Low-Income Tax Credits
Are Gaining Popularity

Amid Washington's expanding crackdown on tax shelters, a growing number of corporate investors are taking an interest in low-income-housing tax credits.

The aim of the federal housing-credit program is to stimulate private investment in affordable rental housing. Tax credits are allocated to the developers of apartment projects that are rented to low-income households. Developers, in turn, sell those tax credits to companies, which apply them against their federal tax liabilities. The tax credits are taken over a 10-year period, although the program typically requires investors to remain in the investment for 15 years or risk paying back a portion of the credits.

"Companies that once turned their noses up at low-income-housing tax-credit investments are all of a sudden interested," says Fred Copeland, national director of Ernst & Young LLP's tax-credit investment advisory services. Mr. Copeland received a call just last week from a company looking to invest $100 million in such credits.

Investors also are attracted by the credits' returns. From 2000 to 2002, returns for investors in low-income-housing tax credits exceeded original projections by 1%, according to a report by Ernst & Young. The study analyzed data for 7,059 housing-credit properties and 179 investment funds, representing more than $16 billion of equity investment in the federal program, which began in 1987. Returns were slightly higher primarily due to operating losses at the properties, which investors can write off on their federal taxes, says Mr. Copeland.

In a separate report, Ernst & Young estimates housing-credit investments yield a 7% return on average.

"As demand for the credits increases," says Mr. Copeland, "credits trade at a higher price, and that means more [low-income rental housing] can be built."

What It's Worth

How much is half of the Bank of America Center in San Francisco worth? That's what many in the commercial real-estate market are wondering now that Bank of America Corp. has struck a deal to sell its 50% interest to a group of New York investors.

Real-estate brokers estimate the bank's interest in the 1.8-million-square-foot complex, which Bank of America co-owns with Shorenstein Co., could fetch between $375 and $450 a square foot, giving the entire complex a value of $675 million to $810 million.

Meanwhile, the center's owners are appealing the assessed value of $784 million that the San Francisco Office of the Assessor-Recorder pegged to the center's main 1.5-million-square-foot office tower and parking garage for 2003. The owners believe the assessed value of the complex is about $360 million. The owners also appealed the $769 million assessed value the assessor's office assigned to the property in 2002, contending that it should be valued at about $557 million, according to a Shorenstein spokesman.

The assessment-appeal process is "a legally mandated process put in place by voters, and we're pursuing it," says a spokesman for Shorenstein, which is handling the appeals for Bank of America Center.

San Francisco Assessor Mabel Teng says the appeal board is currently reviewing the 2002 complaint.

Building Blocks

Jones Lang LaSalle Inc.'s LaSalle Investment Management Inc. acquired a portfolio of 53 properties in Mexico for about $300 million from G. Accion SA de CV, a real-estate company based in Mexico City. LaSalle purchased the portfolio on behalf of itself, its parent and a consortium of institutional investors from the U.S., Canada and Europe, including California Public Employees' Retirement System and British Columbia Investment Management Corp. The portfolio, which is about 94% leased, consists of more than 5.6 million square feet of space in 52 industrial properties and one office building located in 12 cities throughout Mexico.... Black investors continue to think real estate is a better place to invest their money than stocks, bonds or mutual funds, according to a survey of black and white households earning more than $50,000 a year. The Black Investor Survey -- co-sponsored by Ariel Capital Management LLC, a Chicago-based investment firm, and financial-services firm Charles Schwab Corp. of San Francisco -- shows that 61% of black investors who were asked to choose between life insurance, bonds, stocks, mutual funds and real estate as the best investment overall chose real estate. That's up from 50% in 2003. Meanwhile, 51% of white respondents chose real estate, up from 44% the previous year. Black investors have said they "like the fact it's a tangible asset, you can get rental income from it and you can borrow against it," says Mellody Hobson, Ariel's president.

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