Greystone Housing Impact Investors LP - Q1 2024

Executive Summary

• Q1 2024 delivered GAAP net income of $10.65M ($0.42 per BUC) and CAD of $5.23M ($0.23 per BUC); EPS benefitted from a $4.6M non-cash mark-to-market gain on interest rate swaps, while CAD excluded this item.
• Balance sheet and liquidity remained solid: total assets $1.45B, book value per unit $14.59, leverage ratio 71%, unrestricted cash $56.3M, and ~$75M credit availability.
• The Board paid a quarterly distribution of $0.44 per BUC (regular cash $0.37 + supplemental $0.07 in BUCs) on April 30, 2024; portfolio performance stable with 92.1% occupancy on stabilized MRB properties and no forbearance requests.
• Estimates context: S&P Global consensus EPS and revenue estimates were unavailable; beat/miss vs Street cannot be assessed this quarter (S&P Global data request limit exceeded).

What Went Well and What Went Wrong

What Went Well

• CAD remained positive at $0.23 per BUC and distributions continued as planned (cash plus supplemental units), reflecting ongoing cash generation and capital discipline.
• Hedging strategy worked: the partnership was a net receiver on swaps (receive compounded SOFR 5.31%, pay fixed 3.39% on ~$313M notional), generating a $4.6M unrealized gain in net income and ~$1.7M net cash received in Q1; management expects ~$3.2M swap cash receipts over six months if rates hold, adding ~$0.14 CAD/BUC.
• Portfolio performance and execution: all MRB/GIL investments current on P&I, strong occupancy (92.1%), continued conversions to permanent financing and redemptions supporting liquidity.

Selected quotes:

• “We are pleased by the strong performance of our investment portfolio during the first quarter… We expect that these opportunities will provide attractive returns for our unitholders.” — CEO Kenneth Rogozinski.
• “We regularly monitor our liquidity… unrestricted cash and cash equivalents of $56.3 million… approximately $75 million of availability on our secured lines of credit.” — CFO Jesse Coury.
• “We continue to see no material supply chain or labor disruptions on the Vantage projects under construction.” — CEO Kenneth Rogozinski.

What Went Wrong

• YoY softness: total revenues fell to $22.37M from $24.94M and CAD/BUC declined to $0.23 from $0.79 due to fewer JV gains and derivative mark-to-market dynamics last year; Q/Q revenues also declined from $25.18M in Q4.
• Book value decreased $0.58 Q/Q to $14.59 per unit, primarily from higher tax-exempt yields (~28 bps increase) lowering MRB fair values.
• Higher rates and cost inflation continue to pressure affordability developers (lower LIHTC pricing, lower permanent loan proceeds), requiring more subsidies and fee deferrals; management highlighted the challenging financing landscape.

Transcript

Operator (participant)

...Greetings, and welcome to the Greystone Housing Impact Investors Conference Call. At this time, I would like to turn the call over to your moderator today, Mr. Jesse Coury, CFO, for opening remarks. Thank you, sir. You may begin.

Jesse Coury (CFO)

Thank you. I would like to welcome everyone to the Greystone Housing Impact Investors LP, NYSE, ticker symbol GHI , Q1 2024 earnings conference call. During the presentation, all participants will be in a listen-only mode. After management presents its overview of Q1 2024, you will be invited to participate in a question and answer session. As a reminder, this conference call is being recorded. During this conference call, comments made regarding GHI, which are not historical facts, are forward-looking statements and are subject to risks and uncertainties that could cause the actual future events or results to differ materially from these statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words like may, should, expect, plan, intend, focus, and other similar terms.

You are cautioned that these forward-looking statements speak only as of today's date. Changes in economic, business, competitive, regulatory, and other factors could cause our actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the periodic reports and other documents filed from time to time by us with the Securities and Exchange Commission. Internal projections and beliefs upon which we base our expectations may change, but if they do, you will not necessarily be informed. Today's discussion will include non-GAAP measures and will be explained during this call. We want to make you aware that GHI is operating under the SEC Regulation FD and encourage you to take full advantage of the question and answer session.

Thank you for your participation and interest in Greystone Housing Impact Investors LP. I will now turn the call over to our Chief Executive Officer, Kenneth C Rogozinski.

Kenneth C Rogozinski (CEO)

Good afternoon, everyone. Welcome to Greystone Housing Impact Investors LP's Q1 2024 investor call. Thank you for joining. I will start with an overview of the quarter and our portfolio. Jesse Coury, our Chief Financial Officer, will then present the partnership's financial results. I will wrap up with an overview of the market and our investment pipeline. Following that, we look forward to taking your questions. For the Q1 of 2024, the partnership reported net income of $0.42 per unit and $0.23 of cash available for distribution, or CAD, per unit. Our Q1 reported net income of $0.42 per unit includes a $4.6 million non-cash gain that reflects the mark-to-market associated with our interest rate swap portfolio for the quarter. That translates to $0.20 per unit in non-cash gain, which is not reflected in CAD.

We are currently a net receiver on substantially all of our interest rate swaps as we receive compounded SOFR, which is as od today 5.31%, and pay a weighted average fixed rate of 3.39% on our approximately $313 million in swap notional amounts as of March 31, 2024. Assuming that the compounded SOFR level stays constant over the next six months, that 192 basis point spread would result in us receiving approximately $3.2 million in cash payments from our swap counterparties, which would not be reflected in our net income, but would be reflected as an additional $0.14 per unit in CAD.

We also reported a book value of $14.59 per unit on $1.45 billion of assets and a leverage ratio as defined by the partnership of 71%. On March 13,2024 we announced a regular quarterly cash distribution of $0.37 per unit and a supplemental distribution of $0.07 per unit in the form of additional units, both of which were paid on April 30, 2024. In terms of the partnership's investment portfolio, we currently hold $1.22 billion of affordable multifamily investments in the form of mortgage revenue bonds, governmental issuer loans, and property loans, and $145 million in joint venture equity investments.

As far as the performance of the investment portfolio is concerned, we have had no forbearance requests for multifamily mortgage revenue bonds, and all such borrowers are current on their principal and interest payments. Physical occupancy on the underlying properties was at 92.1% for the stabilized mortgage revenue bond portfolio as of March 31, 2024, 2024. Our Vantage joint venture equity investments consist of interest in 7 properties, 4 where construction is complete, with the remaining three properties either under construction or in the planning stage. For the four properties where construction is complete, we continue to see good leasing activity. We continue to see no material supply chain or labor disruptions on the Vantage projects under construction. As we have experienced in the past, the Vantage Group, as the managing member of each project-owning entity, will position a property for sale upon stabilization....

As previously announced, the Vantage at Tomball property has been listed for sale. We have 4 joint venture equity investments with the Freestone Development Group, 1 for a project in Colorado and 3 projects in Texas. Site work has commenced on 2 projects, and construction has commenced on 1 of the projects in Texas. Our joint venture equity investment in Valage Senior Living at Carson Valley, a 102-bed seniors housing property located in Minden, Nevada, has begun vertical construction, and the project currently has lease deposits for 48 of the property's 102 units. Our joint venture equity investment in The Jessam at Hays Farm, a new construction, 318-unit, market-rate multifamily property located in Huntsville, Alabama, has commenced vertical construction as well. As previously announced, in December 2023, we sold our final MF property investment, the Suites on Paseo Student Housing Project.

The partnership no longer owns any operating real estate property investments. With that, I will turn things over to Jesse Coury, our CFO, to discuss the financial data for the Q1 of 2024.

Jesse Coury (CFO)

Thank you, Ken. Earlier today, we reported earnings for our Q1 ended March 31, 2024. We reported GAAP net income of $10.6 million and $0.42 per unit, basic and diluted, and we reported cash available for distribution, or CAD, of $5.2 million and $0.23 per unit. As Ken mentioned, our reported Q1 GAAP net income includes a $4.6 million-dollar non-cash unrealized gain on our interest rate swaps. Changes in the fair value of our interest rate swap portfolio will cause variability in our reported net income in periods of interest rate volatility, though such non-cash fair value adjustments are excluded in our calculation of CAD.

I will note that beginning in the fourth quarter of 2023, we reclassified gains and losses from our derivatives instruments to a new line on our statement of operations titled Net Results from Derivative Transactions, as well as providing additional detail on derivative gains and losses in footnote 15 or page 36 of our Q1 Form 10-Q. These items were applied retroactively to our prior financial statements as well. We believe these changes provide useful information for readers regarding the volume and impact such derivatives have on our reported results. Our book value per unit as of March 31, 2024 was, on a diluted basis, $14.59, which is a decrease of $0.58 from December 31. The decrease is primarily a result of a decline in the fair value of our MRB portfolio.

Our third-party service providers estimate the fair value of our mortgage revenue bond investments quarterly, with models that predominantly use MMD's tax-exempt multifamily yield curves. Tax-exempt rates increased approximately 28 basis points on average across the curve from December 31st to March 31, 2024, which resulted in a corresponding decrease in the fair value estimates of our MRB portfolio. As a reminder, we are, and expect we will continue to be, long-term holders of our predominantly fixed-rate MRB investments, so we expect changes in fair value to have no direct impact on our operating cash flows, net income, or CAD. As of market close yesterday, May 7th, our closing unit price on the New York Stock Exchange was $15.58, which is a 7% premium over our net book value per unit as of March 31, 2024.

We regularly monitor our liquidity to both take advantage of accretive investment opportunities and to protect against potential debt deleveraging events if there are significant declines in asset valuations. As of March 31, 2024, we reported unrestricted cash and cash equivalents of $56.3 million. We also had approximately $75 million of availability on our secured lines of credit. At these levels, we believe that we are well positioned to fund our current financing commitments, which I will discuss later. We regularly monitor our overall exposure to potential increases in interest rates through an interest rate sensitivity analysis, which we report quarterly and is included on page 79 of our Q1 Form 10-Q. The interest rate sensitivity table shows the impact on our net interest income, given various changes in market interest rates and other various management assumptions.

Our base case uses the forward SOFR yield curve as of March 31, 2024, which includes market-anticipated SOFR rate declines over the next 12 months. The scenarios we present assume that there is an immediate shift in the yield curve and that we do nothing in response for 12 months. The analysis shows that an immediate 200 basis point increase in rates will result in a decrease in our net interest income and CAD of $209,000, or approximately $0.009 per unit. Alternatively, assuming a 50 basis point decrease in rates across the curve will result in an increase in our net interest income and CAD of $52,000, or approximately 0.2 cents per unit.

As such, we are largely hedged against large fluctuations in our net interest income from market rate movements in all scenarios, assuming no significant credit issues. Our debt investments portfolio, consisting of mortgage revenue bonds, governmental issuer loans, and property loans, totaled $1.22 billion as of March 31, 2024, or 83% of our total assets. This amount is down $74 million from December 31, primarily due to pay downs and redemptions during the Q1. In February 2024, the borrowers of three construction-related investments elected to prepay approximately $72 million of property loans prior to property completion, though we still hold governmental issuer loan investments associated with these three properties. We currently own 86 mortgage revenue bonds that provide permanent financing for affordable multifamily properties across 15 states.

Of these mortgage revenue bonds, 31% of our portfolio relates to properties in Texas, 27% in California, and 20% in South Carolina. We currently own 9 governmental issuer loans that finance the construction or rehabilitation of affordable multifamily properties across five states. Such loans often have companion property loans or taxable governmental issuer loans that share the first mortgage lien. During the Q1, we advanced funds totaling $9.1 million for our governmental issuer loan, taxable governmental issuer loan, and property loan commitments. During the Q1, we completed 1 conversion of our governmental issuer loan investment to permanent financing by Freddie Mac. The governmental issuer loan investment was purchased at par value by Freddie Mac pursuant to its forward purchase commitment. In addition, our related taxable governmental issuer loan was repaid by the borrower at par.

Redemption proceeds for the governmental issuer loan and taxable governmental issuer loan totaled $34 million, of which $28 million was used to pay off our related TOB debt financing. Our outstanding future funding commitments for our mortgage revenue bond, governmental issuer loan, and related investments was $26 million as of March 31, 2024. These commitments will be funded over approximately 24 months and will add to our income-producing asset base. We also expect to receive redemption proceeds from our existing construction financing investments nearing maturity, which will be redeployed into our remaining funding commitments. We apply the CECL standard to establish credit loss reserves for our debt investments and related investment funding commitments.

We reported a negative provision for credit loss of $806,000 for the Q1, largely driven by recent governmental issuer loan, taxable governmental issuer loan, and property loan redemptions, and a reduction in the weighted average life of our remaining investment portfolio. We have adjusted back the impact of the provision for credit losses in calculating CAD, consistent with our historical treatment of loss allowances. Our joint venture equity investments portfolio consisted of 12 properties as of March 31, 2024, with a reported carrying value of approximately $145 million. We advanced additional equity under our current funding commitments, totaling $7 million during the Q1. Our remaining funding commitments for JV equity investments totaled $54.3 million as of March 31, 2024.

Our debt financing facilities are used to leverage our investments and had an outstanding principal balance totaling $980 million as of March 31, 2024. This is down $37 million from December 31, primarily due to debt repayments associated with redemptions of our debt investments. We manage and report our debt financing in four main categories on page 73 of our Form 10-Q. Three of the four categories, fixed rate assets with fixed rate debt, variable rate assets with variable rate debt, and fixed rate assets with variable rate debt that is hedged with interest rate swaps, are designed such that our net return is generally insulated from changes in short-term interest rates. These categories account for $921 million, or 93.7% of our total debt financing.

The fourth category is fixed rate assets with variable rate debt, with no designated hedging, which is where we are most exposed to interest rate risk in the near term. This category only represents $60 million or 6.3% of our total debt financing. We regularly monitor our interest rate risk exposure for this category and may implement hedges in the future if considered appropriate. On the preferred capital front, we executed two issuances of our Series B preferred units in the Q1. The first issuance was $17.5 million of Series B preferred units that were exchanged for $17.5 million of previously issued Series A preferred units. The second issuance was a sale of $5 million of Series B preferred units to a new investor for $5 million of gross proceeds.

The earliest redemption date of the newly issued Series B preferred units is early 2030, with certain limited exceptions. These issuances provide non-dilutive, fixed rate, and low-cost institutional capital for executing our strategy. We redeemed our last remaining $10 million of Series A preferred units in April 2024. After this redemption, the next earliest redemption date for our outstanding preferred units is not until April 2028. We continue to pursue additional issuances of preferred units under active offerings for our Series A-1 and Series B preferred units. In March 2024, we reactivated our at-the-market, or ATM, offering to sell up to $50 million of newly issued units into the market. We sold 64,765 units under the ATM program for gross proceeds of approximately $1.1 million during the Q1.

Units issued under the ATM program allow us to raise additional capital without price dilution and at a substantially reduced cost to a traditional follow-on offering. I'll now turn the call over to Ken for his update on market conditions and our investment pipeline.

Kenneth C Rogozinski (CEO)

Thanks, Jesse. The months of March and April saw rates in the muni bond market trend higher as fixed income investors came to grips with seeing potential Fed rate cuts pushed further into the future due to persistent inflation. The Bloomberg Municipal Index posted a total return of negative 1.2% for March and April. The Bloomberg High Yield Municipal Index generated a total return of positive 0.6% for the same two-month period. From a market technicals perspective, the first four months of the year saw $141 billion of gross issuance, with many market participants predicting 2024 total issuance of over $400 billion. Through April, year-to-date fund and ETF inflows totaled $6.6 billion, according to Refinitiv.

As of yesterday's close, 10-year MMD is at 2.7%, and 30-year MMD is at 3.8%, roughly 25 basis points higher in yield respectively than at the time of last quarter's call. This is consistent with the bear flattening of the broader fixed income yield curves that we have seen so far this year. With this flattening trend, 10-year MMD is actually the low point of the current muni yield curve. The 10-year muni-to-treasury ratio is still approximately 60%, demonstrating the recent strength of munis. Continued volatility in rates, the magnitude of interest rate increases in the past 18 months, particularly in the short end of the curve, and cost of inflation, have presented challenges to our developer clients on new transactions.

Our affordable housing developer clients continue to rely on more and more governmental subsidies and other sources of soft money to make their transactions financially feasible. We continue to work with our clients to deliver the most cost-effective capital possible, especially the use of the Freddie Mac tax-exempt loan forward commitment in association with our construction lending. We will continue to look for other opportunities to deploy capital in our JV equity strategy on a selective basis. We believe that getting new projects underway now, while other sponsors face significant challenges, will put us in a better position for success with our exits 3-5 years down the road, when new supply may be limited. We believe that our new JV equity investments made in 2023 and 2024 are reflective of that approach. With that, Jesse and I are happy to take your questions.

Operator (participant)

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment while we poll for our first question. Our first question comes from Jason Weaver with JonesTrading. Please proceed.

Jason Weaver (Managing Director, Equity Research)

Hi, thanks for taking my question. First, I was wondering about, on the JV equity investments, could you talk a bit about, specifically those that are in construction or in the lease-up phase, whether that they're adhering to original business plan timelines?

Kenneth C Rogozinski (CEO)

That's something that we monitor on a regular basis, Jason. We, you know, continually look at the progress of the individual projects, both in terms of construction completion schedules, lease-up, and how the projects are performing from a revenue and expense perspective versus the originally underwritten pro forma there. And from a, you know, a timing perspective, we have not seen any significant delays versus the original pro formas. There have been some assets who've had individual challenges, be it weather delays or local governmental approvals and things like that. But, you know, nothing at this point in time that has been, at least from our perspective, a significant deviation from you know, from the plan we expected to see there.

You know, from a, you know, from a leasing perspective, the, you know, the deals that are either stabilized or close to stabilized, you know, we believe have adhered well to the original underwriting pro forma on those transactions. And for the deals that have just started leasing, I think it's a little too soon to tell on, on that front, but it, it's something that we continue to monitor on a regular basis.

Jason Weaver (Managing Director, Equity Research)

All right. Thank you. That's actually very helpful. I was wondering, on your priority for capital deployment, if you could discuss that broadly within the asset classes that you're in right now and where you see or where you can ballpark incremental sort of ROE?

Kenneth C Rogozinski (CEO)

...So in terms of capital deployment, you, one thing you need to keep in mind is the limitation that we have under our limited partnership agreement, that 75% of our assets have to be invested in mortgage investments, and those are the, you know, the mortgage revenue bonds, the governmental issuer loans, and the associated property loans. So, you know, it, it's not like Jesse and I can wake up tomorrow morning and decide that we would want to become the JV equity kings of the Midwest and deploy our, our capital in that way. We, we have that, we have that limiter built within the, you know, the partnership agreement. So, you know, we, we keep our focus there.

You know, I think in terms of generating the regular level of income that we like to see from that debt investment portfolio, as opposed to the lumpier income that we see from our joint venture equity investments, we strive to keep the right balance there on that front. So, you know, really, at the end of the day, as we evaluate the individual investment opportunities that come before us, the first standard or the first test that we apply really is that accretion versus our current dividend level to make sure that we can price either our lending product or expect the return from our JV equity investments to be consistent with both our current dividend yield and the historic returns that we've seen for taking that kind of risk.

And so, you know, that is, that is really the focus that we, you know, that we have. I, I don't think we really prioritize one over the other. I think it's a question of evaluating the opportunities that we see from our, origination force. You know, as I mentioned in my comments, just sort of particularly with, with the current landscape, with our JV equity investments, really keeping our eye on the ball there in terms of the, you know, the markets that we're, that we're entering and the partners that we're working with.

Jason Weaver (Managing Director, Equity Research)

All right. Thanks for that color. And just one final one. I don't know if you ran a month-end valuation on the existing holdings as of April, but do you have an updated estimate of book value?

Jesse Coury (CFO)

Jason, we don't have an estimate of that value that we can share. I will, you know, refer back to one of my remarks that, you know, we're really a net spread business, and we're focused on generating income and cash flows for our unit holders. So in terms of the changing values in the Mortgage Revenue Bond or Governmental Issuer Loan portfolio due to market rate changes, we don't focus on that too much. It's more the net spread that we can generate from those investments, essentially the net between our interest income and the interest expense on our related debt financing.

Kenneth C Rogozinski (CEO)

Jason, the only color I'll add there is that's not something that we hedge to. You know, we're not hedging the you know, kind of the you know, the quarterly or the monthly mark-to-market value of our underlying investments, you know, unlike some of the other industry peers that we have out there. Our interest rate swap portfolio is almost exclusively to hedge the interest cost of our financing in order to really lock in that net interest margin on our investments, as Jesse described. So, you know, we do get, you know, some benefit of that, albeit flowing through the income statement as opposed to on a book value basis.

But historically, you know, the management team at the partnership has really not hedged or not managed against the book value of the underlying portfolio since we are, at our core, a buy and hold investor.

Jason Weaver (Managing Director, Equity Research)

Got it. Makes sense. Thanks again, guys.

Kenneth C Rogozinski (CEO)

Thanks, Jason.

Operator (participant)

The next question comes from Chris Miller with JMP Securities. Please proceed.

Chris Muller (Analyst)

Hey, guys. Thanks for taking the questions. So on the supplemental distribution, is that something that we should expect to stay in place for the remainder of 2024? And can you just remind me, is that something that the board looks at quarterly, or are they looking at that, on an annual basis?

Kenneth C Rogozinski (CEO)

I think there, Chris, in terms of the communication that, we and the board made around the supplemental distributions, over the past couple of years as they've been made, you know, it, it's really been focused on, you know, a supplement to our, our, sort of our core or our base dividend based on transactional activity. You know, we, we had a, you know, we had a couple of, of quarters there where we saw significant gains from some of our joint venture equity investment liquidations. And, and the board took the approach of making those supplemental distributions either in the form of cash or, or additional units. So that philosophy, I think it will continue to be, you know, implemented or managed by them.

So it's really gonna be driven largely by what we see over the remainder of this year in terms of the potential gains that might be generated from any of the JV equity investment that we have that are sort of poised for, you know, for sale at this point in time. So there's not a particular formula that they apply, so to speak, but I think based on what they've communicated in the past, that was the genesis for the implementation of those supplemental distributions. And I think they'll stay consistent in terms of looking to apply that methodology in the future, depending on what the actual results are of any potential JV equity investment redemptions.

Jesse Coury (CFO)

Yeah.

Chris Muller (Analyst)

Got it.

Jesse Coury (CFO)

The only thing I would add is that the board looks at it quarterly when they're announcing or declaring their distribution, but they take a longer-term view of returns, and they aren't setting the distribution based on the quarterly fluctuations in our earnings metrics. You know, the natural timeframe is the annual timeframe because we have Schedule K-1s that we issue to unitholders, and they have to pay taxes on the income allocated to them during that period or during that tax year. So that's a probably better alignment of how the board is looking at it from a longer-term perspective.

Chris Muller (Analyst)

Got it. That's helpful. And it sounds like we could see another possible sale or two this year, so we can read between the lines there. I guess the other question I have: so, it looks like cash balances picked up a little bit quarter-over-quarter. Was that just related to the timing of redemptions, or are you guys trying to build a little more liquidity?

Jesse Coury (CFO)

It was largely the result of redemptions. We had roughly $120 million of debt investments that redeemed during the quarter, which net of the related TOB financing that got paid down, was a significant increase in cash during the quarter, which we'll look to deploy here into our investment commitments in the next probably one or two quarters.

Chris Muller (Analyst)

Got it. Very helpful. Thanks for taking the question.

Operator (participant)

The next question comes from Steven Laws with Raymond James. Please proceed.

Stephen Laws (Analyst)

Hi, good afternoon. Appreciate the commentary so far. Ken, wanted to circle back. You talked about the higher rate and just kind of impact that was having on borrowers and developers that you work with. You know, can you talk a little bit more about that as far as discussions and that impact? You know, is it stabilizing rates as opposed to this up 50, down 50 every three months that we seem to be seeing? Is that more helpful, or do you know, is there some magic number of rates going back to you know, 4.25 or 4 or lower that they really need? Kind of, can you talk a little bit more about the distress they're experiencing and what rate environment would benefit them?

Kenneth C Rogozinski (CEO)

It's a combination of factors, I'd say, Steven. The first is if you, you know, you look at the normal capital stack of one of our new construction, a 4% LIHTC transactions, you know, you not only have the debt, but you have the value of the equity that they're syndicating, there as well. And so, you know, as yields in other markets go up, those low-income housing tax credit investors are going to be looking to achieve higher yields as well, which translates into lower book pricing, you know, making the distributions harder to push because you're getting less dollars coming in, in the form of equity of credits that you talk about that.

So I think that's one area where just the overall level of rates is having that negative impact because of how tax credit investors are pricing. You know, the other thing is, you know, the level of rates that we see for the, for example, the Freddie Mac forward perm loans that are part of our financing structure. You know, higher rates there are translating into lower perm loan proceeds for sponsors, since in our experience, most of the deals end up being debt service coverage constrained from a perm loan underwriting perspective. And so, you have lower permanent sources of capital there as well.

And so if developers get this squeeze of, you know, lower perm loan proceeds, lower LIHTC proceeds, their normal solution to that is deferring more of their developer fee. At some point in time, you hit the limits of the ability to do that based on the tax parameters and what the state housing finance agencies have as their criteria for deferred developer fees. So it's really a combination of all of those factors. Generally, you know, no surprise, lower rates would be better for them, but kind of this 50 basis point trading range on the 10-year that we seem to be stuck in, you know, versus the Fed cutting rates on the short end of the curve.

I think everybody would love to see, you know, lower, construction financing costs, but quite candidly, we don't see a lot of our project sponsors, particularly on the low-income housing tax credit deals, doing floating rate construction financing because their, their tax credit equity investors don't like seeing that risk in the transaction. So, you know, a, a long answer, but I think generally it's an overall lower cost that I think will ultimately translate, you know, better, better dynamics for the, for the industry. And I think we'll just have to wait and see that, you know, if and when these first round of Fed rates happen this year, what the market reaction, whether we see kind of a, you know, breakout from this trading range that we've been into a, to a new...

Stephen Laws (Analyst)

Great. Appreciate the comments on that, Ken. You know, wanted to touch on, you know, in this higher rate environment with multifamily cap rates moving a little higher, you know, and I know you've mentioned, you don't control the sale or decision on these assets. But, you know, when you talk with Vantage, you know, do they look at, you know, are they in the business more to recycle capital and they want to look at exits to fund their next development? And you mentioned how it's an attractive time to start those given deliveries in three to five years.

You know, or do you think any of these assets, you know, Vantage would look at it as, as holding for a couple of years, just given the, to look to sell into a more attractive cap rate environment on multifamily?

Kenneth C Rogozinski (CEO)

As you said, Steven, the decision is there. It's not something that we control, but their business model historically has this merchant build strategy. They're not really long-term owner-operators of these assets. So, you know, speaking only from our perspective as their limited partner on these deals, I think our expectation would be that that business format continues. We really don't have a mechanic within our operating agreement that would allow for them to sort of opt to switch to a long-term hold. So, you know, I believe that, you know, from their perspective, the strategy would look to stay consistent going forward.

I think, you know, the real value that can be added in this process is sort of the maximization of gross rent and fine-tune the projects as they get ready for sale. But also looking for a potential different investor class to buy these assets. You know, we're not necessarily focusing on the same family office or 1031 exchange investors who may have historically been purchasers of our projects. We look at either nonprofit purchasers or people who have access to different sources of capital that might not be pricing the same way that offer, you know, pages for bridge loan financing might for your typical for-profit institutional owner.

Stephen Laws (Analyst)

I appreciate that color. And one final one. You'd mentioned, you know, now being a good time potentially to continue to build out additional JV multifamily. Do you think you'll do that with the existing sponsors? You know, it was Vantage for a long time. You added, you know, Freestone, Camden, you know, ISL on the senior living. You know, do you think the future deals will be with your existing partners, or are you looking to expand the partners you're working with as well?

Kenneth C Rogozinski (CEO)

I think, Steven, it depends on the opportunities that we, that we see. I mean, our existing partners continue to present opportunities for us that, that we evaluate. But being part of the, the broader Greystone platform, there, there's no shortage of, introductions and contacts to other potential sponsors that we see through that network of, of relationships. So I, I think from our perspective, as we get a little further into the year, to see what potential sale activity is gonna be and capital we might have to recycle and, and what additional capital might, right? We'll have those regular conversations with our existing partners. We'll, we'll-- if there may be other opportunities that come across the transom that, that we decide that we want to pursue.

But with a stable of four partners, not right now, you know, I feel confident in their ability to continue to, you know, to show good quality transactions, too.

Stephen Laws (Analyst)

Great. Appreciate the comments this afternoon. Thank you.

Kenneth C Rogozinski (CEO)

Thanks, Steven.

Operator (participant)

Once again, to ask a question at this time, please press star one on your telephone keypad. There are no further questions in queue at this time. I would like to turn the conference back to Mr. Ken Rogozinski for closing comments.

Kenneth C Rogozinski (CEO)

Thank you very much, everyone, for joining us today. We look forward to speaking with you again next quarter.

Operator (participant)

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.