Boston Financial Investment Management, a wholly owned subsidiary of ORIX USA, agreed to acquire Boston Capital’s low-income housing tax credit fund portfolio. The closing of the transaction is subject to customary closing conditions and approvals.
Established by the U.S. Congress in 1986, LIHTC is a tax incentive program designed to promote the supply of affordable rental housing for low-income households. Private developers of affordable rental housing projects are awarded the 10-year tax credit issued by the federal government via state and territorial governments if developers meet certain required conditions.
LIHTC syndicators such as Boston Financial and Boston Capital bridge the gap between developers that are seeking to raise funds by selling the tax credits and the needs of investors pursuing the tax advantages of the tax credits.
Acquired by OCU in 2016, Boston Financial manages a $7.7 billion portfolio comprising more than 1,125 properties and 98,110 units. The purchase of Boston Capital’s portfolio will nearly double the portfolio to $15 billion, leading to an increase in associated revenue. These additional assets under management will be serviced by Boston Financial’s infrastructure, resulting in expected operational efficiencies and synergies.
Historical LIHTC performance has remained stable during past economic downturns and ORIX views the LIHTC business as one that shows projected growth, even during the economic uncertainty of the COVID-19 pandemic. LIHTC foreclosures remained low during the 2008 financial crisis. Because rent for LIHTC properties is often below comparable non-tax credit properties and the government supports many LIHTC residents in the form of rental assistance, Boston Financial has seen occupancy rates remain stable during the COVID-19 pandemic.
The longest-running national initiative to consistently produce affordable rental housing units, the LIHTC program has historically been supported through mechanisms that include developer obligations to fund property level deficits, as opposed to such obligations having been born by third-party investors in the fund property.
In the U.S., the Community Reinvestment Act (CRA) encourages local financial institutions to provide loans, investment, and services to under-served communities. Financial institutions, through participation in LIHTC, are able to fulfill CRA requirements, making LIHTC properties desirable from an investor standpoint.