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| Federal Home Loan Bank of Chicago | Community Investment eNewsletter | June 2012 |
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| Advisory Council Member Spotlight: Jacques Sandberg |
 The Community Investment Advisory Council of the FHLBC consists of representatives from organizations actively involved in providing or promoting affordable housing or lending in the district. They’re charged with advising the FHLBC on ways in which it can better carry out its housing finance and community investment missions.
In this ‘Advisory Council Member Spotlight,’ we asked Jacques Sandberg, right, his thoughts on a few topics. Jacques is the Director of Real Estate Development for The Community Builders (TCB); he is responsible for their Midwest Region. TCB is a non-profit developer that specializes in large-scale community revitalization.
FHLBC: The Community Builders is one of the largest non-profit development corporations in the United States. What are you seeing in other parts of the country that is influencing your work regionally?
Jacques: TCB currently does business in what we consider to be the Northeast, Midwest, and Mid-Atlantic regions. Generally speaking, each of our regions has one “hot” market city and a large number of cities and towns that have softer markets. In the Northeast, the strong market is Boston; in the Mid-Atlantic, it’s Washington D.C.; and in the Midwest, it’s Chicago. In the softer markets, rents are generally low but the cost of development and operations is still relatively high, so we rely quite heavily on 9% Low Income Housing Tax Credits (LIHTC) and other soft subsidies like CDBG, HOME, and AHP from the Federal Home Loan Banks. However, in stronger markets where rents are higher, we’re able to contemplate large-scale, mixed-use, transformational projects that allow us to leverage private capital.
FHLBC: The Census Bureau recently reported the national homeownership rate now stands at 65.4%, down from 66.4% a year earlier. What kind of pressure is this creating on the rental housing market?
Jacques: The high rates of home foreclosure have placed increased pressure on the rental housing market as homeowners turn to rental options. This pressure has been intensified by banks that remain wary of making home loans to first-time homebuyers. One of the effects of this on affordable rental housing is that the sales prices of existing apartment buildings have been bid up to the point where the kind of renovation we like to do isn’t economically feasible. In the new construction that makes up the bulk of our work, tax credit limits generally provide the cap on rents so increasing rental rates haven’t necessarily accrued to the benefit of the properties.
FHLBC: The syndication market for Low Income Housing Tax Credits seems to have almost completely rebounded. Has this been your experience? What are the characteristics of LIHTC projects that make the credits most attractive to investors?
Jacques: The tax credit market has rebounded significantly. I’ve heard that in New York City, projects are getting quotes for $1.12 [per credit], which may be even better pricing than before the market crash. In Chicago, we’re seeing pricing shake out somewhere in the low- to mid-90s [cents]. In general, investors are going to target their investment to places where they have CRA obligations and where they can get a yield of around 6%. Ultimately, investors want experienced developers and projects that are underwritten to be viable for over 15 years. They also strongly prefer projects in healthy cities or large metropolitan markets and are steering clear of rural areas.
Right now, tax credit developers are very focused on the 9% fixed-rate expiration date of December 31, 2013. Therefore, projects that are currently in predevelopment are underwritten using the pre-ARRA (American Recovery and Reinvestment Act of 2009) tax credit rates that linger in the mid 7s, which is creating a greater need for gap financing in an era where local governments don’t have the soft money available. TCB has been advocating strongly for tax reform advocates to include extending the 9% fixed rate.
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