Real estate deals offering tax credits see big decline in sales.

Real estate funds investing in low-income housing and offering investors tax credits aren't what they used to be. In part, that's because the tax credits aren't as generous as they once were.

Peter A. Winer, ChFC, with Winer and Jones LLC in Timonium, Md., once recommended low-income housing tax credits, particularly for older clients. He placed a handful of clients in Boston Capital Corp.'s tax credit limited partnership real estate funds to get them.

No more.

Boston Capital Corp. funds invest in low- and moderate-income housing programs to take advantage of housing tax credits. The credits, available through the Low Income Housing Tax Credit Program, enacted by Congress in 1986, provide a client with a dollar-for-dollar write-off on federal income taxes. Credits are a much better deal than tax deductions, which solely reduce taxable income.

Winer lost his taste for those Boston Capital Corp. funds when a client, who had invested $49,000 in the Boston Capital Tax Credit Fund IV, Series 4, Number 43, died in November 2003. "One of the things I was told is that shares are easily transferable to heirs," Winer says. The client left two children, both with limited resources. Neither needed tax credits. They preferred cash.

Winer tried to sell the shares of the limited partnership fund on the secondary market, because his client's estate was small and the heirs needed money. The quotes ranged from 60% to 70% of value. Laurie Miller, a broker with Alliance Partnership Service in Pleasanton, Calif., encouraged him to hold out. Thanks to her limited partnership/REIT matching service, he says, he finally sold the investment at some 82% of value in April 2004.

Nevertheless, "that's totally unacceptable!" Winer maintains. He now shuns Boston Capital Corp. funds entirely. Boston Capital Corp. officials did not return phone calls for this story.

Others are avoiding these low-income housing tax credit funds for clients as well. MONY Group, which recently merged with AXA Financial, halted sales of Boston Capital's tax credit fund, as well as Wells Real Estate Investment Trust, in August. "We have determined that these offerings, which were sold by only a small segment of our producers, currently do not fit within our overall business strategy," says MONY Group spokeswoman Mary Taylor. The decision, she says, "involves only the nonpublicly traded REIT limited partnerships."

Observers say MONY is not alone-at least when it comes to the sale of low-income housing limited partnership tax credit funds to individuals. What was a large industry ten years ago has become very limited. "The only guys I see doing these right now are Boston Capital and WNC (& Associates, Irvine, Calif.)," says Keith Allaire, managing director of Robert A. Stanger & Co., Shrewsbury, N.J. Boston Capital, he says, has done $1.5 billion in public deals, while WNC has done $200 million.

Annual sales of publicly registered real estate low-income housing partnerships, as high as $342.3 million in 1990, dropped to $113.3 million in 2003, Stanger & Co. reports. As of the third quarter in 2004, there were just $77.5 million in public deals. Allaire attributes the decline to the advent of new, more attractive real estate products being sold by financial advisors.

David Fred, vice-president in charge of due diligence for ING Advisors Network in El Segundo, Calif., says sales of the low-income housing tax credit funds through his broker-dealer network are now about one one-hundredth of what they were about a decade ago. "The primary driver is the cost of credits," Fred says. Prior to 1990, an investor buying into a tax credit program could expect to get 160% of the investment in tax credits.