 2.0 percent.

The study also found that the average housing credit property is performing well, reporting 94.2 percent occupancy, 1.35 hard debt service coverage, and $20,380 of cash flow per year ($345 per apartment unit).

The sector should also attract a steady stream of investors since the fundamentals of the market continue to remain attractive and stable. According to generally accepted industry estimates, over five million units of affordable housing are needed to satisfy current demand. Meanwhile, the stock of affordable housing is expanding by fewer than 80,000 units per year. "This sector of the apartment market is one of the most recession proof areas of investment for real estate investors since, even in an economic recession, there is strong demand for affordable housing," declares Floreani. "The market dynamics are such that even building at the current rate there is little chance that the aggregate market will ever become overbuilt."

The survey, "Understanding the Dynamics: A Comprehensive Look at Affordable Housing Tax Credit Properties," was based on audited financial statements and information for the calendar year 2000. The report is available by calling 617-570-8454.

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