GAO Report Reveals Key Roles Equity Syndicators Play

Published by Dirk Wallace, Mark Shelburne on Monday, March 13, 2017 - 12:00am

A few years ago Sen. Chuck Grassley, R-Iowa, commissioned the U.S. Government Accountability Office (GAO) to evaluate the low-income housing tax credit (LIHTC). The GAO broke up the task into four separate reports. The first studied the role and oversight of federal agencies in LIHTC administration, and the second looked at administration at the state level.

The most recent report, issued March 1, examines the function of equity syndicators. Despite following the second report, this installment is not generally referred to as the third of the four because it is different; unlike the others, the GAO does not make any recommendations. Rather, the purpose of this document is explanatory and informational. Drafting the last report (often referred to by industry stakeholders as the third of the series) is underway and will focus on the cost of development/construction.  Current estimates suggest it will be released in the first half of 2018.

The March 1 report discusses the key roles that the syndicators play in developing and monitoring LIHTC projects as well as the types of investment structures utilized.  The key roles identified include connecting investors to developments, evaluating deals and acquiring properties, monitoring construction, conducting ongoing asset management, helping underperforming properties and disposing of interests at the end of the compliance period.  The report also points out that syndicators may reduce certain fees being charged or use their own resources to help investors achieve an expected rate of return.

Investors are not required to use a syndicator and may decide to directly invest in a property.  The authors interviewed market participants to determine the factors considered when selecting a syndicator compared to directly investing.   The participants cited a need for expertise, Community Reinvestment Act considerations, size of the investment and whether the investor had the resources required to acquire and manage its equity throughout the 15 year compliance period. Investors often chose to work with multiple syndicators. Large LIHTC investors interviewed stated that they have a relationship with as many as 14 different syndicators.

The most interesting aspects of the equity installment are the results of the GAO’s survey. The authors gathered information from 32 national and regional syndicators and found the following:


GAO Report on Equity Syndication
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