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I don't think this is only the Pennsylvania problem, but our low rent levels do speed up the intersection of operating expense with operating income. We even avoid hard debt on tax credit deals whenever possible because at some point, costs will exceed income. This is certainly true in hindsite with taxes, utilities, insurance and maintenance all rising at a greater rent than rents.

We are exploring solutions, are seeking a system of prioritizing what deals can be preserved. Resyndication resources only cover a tiny fraction of the need.

Using the agrument that it is so much cheaper to preserve an affordable unit that to build a new one, we have a concrete example to share. We are being offered - free of charge - a 17 year old 44 unit tax credit property that losses $25,000 per year. It has no hard debt payments, but soft debt exceeds the appraised value. After much review, we have come to the conclusion that the only way to preserve this is to find a source - hopefully our State Housing Finance Agency - that will subsidize operations. We are willing to enter into a 15 year restrictive use agreement in exchange for a 15 year commitment of $25,000 per year.

That is $568 per unit per year ($8520 per unit for 15 years) and a total of $375,000 of subsidy for 15 years. Producing 44 new units will cost $6-8,000,000 or more. Granted, they should last more than 15 years, but will still cost much more than the preservation subsidy model.

How are people in other states dealing with negative cash flow on older tax credit properties? Are you using a subsidy model, or something else?

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