Navigating an affordable multifamily housing project using Low-Income Housing Tax Credit “takes a village,” according to Jack Hodgkins, the new senior vice president and head of LIHTC credit at Walker & Dunlop, a commercial real estate finance investor and advisory firm.
Hodgkins has seen firsthand how the distribution of LIHTC has evolved in complexity over the past 25 years — now requiring input from developers, site managers, state and local agencies as well as advisory firms. The LIHTC program is the country’s most important resource for creating affordable housing, per HUD, providing state and local agencies approximately $10.5 billion in annual budget authority to issue tax credits to buy, rehabilitate or build rental housing targeted to lower-income households.
Other programs are often used in tandem with LIHTC, including the National Housing Trust Fund, the HOME Investment Partnerships Program, tax-exempt multifamily bonds and state and local affordable housing programs, according to the Urban Institute. Nonetheless, LIHTC remains the largest source by far of new construction funds for affordable rental housing.
Hodgkins got his start in affordable housing development as an architect at several Boston-based firms in the 1990s. He eventually left his post to earn a master’s degree at Columbia University so he could enter the LIHTC space and develop a “more holistic and impact-driven approach” to his career.
After graduating, he joined LIHTC syndicator Boston Financial as a senior vice president, before spending the next 16 years at Wells Fargo, serving as managing director of community lending and investments. He joined Bethesda, Maryland-based Walker & Dunlop in April, where he is working on its affordable housing platform.
Such advisory firms can “pair the developers with the right investors, offer institutional knowledge and guidance to the process, and be able to find the right execution for the right project because they’re not all the same,” said Hodgkins.
Here, Hodgkins talks about his new role, the challenges of navigating the LIHTC program and the outlook for affordable housing in the next year.
This interview has been edited for brevity and clarity.
MULTIFAMILY DIVE: How has your background kind of prepared you for this role?
JACK HODGKINS: Having been trained as an architect, I was taught how to think creatively, to approach work and solve problems in very creative and different ways. So I bring that to the table and I feel like that's been part of my success in this industry. I've been able to see many different issues and been part of many different solutions to resolve different problems in so many different ways.
How important are low income housing tax credits in making the finances for multifamily housing projects work?
I’ve been involved in this space for 25 years of the 35-plus years that they’ve been in existence, and I feel as though they're really important. Really, what they're able to do is to bring the product to affordable housing where the revenue is restricted and expenses are market-driven. That allows institutional and private-sector investors to get risk-based returns for their investments and to be able to actually get the affordable housing built.
How has the LIHTC landscape changed?
The landscape has changed tremendously over the years. Every generation, it seems that the cost to build these products has escalated, and also, with that, it takes substantially more time to get units to market from start to finish.
Consequently, the financing has become very complex. It now involves multiple stakeholders, where at one point, it just involved a lender and a tax credit equity provider.
What kind of challenges do multifamily developers face when navigating LIHTC credits?
A lot of them are the same as the last 25 years, but the rising costs and just trying to anticipate what those might be is a growing challenge. There's more complexity in applying and getting the tax credit awarded to them now from the state allocating agencies. There’s a lot more competition with that. And then once the credits are awarded, it's really managing the timing and risk of construction to get units online.
What are your predictions for the LIHTC market over the next year?
The additional credits that are now in the market, and combining that with the changes in the LIHTC bond allocations that also bring additional tax credit properties to the market, there’s still a number of risks that need to be worked out to manage the additional growth.
But I do see a steady increase in growth in the number of projects and the number of units that are in the pipeline. And so, I think ultimately, not just over the next year, but over the next several years, with the momentum that’s in place, we can start to increase the number of affordable units that are online.
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