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Low-Income Housing Tax Credit: The Role of Syndicators

GAO-17-285R Published: Feb 16, 2017. Publicly Released: Mar 01, 2017.
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What GAO Found

The Low-Income Housing Tax Credit (LIHTC) established under the Tax Reform Act of 1986, is the largest source of federal assistance for developing affordable rental housing and has financed about 2.9 million rental units. LIHTCs encourage private-equity investment in low-income housing through tax credits. Developers of awarded projects typically attempt to obtain funding for their projects by attracting third-party investors willing to invest in the project (provide up-front cash) in exchange for the ability to claim tax credits. The developer sells an ownership interest in the project to one or more investors, or in many instances, to a syndicator acting as an intermediary between the developer and investors.

Characteristics of active syndicators included differing organizational types, generally multistate operations, long experience with LIHTCs, and use of two types of investment funds to raise equity. More specifically, of the 32 syndicators GAO surveyed, 19 were for-profit and 13 were nonprofit. All of the for-profits and 4 of the nonprofits operated in at least 10 states; 10 for-profit and 2 nonprofit syndicators operated in more than 40 states. For each type of syndicator, the average experience with LIHTCs was more than 20 years. Syndicators offered proprietary (single-investor) and multi-investor funds. Collectively, the 32 surveyed syndicators had raised more than $100 billion in LIHTC equity since 1986, helping to fund more than 20,000 properties and about 1.4 million units placed in service (suitable for occupancy) through 2014. Projects for which these syndicators raised equity in 2005-2014 represented an estimated 75 percent of all LIHTC properties placed in service in that period. Surveyed syndicators had 138 properties foreclosed upon, which represented about 1 percent of their collective LIHTC properties placed in service as of October 2015.

According to market participants, syndicators play several roles in the LIHTC market. For example, syndicators help connect investors--who can claim tax credits as a consequence of their investment--and developers and oversee the fund's acquisition and the ongoing management of the projects. Syndicators are typically compensated through an initial acquisition fee--usually a percentage of the gross equity raised--and an annual asset management fee. According to the market participants, several factors influence whether an investor uses a syndicator or invests directly in an LIHTC project. For example, an investor might need the expertise that a syndicator offers or might not have the internal capacity to acquire and manage an LIHTC investment. Investors consider different variables when deciding which syndicator to use. Many of the investors and developers that GAO interviewed said that prior relationships and the amount of project equity syndicators sought for the tax credits were important factors. They added that a syndicator's knowledge of local or regional markets also could play an important role to help investors such as banks receive positive consideration under the Community Reinvestment Act (CRA), which encourages depository institutions to meet the credit needs of communities in which they operate. 

Why GAO Did This Study

Syndicators include specialty firms and large financial institutions, but information on syndicators' characteristics or the role they play in the LIHTC market is limited. GAO was asked to provide information on their involvement in the LIHTC market. This report describes (1) the characteristics of active syndicators and their activity in the LIHTC market in 2005-2014, and (2) the role syndicators play in the LIHTC market and factors that influence their use. To determine the characteristics of active syndicators and their LIHTC market activity, GAO identified and verified 36 syndicators active as of October 2015 and gathered data for 32 of those firms. To determine the role syndicators play in the LIHTC market and the factors that influence their use, GAO interviewed representatives of organizations whose members are LIHTC syndicators, developers, lenders, investors, and others who have studied the program.

GAO makes no recommendations in this report.

For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or

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HousingLow-income housingRental housingTax creditAffordable housingDatabase management systemsCompliance oversightGovernment-sponsored enterprisesAsset managementAudit objectives