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CohnReznick LLP
2 0 1 5 C A H E C P a r t n e r s C o n f e r e n c e
LIHTC Equity Market Update
May 20, 2015
1
L I H T C E q u i t y M a r k e t O v e r v i e w
The market demand for housing tax credit investments has never been stronger…..and there is no sign of that demand letting up at any point in the foreseeable future….and why should it? U.S. bank profits continue to expand The modest annual growth in the annual volume cap
is literally swamped by growth on the demand side LIHTC investment yields…even in their current “free
fall” state are still superior to most investment alternatives
Thanks to your friends the accountants… the financial statement reporting for LIHTC investments is vastly improved
There are no legislative threats to our biggest demand engine – the Community Reinvestment Act
I only see one dark cloud on the horizon….Tax Reform….and for those who say that this particular cloud will never burst….I would remind them that a certain amount of rain is inevitable……even in California
May 20, 2015 2
E q u i t y M a r k e t – C u r r e n t F u n d O f f e r i n g s
Sponsor
Size ($MM)
Est. After-Tax IRR (%)
Est. Tax Credit Price
($) Launch Est. Close
A 125 5.75 1.04 March June/July
B 100 6.00 1.04 January March
C 150 5.00 1.17 February June/July
D 150 6.25 1.01 2014 March
E 130 6.00 1.06 February June
F 112 6.00 1.03-1.05 2014 July
G 125 6.00 1.05 April June/July
H 150 5.50-5.75 TBD March June/July
I 200 6.50 1.1 February May
J 110 6.15 1.03 February May
3May 20, 2015
Ta x C r e d i t P r i c e / Y i e l d - 1 9 9 0 - 2 0 1 5
4
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
$0.50
$0.55
$0.60
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%18.00%
13.00%
11.50%
7.20% 7.14%
4.76%
10.61%
6.82% 6.17%7.23%
$0.51
$0.56
$0.65
$0.81$0.84
$0.97
$0.72
$0.74
$0.83
$0.89
$0.91
Housing Tax Credit Price vs. Yield
Net Equity Price Quarterly Effective IRR
Year of InvestmentAverage annual values (not monthly)
Net
Equit
y P
rice
Aft
er
-tax F
und I
RR
May 20, 2015
Ta x C r e d i t P r i c e / Y i e l d - 2 0 1 0 - 2 0 1 5
May 20, 2015 5
2010
2011
2012
2013
2014
2015
$0.60
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
10.61%
6.82% 6.17% 7.23%
6.96%
6.01%
$0.72
$0.74
$0.83
$0.89$0.91
$0.93
Housing Tax Credit Price vs. Yield (Jan. 2010 - May 2015)
Net Equity Price Quarterly Effective IRR
Year of InvestmentAverage annual values (not monthly)
Net
Equit
y P
rice
Aft
er
-tax F
und I
RR
A c c o u n t i n g M e t h o d A d o p t i o n S t a t u s a s o f 2 0 1 5 Q 1
At this point it appears that a majority of the largest bank investors have adopted the new accounting method. This is a summary based on our review of SEC Form 10-Q filings for 2015 Q1.• Among the Top 10 U.S. banks:
- Adopted: JP Morgan Chase, Citi, Morgan Stanley, Bank of NY Mellon, US Bancorp, PNC Not adopted: Bank of America, Wells Fargo
• Among the Top 30 U.S. banks:
• Adopted: Capital One, HSBC, BB&T, Ally, SunTust, Citizens, Regions, Key Bank, Union Bank Not adopted: Fifth Third
• Many of the smaller banks in top 100 have also adopted including M&T, City National, Comerica, First Republic and E*Trade
6May 20, 2015
2 0 0 9 E q u i t y M a r k e t
7
Top Five Syndicators – 51% of The Market in 2009
($9 billion total syndicated equity)
MuniMae, Related, Richman, Enterprise and NEF All other syndicators
May 20, 2015
2 0 1 4 E q u i t y M a r k e t
8
Top Five Syndicators – 24% of the Market in 2014
($9.8 billion total syndicated equity)
Raymond James, RBC, NEF, Richman, and Enterprise All other syndicators
May 20, 2015
W h e r e w i l l t h e e q u i t y m a r k e t b e a t t h i s p o i n t i n 2 0 1 6 ?
The precise answer to this question is….I don’t have a clue...and don’t trust anyone that tells you they know the answer
What I do know is that demand will continue to be strong and so I would predict that everyone in this room that shows up for work everyday will have a job
My intuition is that the increase in tax credit pricing will taper off at some point….we will see interest rates rise and the market will start moving towards something that resembles equilibrium
I do not believe the GSE’s will return in their traditional roles
I believe we will see the beginning of LIHTC industry consolidation in 2015/2016
As far as tax reform is concerned? Same answer as above….I have no clue…. what I do know is that everyone that cares about the housing credit has a role to play in its preservation
9May 20, 2015