Troubled Tax Credits: Prevention and Cure

By Theobald, Ruth L. | Journal of Property Management, March-April 1999 | Go to article overview
Save to active project

Troubled Tax Credits: Prevention and Cure

Theobald, Ruth L., Journal of Property Management

The distress in the voice at the other end of the phone was obvious. "Why aren't these units leasing? We are not reaching our projections." The general partner of this new tax-credit development was calling every day; the limited partner was demanding performance; the asset manager was trying to determine if the problem was the management company or the market; and the management company was trying to decide what was wrong with its approach.

This scenario plays out daily in tax-credit developments across the country. While the majority of properties succeed, some are unable to reach even the minimum set-aside requirements of the program. As the guarantee deadline approaches, screening standards are ignored and concessions soar. The cash flow and economic stability of the property is put in jeopardy. While everyone is looking for someone to blame, the most important question remains, "what can be done about it?"

Price and Quality

If we look at the household income limits established by the LIHTC program, we know we are dealing with residents [TABULAR DATA FOR FIGURE 1 OMITTED] that are generally without cash reserves and for whom even a temporary loss of income could be devastating. At seniors properties, individuals are generally living on a fixed income and may be facing high expenses for medicine and health care. As Figure 1 demonstrates, even a family of four at the maximum income permitted in tax-credit housing has less than $300 a week to spend on living expenses, once permitted rent and taxes have taken their bite.

Obviously, our customers are affordability driven. They care very much about the cost of housing, and we must be very conscious of their economic realities and market our properties accordingly.

But at the same time, tax-credit housing residents, just like every other consumer, also are interested in getting the best value for their dollar. In the tax-credit industry, we spend considerable time and money researching the marketplace, but too little studying the customer and how the customer defines value. Every consumer has a basic expectation of what housing should offer.

A woman walks quickly down the aisle of the local supermarket, one child in the shopping cart, another trailing behind her. As she studies the cans of soup, checks the coupons, and looks for any specials, she is considering which product gives her the best value for her money. For her, as for most shoppers, the decision will be focused on two issues - affordability and quality - her perception of value.

While housing is usually the most expensive commodity most people "purchase," the fundamental principles of marketing are no different than selling that can of chicken noodle soup. It must be something that the customer needs and which provides an acceptable balance between affordability and quality to make it a good value.

It also is important to remember that it is the customer who defines value. If the customer is not "buying" our product, it is because there is a gap between our perception of value and his. To bridge this perceived value gap, we must do one of two things - enhance the resident's perception of value, or alter our own. How do we create additional value, amenities, or services that will meet the needs of the customer? The answers to these questions require careful, objective analysis and creativity.

Who is the target market, and what is it saying? No one knows the answers to these questions like the prospective renters. In a universal sense, if the community is a family-oriented one, issues are likely to include time, money, and children. A seniors' property will need to show more concern with money, social needs, and health care. What specifically is the property doing to meet these needs? It doesn't require money, but it does require listening and responding.

Troubleshooting Tips

The first year of the credit period is the most critical for tax-credit properties because minimum set asides must be met and units must be occupied by qualified households in order for the owners to receive the credits.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Troubled Tax Credits: Prevention and Cure


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?