Tax credits spur city apartment construction

Far fewer apartments would be under construction in Indianapolis were it not for federal tax credits.

Among projects taking advantage of the credits are 16 Park near East 16th Street between Central and College avenues, East Village at Avondale on the city’s east side, and the renovation of Lugar Towers on downtown’s Fort Wayne Avenue.

The developments are progressing under federal rules that require including mixed-income rental housing in apartment projects. Without the tax credits, virtually no apartments would be built in Indianapolis outside of downtown, where developers can demand higher rents, experts say.

“If it wasn’t for the tax credits, the only apartments being built would be in the high-end markets,” said George Tikijian, a principal of Indianapolis apartment brokerage Tikijian Associates.

A difficult lending environment has made it harder for developers to borrow money and to justify building apartments in lower-rent areas of the city.

Federal legislators created the Low-Income Housing Tax Credit in 1986 to spur private investment in affordable housing.

However, severe flooding in 2008 prompted an increase in Indiana’s allotment of affordable housing tax credits from the typical $14 million to nearly $40 million. Marion County and dozens of other counties qualified for the additional credits.

The extra funding expired in December, and the level reverts to $14 million this year.

The impact on Marion County from 2009 to 2011 is evident, though.

Thirty-one projects have been built, or are set to be constructed, compared with 19 projects in the previous three years.

More than 2,900 units are scheduled, a 76-percent increase from the prior three years. Total investment in moderate-income housing projects grew just as much, 77 percent, to $28.5 million, from 2009 to 2011, according to state statistics.

Joe Whitsett, a principal at The Whitsett Group, an Indianapolis-based developer, turns to the tax-credit program to help finance his projects. Credits have helped fund 17 developments since 2007 and he plans to tap them again for The Point on Fall Creek, a $22.5 million redevelopment of the location where Keystone Towers stood before being torn down last year.

Whitsett expects to take possession of the property in early spring and start construction in early summer. Plans call for the property to be developed in three phases, starting with construction of 58 apartments followed by another 80 units. The last stage would include retail space.

He’s certain that competition for the credits will stiffen as federal funding returns to the $14 million standard.

“Lending’s gotten better, so that helps,” he said. “But still, there won’t be as many deals to do on the affordable-housing side [because of the decrease in tax credit funding].”

The Indiana Housing and Community Development Authority administers the federal program that awards tax credits to developers to renovate, acquire or construct affordable rental units. A dollar-for-dollar credit provides an incentive for private developers and investors to provide low-income housing. By reducing a developer’s federal tax liability, or by selling tax credits to investors, the program can help cut the cost of development.

The authority awards the credits annually and will dole them out next on Feb. 23.

As president and CEO of City Real Estate Advisors, a division of locally based City Securities Corp., Jeff Whiting buys the credits from developers, bundles them into funds, and sells interest in the funds to investors.

Mortgage guarantors Fannie Mae and Freddie Mac were big buyers of the credits until the federal government took ownership of the two entities as the housing crisis worsened in 2008.

Insurance companies picked up the slack as investors and banks are returning to the market as well, Whiting said.

“It’s a pretty consistent form of producing affordable housing and has been for 25 years,” he said. “It’s the only tax credit that is permanent.”•