A credit crunch is beginning to ease up on a sizable and highly coveted source of development money for low-income multifamily housing projects in Washington state, including some here.

Investors are beginning to show more interest in buying tax credits the Washington State Housing Finance Commission awards to developers of such projects, representatives of the commission say. Proceeds from those sales provide a big share—up to 70 percent in some cases—of the projects' funding.

"I would say it's on the rebound, but there's still a ways to go," says Bob Peterson, the commission's tax-credit manager. "We're still looking at tax-credit pricing being way below what it has been, and that has affected our ability to do more deals."

Last month, the commission last month approved the award of about $13.4 million in tax credits a year for 10 years to 12 fully funded projects statewide, including $934,000 for a $6 million-plus planned multifamily housing project in the Hillyard neighborhood. Altogether, those projects will provide 751 housing units for low-income residents.

The agency was scheduled to hold a meeting today, May 20, to consider approving two other fully funded projects, both on the West Side, that together would receive an additional $2.8 million in tax credits annually for 10 years, and would conclude the agency's 2010 allocation. Those projects would provide an additional 143 low-income housing units.

Another proposed project here, though, that was seeking $834,000 in such credits was one of 15 affordable-housing projects placed on the commission's waiting list and has been canceled due to its inability to obtain all of the funding support it needed. Those 15 projects were seeking an additional $11.6 million in tax credits, and their developers will need to reapply next year if they want to try to include some of that money as part of their project funding mix.

The Hillyard project approved for tax credits involves a redevelopment of the Martindale Apartments building, at 5313 N. Regal, to include 51 one-bedroom apartment units. As the Journal reported earlier, funding for that project also includes a $2.5 million loan from the state's housing trust fund, and construction tentatively is expected to start this fall.

The canceled project here was the 71-unit Dunmore Hill Apartments, proposed for a site near the intersection of Havana Street and Longfellow Avenue, northeast of Esmeralda Golf Course and also in the Hillyard neighborhood.

The application for that project, submitted by the nonprofit Boise Housing Corp., of Boise, Idaho, estimated its total cost at $10.2 million. The Boise Housing Corp. hired Boise-based Thomas Development Co., which claims to be one of Idaho's leading multifamily real estate developers and investment consultants, to be its development consultant for the project.

Claire Casazza, Thomas' director of development, says, "We have since made the decision not to go forward with the project." It had some funding lined up, but failed to secure needed housing trust fund money that it had sought through the state Department of Commerce, separate from the tax-credit allocation, Casazza says.

The federal tax-credit program, though possibly little understood outside low-income housing circles, provides an important incentive for the construction and rehabilitation of such housing, nonprofit providers of affordable housing here say.

It provides a dollar-for-dollar credit that buyers can use to reduce their federal taxes, and the commission is the only agency in the state authorized to issue the credits. The commission determines the number of credits each developer should get based on a point system that considers various criteria, but gives priority to projects that will serve the lowest-income tenants for the longest period of time.

Each year, the commission receives the tax-credit equivalent of a lump sum of the stateadministered federal money, equating to about $2 per state resident, then disburses those credits among developers of low-income housing projects. This year, it had tax credits worth just under $14 million to allocate, but it likely will borrow some from next year's credits—something it calls a "forward commitment"—to fund a total of about $16.2 million in tax credits, says Peterson's boss, Steve Walker, director of the commission's tax-credit division.

"It's common to do a 'forward commit' to get one more deal in" that has all of its other funding in place and is ready to move forward, Walker says. He says the state also might receive some additional credits from a national pool of leftover tax credits, the dollar value of which won't be known until later this year, to help fill this year's funding gap, which would mean having to use fewer of next year's credits.

Developers sell the credits to investors such as large banks and other corporations through an intermediary, called a syndicator, and those buyers then use the credits to reduce their tax liability. Investor interest in the tax credits began falling about two and a half years ago due to the slumping economy, causing their value also to shrink—from slightly over a dollar per dollar of credit in 2007 to the mid-60 cent range last year, before rebounding recently to an average of around 68 cents to 74 cents now, commission representatives say.

As a result of the recession-caused dip, developers counting on the dollars from tax-credit purchases found themselves facing big funding gaps, forcing the commission to devote more tax credits to each project and thereby reducing the number of projects it could fund.

"It has somewhat improved over the last year, and that's because some new investors have come into the market, and some of the banks are back profitable and back investing," Peterson says.

With fewer projects being developed because of the recession, though, the number of applications for tax credits also has fallen—to 29 this year from the high 30s on up to as many as 50 a few years ago, meaning there also are fewer projects on the waiting list now, he says.

Two mortgage giants, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac), formerly were among the largest buyers of tax credits, but withdrew from the market a couple of years ago due to their own problems, and Walker says, "They have not returned at all."

He adds, though, "I think we will continue to see some improvement in the tax-credit market."