2016 Crystal Ball

3 min read

Happy Holidays.

The end of each year is a reflective time and looking back over the past twelve months, it was a period of productive developments for NH&RA members and our industry at large.

The industry benefited from low interest rates and high equity pricing. Owners looking to redeem past investments through take-outs and refinances were able to take advantage of new products and compressed cap rates. The budget agreement passed earlier this fall—while a far cry from funding levels of only a few years ago—should put an end to many of the most devastating sequestration cuts and, barring a meltdown in the next few weeks, should avoid a holiday government shutdown, which hopefully will allow year end closings to proceed on schedule.

Looking ahead to 2016, we are entering a period of more dramatic change. With change comes increased risk and uncertainty.

Developers are already experiencing steady increases in construction costs, which we can expect to continue to rise, and in many markets, property taxes and other operating expenses are also ticking upwards. Furthermore, the Federal Reserve seems inclined to begin raising interest rates (presumably modestly at first) in the near future. Out in the distance our biggest existential threat, comprehensive tax reform, looms ever closer. With this as context, there are a number of corollary trends to watch out for in 2016.

For starters, we can expect to see more consolidation in the year to come. As our industry has matured and QAPs have evolved to promote smaller, deeper income skewed affordable housing deals, it has become more difficult to sustain growth through development alone. At the same time, many among the first generation of affordable housing and LIHTC owners are aging and considering graceful exits from the business or seeking to diversify their portfolios and holdings. The record setting pace of property sales we have observed these past two years will likely continue and we will see more enterprise and portfolio level transactions in the coming year as well.

Many of the same macro factors that will drive more consolidation should also drive more owners to focus on maximizing the value of their current investments. This includes increased and more systematic investments in asset management and energy efficiency, both of which we will continue to explore in the pages of TCA in the coming year. In an uncertain future where it will become more difficult to refinance your way out of trouble, owners should be taking proactive steps to lock in operational efficiencies for the long-term.

Finally, after a long wait, we are poised to gain access to the National Housing Trust Fund (NHTF). Barring a raid from Congress, this “new” program (not really new, but never previously funded) should be available in 2016. The NHTF will target a different demographic from HOME (which at time of press seems to have been resurrected in the Senate Appropriations process). It skews multifamily and seeks to target lower-income projects that could create more opportunities to recapitalize Section 8, USDA RD 515 and RAD transactions.

Uncertainty and change create opportunities for those who are nimble and willing to take strategic risks, which I find to be common characteristics of our NH&RA membership.

I hope these thoughts inspire you in 2016 and wish you a safe, fruitful and exciting new year!