Texas Housing Conference 2014 GET CONNECTED Housing Tax Credits
An Introduction July 28, 2014 Edwina Carrington President, CHK
Enterprises, LLC Diana McIver President, DMA Development Company,
LLC 1
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Housing Tax Credits: An Introduction What you will learn:
1.What is the Low Income Housing Tax Credit (LIHTC) Program? What
can be built, who can live there? What are some recent changes?
2.What is the organizational structure? Who are the players? 4.What
is the application process in Texas? 5.How much Equity can be
generated and how is the amount of Debt determined? 6.How are rents
calculated? 7.What if Tax Credits and loan are not sufficient? How
to fill the gap. 2
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History of the Housing Tax Credit Program 1986 Congress through
the Tax Reform Act, enacted Section 42 of the Internal Revenue
Code. Section 42 created the Low Income Housing Tax Credit (LIHTC)
to provide incentives to the private sector to invest in affordable
housing. Credit is a dollar-for-dollar tax reduction. Credit is
based on the Cost of Construction or Rehabilitation 1986 1990 LIHTC
program authorized on a temporary basis. 1993 Congress made the
LIHTC program permanent. 3
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History, continued 2005 TDHCA removed the words Low Income from
the program name. Now in Texas it is called the Housing Tax Credit
(HTC) Program. 2008 Congress enacted the Housing & Economic
Recovery Act of 2008 (HERA) with the most significant changes since
1986. 2009 Congress enacted American Reinvestment and Recovery Act
of 2009 (ARRA) which created the Tax Credit Assistance Program
(TCAP) and Tax Credit Exchange (Exchange) on a temporary basis.
4
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History, continued The Tax Credit program is 28 years old and
is the oldest (longest lived) supply side housing program.
According to a study done in 2010: Approximately 23,762 housing
credit property investments produced by the end of 2010 more than
2.4 million affordable units In 2010, median occupancy among all
stabilized properties was 96.6% DSCR in 2010 was 1.24 Estimated
foreclosure rate is.7% 5
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What is a Housing Tax Credit? Source of Equity: Housing Tax
Credits are sold to investors who use the tax credit to reduce tax
liability $ for $. This infusion of cash into the project reduces
the need for a large mortgage and is used to pay a large portion of
the development costs Regulated by IRS Administered by a State
Agency. In Texas, the program is administered by the Texas
Department of Housing & Community Affairs (TDHCA) 6
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Two Types of Tax Credits 9% Credit Also known as the 70%
present value credit In Texas these credits are awarded annually on
a competitive basis 4% Credit Also known as the 30% present value
credit Available w/tax exempt bonds through the States Volume Cap
Allocation 7
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What is a 9% Credit? Each State receives a per capita
allocation, adjusted annually. In 2014, the amount is $2.30 per
capita. Approximately $61,000,000 is available in 2014 for Texas.
10 Year Credit (longer compliance period) New construction or
substantial rehabilitation If rehab, building acquisition costs
qualify only for a 4% credit 8
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What is a 4% Credit? 4% Credit is used in tandem w/Private
Activity Bonds. States have $100 per capita limit on ALL Private
Activity Bonds, also called Volume Cap. Texas receives annual
allocation of approximately $2.6 billion Eligible Uses are many
from sewage plants to student loans to affordable housing
Approximately $581,860,000 is reserved in Texas for multifamily
housing bonds When used with Private Activity Bonds, the 4% Credit
is a 10 year Credit (Compliance is 30 years). Texas Legislature has
established development requirements for tiers of competition based
on affordability factors, and also provided a system for allocating
bond cap throughout the 13 Regions. 9
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4% LIHTCs, continued Issuers of Bonds can be Housing Finance
Agencies, Housing Authorities, Public Facility Corporations, Texas
State Affordable Housing Corporation (TSAHC) or TDHCA, but only
TDHCA can award the 4% tax credits and application must be filed
timely. New Requirement (effective 9/1/13): Must have local
resolution of NO OPPOSITION, regardless of bond issuer. No TDHCA
scoring applies to 4% Tax Credits, but must meet Threshold
Requirements of the QAP, including notifications, design,
amenities, etc. Undersubscribed for past seven years, but this is
changing The 4% Credit program did not receive any favorable
treatment from HERA or ARRA. Therefore, the amount of the credit
floats monthly and is not fixed at 4%. 10
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Major Federal Legislative Changes In response to the financial
crisis in 2008, the Congress enacted two major pieces of
legislation designed to ensure the continuation of affordable
housing under the Housing Tax Credit Program. The Housing &
Economic Recovery Act of 2008 (HERA), which included significant
reform for the Housing Tax Credit Program, and The American
Reinvestment & Recovery Act of 2009 (ARRA), which created the
Tax Credit Assistance Program (TCAP) and Tax Credit Exchange
Program (Exchange). 11
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Housing & Economic Recovery Act of 2008 On July 26, 2008,
the Congress passed the Housing and Economic Recovery Act of 2008
(HERA), the most comprehensive and substantial housing bill to pass
the Congress in decades. Major Changes include: 1.Fixed Credit rate
at 9% for projects that received an allocation of credits by
12/31/2013. 2.Redefined Federal Subsidy and allowed federal grants
(such as HOME, 202, etc.) to be included in eligible basis
3.Created 3 rd type of high cost area, allowing States to give the
130% credit boost for other than projects located in Qualified
Census Tracts (QCTs) or Difficult Development Areas (DDAs) 12
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HERA, Major Changes, cont. 4.Modified related party rule and 10
year waiver rules for existing buildings 5.Added a Hold Harmless
protection for properties located in areas with reductions in Area
Median Gross Income (AMGI) 6.Allowed rural properties to use a
National Non-metro Median Income standard in determining both
incomes and rents 13
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What Can Be Built under the HTC Program? Housing Types can be
multiple types, but must meet the definition of qualified
residential rental property Multifamily Rental, e.g., workforce
housing Senior Rental (age 55+) Single Room Occupancy (SROs) for
Homeless 14
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Affordability Requirements 40% of the units @ rents based on
60% Area Median Income (AMI), or 20% of the units @ rents based on
50% AMI Must keep project affordable for at least 30 years (some
states may require longer). In Texas, extra points are awarded to
9% HTC developments for keeping the housing affordable for 35
years. Credits are only awarded on the units that meet the long
term affordability test. Although Market Rate units are allowed, no
tax credits are available for these units. 15
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How Does TDHCA Ensure the Units Stay Affordable? Compliance is
a big part of this program. Each Tax Credit project files a Land
Use Restriction Agreement (LURA) with TDHCA and records it in the
County records. TDHCA, as well as the tax credit investor and the
mortgage lender, have regular inspections of the property and
review of tenant files. Violations may result in loss of tax
credits to the investor, and subsequent financial penalties to the
developer/general partner. It can also result in debarment of the
developer/general partner. 16
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Can a Housing Tax Credit Project Be Sold? The Housing MUST stay
affordable during the Extended Use Commitment (30 or 40 years). If
the Owner requests to sell after the 14 th year, they must ask the
State to find a Buyer pursuant to Qualified Contract rules.
Qualified Contract Price = Outstanding Debt + Adjusted Investor
Equity + Other Capital Contributions Cash Distributions. Right of
First Refusal given to nonprofits and tenant purchasers 17
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Who Can Live in a Tax Credit Community? Families w/incomes at
or below 60% AMGI, or Seniors w/incomes at or below 60% AMGI w/head
of household at least age 55 Caveat: Must be able to afford the
rent A resident with a voucher from a housing authority can live in
Tax Credit Housing and pay 30% of their income for rent. 18
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Getting Started: First Steps 1.Assemble the needed learning
tools Texas Qualified Allocation Plan (Scoring Criteria) TDHCA
Uniform Multifamily Rules, which include Compliance Rules
(Threshold Criteria) TDHCA Multifamily Procedures Manual TDHCA Real
Estate Analysis Rules & Guidelines 2.Meet with City or County
officials in your community 3.Identify potential sites 4.Begin
assembling Development Team 19
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Who Can Develop HTCs? For Profit Developers Nonprofit
Developers (10% set-aside for Nonprofits), including Housing
Authorities TDHCA has special qualifications to be eligible in NP
set-aside For Profits and Nonprofits can Joint Venture 20
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Typical Organizational Structure of an Operating Partnership 21
ABC Apartments, LP 100% (Single Asset LP*) * can also be an LLC
Managing General Partner.01% Investor 99.99%
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The Limited Partnership Owner HTC Developments create an
ownership entity, a limited partnership or a limited liability
company, to serve as the Development Owner. This structure is
necessary to allow the tax credits to flow through to the Limited
Partner (Investor) 22
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Managing General Partner Responsible for the Asset both during
construction and throughout compliance. Provides personal and
corporate $$ guaranties. Compensation is through cash flow during
operations, asset management fees, back end residuals, developer
fees, guaranty fees, etc. Hires the team, including the developer.
Can be an individual, a partnership, a corporation. Usually is an
LLC, with ownership interest of.01%. Can be made up of more than
one entity. 23
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Limited Partner (Investor/Equity Partner) Limited Partner Buys
the credits: receives tax benefits (10 yrs) + depreciation (15 yrs)
+ generally a small cash flow distribution (15 yrs). Monitors the
project throughout the compliance period, receiving an asset
management fee for this service. Sets certain performance
requirements for the development. Owns the largest share of the
limited partnership (generally 99.99%). 24
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Special Limited Partner Special Limited Partner can be used to
bring special skills and resources to the partnership, sometimes
structured as a Class B partner. Nonprofits and/or inexperienced
developers can benefit by having a Guarantor in this role.
Frequently, an Investor creates a SLP for a different purpose,
possibly to serve in the role of GP, if removal of the Managing GP
is necessary. 25
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The Developer Developer Can be for profit or nonprofit. Puts
the transaction together & sees it through stabilization;
compensation is all or a portion of the Developer Fee. Fees to the
developer are limited to 15% of the eligible basis and any
ineligible hard costs, including any fees to consultants The
Developer may be the same as the General Partner, but this is not
essential. Frequently asked to provide financial guaranties.
26
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Other Development Team Members Tax Credit Consultant Architect
Engineers (Civil/Structural/MEP) Contractor Market Analyst
Accountant Attorney(s) Lender (Construction and Permanent) Title
Company Property Management Company Service Providers 27
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How Does The Tax Credit Program Operate? The Qualified
Allocation Plan (QAP) Every state is required to prepare a
Qualified Allocation Plan (QAP) governing its Tax Credit Program.
The QAP outlines the policy objectives and application processes.
It has three elements: 1) Set-asides, 2) Threshold Requirements,
and 3) Preferences (Scoring) In Texas, the administering agency for
the Housing Tax Credit Program is the Texas Department of Housing
and Community Affairs (TDHCA) In Texas, the State Legislature
establishes certain parameters for the operation of the program,
including major scoring criteria. 28
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QAP, cont. Each year, TDHCA posts a draft QAP in early
September for public comment. TDHCA implements the legislated
requirements, both state and federal, as part of its QAP. QAP must
be signed by the Governor no later than December 1. TDHCA accepts
applications on an annual basis. Credits must be allocated by July
31 of each year. Each years application is different due to changes
in the QAP. 2 Year QAP was authorized by the Texas Legislature in
2011, but due to varying factors this has not been implemented.
29
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Is the Tax Credit Program Competitive? Yes! 2011: 1 in 3.5
awards selected from 139 Full Applications 2012: 1 in 3.25 Awards
from 162 Full Applications. 2013: TDHCA received 276
Pre-Applications and 133 Full Applications. Of these, 64 received
Awards. This equates to a 52% success rate (or 1 in 2) for full
applications or if you factor in pre-apps, a 23% survival rate!
2014: TDHCA received 302 Pre-Applications and 161 Applications. Of
these, 152 are still active and 66 are being recommended for Awards
this week. This equates to a 43% success rate (or 1 in 2.3) for
full applications or if you factor in pre-apps, a 22% survival
rate! 30
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How Are 9% Credits Allocated State-wide? TDHCA prepares a
formula for distribution, known as the Regional Allocation Formula
(or RAF), to the 13 State Regions based on population, housing
conditions and participation in other funding programs. Allocation
for each Region is split between Urban and Rural, referred to as
sub-regions. New in 2012 was a requirement that an Applicant could
not apply for more than 150% of the amount available in the
sub-region. Additionally, there are mandated set-asides: Nonprofit
10% (Statewide) * At Risk 15% (Statewide) of this, one-third is
allocated for Rural Development (USDA financing) NEW: In 2014
certain Public Housing Projects were eligible to compete in the At
Risk category. * Not a true set-aside, as nonprofits compete in all
categories but if 10% dont rise to top, they trump other projects.
31
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32 R EGIONAL A LLOCATION F ORMULA 13 U NIFORM S TATE S ERVICE R
EGIONS
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Regional Allocation Formula 33
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How Long Is the Application Process? 2015 Estimated Time Line
for 9% Applications 01/15/15Pre-applications due 02/27/15Full
applications due 02/27/15City/County Resolutions relating to
de-concentration factors, Community Revitalization Plans (CRP) and
Local Political Subdivision (LPS) Commitments due 04/01/15Market
Study due 04/01/15City/County Resolutions of support due
04/01/15Letter from State Rep due 07/30/15Awards made at TDHCA
Board Meeting 34
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Basic Rules & Threshold Requirements Project Size: Minimum
of 16 units. No greater than 80 units in a Rural Community. No
other limitations. Developer Experience: Developer must meet
minimum experience requirement, the development of at least 150
units. Site Control, acceptable to TDHCA Mandatory Site features:
Must have 6 positive site features. Site must not contain any
negative site features (next to landfill, etc.) Supportive services
Must pick at least 8 services from a list of 20 Architectural
Design/Drawings Must meet minimum energy standards Comply with 504
accessibility guidelines Provide an amenity package (common area
and units) Minimum unit sizes 35
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Speaking of Good Design.... 36 These 2013 Plumber Awards were
provided compliments of Barry Kahn.
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Threshold Requirements, cont. Third Party Reports: Market
Study, Environmental Study, Appraisals for identity of interest
transactions and Rehab, Property Condition Assessment (PCA) for
Rehab, Site Design and Development Feasibility Report Preliminary
commitments from lenders and investors Notifications to public
officials Applicant must not have any unresolved compliance issues
Maximum Credit Allocation: $1.5M in credits for single project ($2M
for At-Risk) and $3M cap per individual Developer/Applicant. Limit
applies only to 9% developments. 37
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Scoring Priorities (2014) Criteria Promoting Development of
High Quality Housing Points Size & Quality of Units (TX
Statute) 15 8 points for unit sizes 7 points for unit features /
amenities Sponsor Characteristics (HUB or NP) (TDHCA) 1 38
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Scoring Priorities (2014) Criteria to Serve and Support Texans
Most in Need Points Income Levels of Tenants (TX Statute) 12/14/16
Rent Levels (TX Statute) 7/11/13 Maximum 13 points for Supporting
Housing under NP Set Aside Maximum 11 points for other developments
Tenant Services (TX Statute) 10/11 Maximum 11 points for Supportive
Housing under NP Set Aside Maximum 10 points for other developments
Opportunity Index (TDHCA / Remedial Plan directed) 1/3/5/7 High
income areas, good schools, family housing (criteria varies between
urban and rural), proximity to services for rural Educational
Excellence (TDHCA) 1/3 Underserved Area Family/Supp Housing only
(TX Statute)2 Special Housing Needs (TDHCA) 2 39
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Scoring Priorities (2014) Criteria Promoting Community Support
and Engagement Points Local Government Support (TX Statute)
7/8.5/14/17 Commitment of Funding from LPS * (TX Statute) 7 to 14
Declared Disaster Area (TX Statute) 10 Quantifiable Community
Participation (TX Statute) 0/4/6/8/9 Support from State
Representative (TX Statute) -8/0/8 Input from Community
Organizations (TDHCA) 0/2/4 Community Rev. Plan (TDHCA / Remedial
Plan directed) ** 2/4/6 Urban developments Community revitalization
plan required Rural developments New or expanded infrastructure
required * Local Political Subdivision ** Community Revitalization
Points can only be claimed if no points are claimed for Opportunity
Index 40
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Scoring Priorities (2014) Criteria Promoting Efficient Use of
Limited Resources and Applicant Accountability Points Financial
Feasibility (TX Statute) 16/18 Cost of Development per Square Foot
(TX Statute) 10/11/12 Pre-Application Participation (TX Statute) 6
Leveraging Private, State, Federal Resources (TX Statute) 1/2/3
Extended Affordability (TX Statute) or Historic Pres (TDHCA) 2/4
Right of First Refusal (TX Statute) 1 Funding Request Amount
(Leveraging) (TDHCA) 1 And the dreaded PENALTY POINTS! Applicants
can have up to 5 points deducted for bad behavior (missing
deadlines, not building what you said you would) on previous tax
credit awards. 41
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Scoring Detail: NEW: Effective 2014, a resolution of support
from the local government is the second highest scoring item!
Applications receive: 17 points for a resolution of support voted
on and adopted by the local governing body (e.g., city or county),
or 14 points for a resolution of no objection. For developments
located in Extra Territorial Jurisdictions (ETJs): 8.5 points for
resolution of support or 7 points for resolution of no objection
from City, and 8.5 points for resolution of support or 7 points for
resolution of no objection from the County. This year the
Resolution had to be passed prior to April 1, 2014 and submitted BY
April 1, 2014. 42
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Funding by Local Political Subdivisions (LPS) These points are
awarded to applicants who use local leveraging. 11 points:
Commitment = to lesser of Population x.15 in funding per low income
unit, or $15k per low income unit (e.g., population of 20,000 x.15
x 60 LI units would be $3,000 per unit or $180,000 for 60 units) 10
points: Lesser of Population x.10 per LI unit, or $10,000 per LI
unit 9 points: Lesser of Population x.05 per LI unit, or $5,000 per
LI unit 8 points: Lesser of Population x.025 per LI unit, or $1,000
per LI unit 7 points: Lesser of Population x.01 per LI unit, or
$500 per LI unit Additionally, you get 2 additional points if the
municipality provides a firm commitment of funds and 1 additional
point if the contribution is a grant or permanent loan (minimum 15
year loan, maximum 3% interest). 43
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Eligible Sources for LPS Funding In addition to Cities and
Counties, funding from their instrumentalities can be considered
IF: 1.The instrumentality first awards the funds to the city or
county for their administration, or 2.At least 60% of the governing
board of the instrumentality consists of city council members from
the city in which the development is located, or county
commissioners from the county in which the site is located, or
3.100 percent of the governing board of the instrumentality is
appointed by the elected officials of the city (or county) in which
the site is located. The governing instrumentality MAY NOT be a
Related Party to the Applicant. 44
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Community Revitalization Plans: Urban Areas Applicants in Urban
Areas can get up to 4 points for having a valid revitalization
plan, funded and approved by the City. An applicant can receive two
additional points if the City selects it as the most deserving
revitalization project and a city can only designate one project
each year. This resolution is due with the Application. 45
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Community Revitalization Points: Rural Areas Applications may
qualify for up to 4 points (2 points for one item and 4 points for
2 items) for governmentally funded improvements. Must be completed
between January 2014 and January 2016 (One year back/one year
forward) New paved roadway, or expansion, within mile New (or
extension) water line of 500 within mile New (or extension)
wastewater service line of 500 within mile New law enforcement or
emergency service station within 1 mile Construction of new
hospital or expansion within 5 miles Requires documentation from
governmental entity or private utility provider. 46
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What is Quantifiable Community Participation (QCP)? Support
from a Neighborhood Organization on record w/State (TDHCA) or
County by application deadline. Even if an organization has gone on
record in previous years, they have to re-up each year and be on
record with TDHCA by the Application Deadline each year. Must be an
organization of persons living near one another with a purpose to
maintain/improve general welfare of neighborhood Tax credit
applicant can provide technical assistance in creation or placing
on record of Neighborhood Organization. Applies only if there is no
Neighborhood Organization in existence or on record. 47
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Scoring for QCP Group that has opposed other developments in
past 3 years but supports yours = 9 points Support Development = 8
points Group that has opposed other developments in past 3 years
but neutral about yours = 6 points No neighborhood organization or
one that remains neutral = 4 points Oppose Development = 0 points
If no Neighborhood Organization exists that includes site, or if
one exists but does not meet the requirements of the QAP, applicant
can qualify for additional points (up to 4) for community support
letters from local nonprofits. 48
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Support/Opposition from State Representative 8 Points for
Letter of Support from State Representative 0 Points for Neutral
Letter or no letter -8 Points for Letter of Opposition from State
Representative New in 2014: This scoring item has been reduced in
priority by the Legislature. Letters from State Senators have been
eliminated altogether. 49
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Scoring Tie Breakers (2014) Tie Breakers Ties within a
set-aside, rural regional allocation or urban regional allocation
Highest score on Opportunity Index scoring item Greatest distance
from nearest existing Housing Tax Credit development Ties between
sub-regions Sub-region with no recommended At-Risk applications in
the current application round Sub-region that was most underserved
in the last application round NOTE: Two Mile Same Year Rule. In
Counties over 1M population (Dallas, Tarrant, Harris, Bexar,
Travis), two projects within two miles of each other cannot be
funded in the same year. 50
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Cities have a voice in concentration issues. A resolution of
support from the City and/or County is required in order to
overrule the following: The 1 mile/3 year rule (Bexar, Tarrant,
Dallas, Harris, and Travis Counties, only): A new tax credit
development cannot be approved within one mile of a development of
the same type that has received a tax credit award in the past
three years. The 2x per capita rule: No development can be funded
in a municipality that has more than twice the state average of
units per capita supported by HTCs. Prohibition of additional units
in a Census Tract with more than 20% HTC units per total
households, unless municipality has population less than 100,000
These resolutions are due at the time the Application is submitted
to TDHCA. 51
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My Score Looks Great!! Why worry? Applications can be
Terminated for not following the rules TDHCA does its own scoring
Deficiencies require quick response You can appeal scoring
deduction TDHCA miss something? Your competitors wont! Challenges
to other applications are accepted through early-May. Carefully
check infrastructure distance, ETJ, Community Revitalization Plans
Take Application deadline dates seriously Do Your Homework! 52
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Scoring High is Good, but... IS YOUR PROJECT FEASIBLE??? TDHCA
will underwrite your deal to determine if it is feasible and aligns
with Department standards as they relate to construction costs,
operating expenses, and financing standards. IF you receive an
allocation of tax credits, the amount of credits you receive will
be based on this underwriting criteria and determined by TDHCAs
calculation of your Eligible Basis. 53
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What is Basis? The majority but not all of development costs
are considered eligible to be counted toward the basis on which the
tax credit award will be determined as defined in IRS Code
Subsection 42. Generally this includes construction and development
costs, but does not include land and costs associated with
syndication and permanent loan financing. Eligible Basis is the
amount of costs that may be included in the calculation of housing
tax credits. Qualified Basis refers to the dollar amount that is
eligible for housing tax credits and factors in any applicable
fraction prorations for mixed-income developments. This may be
increased by a basis boost for eligible projects. Credits on any
deal are calculated by multiplying the Qualified Basis by the
credit percentage to determine the amount of the award. Two credit
percentages are set federally and published each month. One is for
9% credit transactions; the other for 4% credits. (9% credits are
calculated at 9% for projects which received an allocation of
credits by December 31, 2013. For 2014, the rate floats, currently
7.56%. 4% credits float and the July 2014 rate is 3.24%) 54
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How Does This Work? 1.Developer provides a development budget.
2.Depreciable development costs are counted as eligible basis. 3.If
you are proposing some market-rate units, then you will apply
another percentage factor an applicable fraction so you only get
tax credits on your affordable units. This is your qualified basis.
4.This number is multiplied by 130% if you have the boost. 5.Then
you multiply by the monthly credit percentage (e.g., 9%, 7.56%,
3.24%). 6.The credit amount per year is multiplied by 10 since the
tax credit flows each year for 10 years. (However, a minimum of 15
years for compliance!) 55
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I Have an Allocation of Tax Credits Now What? The Equity raised
through sale of tax credits is generally 60% to 70% of total
development costs. This Equity reduces the amount of needed debt so
that developments can serve lower income households. The balance
must be funded through some type of mortgage or grants supportable
by the affordable rents charged the residents of the development.
The Developer/GP will sell 99.99% of these credits to an investor
who will become the Limited Partner (LP) in Partnership. 56
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How Do I Find an Investor? Attend the TAAHP Conference &
Network! If you have a great project and a strong development team,
investors will seek YOU out! Read trade journals to see who is
investing where! 57
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How Much Will an Investor Pay? Today Investors are purchasing
tax credits for anywhere from $.83 to $.98 on the dollar. What do
they look for? Strength of Developer & General Partner
Financial strength (deep pockets) Experience on similar projects
Location of Development Bank needs CRA Credit Strong market for
proposed housing type/population served Major metropolitan areas
are favored today Good site (Location, Location, Location) New
Construction vs. Rehab Timing of capital contributions Aggressive
pay-in = Lower $$ Time is Money 58
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What Do You Negotiate? Price for Tax Credits Pay-in Schedule
Early and Late Delivery Adjustors Schedule for Developer Fee
payments Cash Flow Waterfall (including distributions to LP and GP)
Reserves what kind, how much, and how long Guaranties by whom and
caps on amounts Management Fees Asset Management Fees to Investor
59
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What Are 9% Tax Credits Worth? $9,800,000 Cost to develop
$9,000,000 Eligible Basis costs X.0756 Monthly credit percentage
$680,400Annual Credit Allocation X 10Years $6,804,000 10 Year
Credit Allocation X.89 Todays Credit Pricing $6,055,560 Potential
Purchase Price X 99.99%Investor Percentage $6,054,954Investor
Equity 60
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What about 4% Tax Credits? $ 9,800,000 Cost to develop
$9,000,000 Eligible Basis costs X.0324 Monthly credit percentage
$291,600Annual Credit Allocation X 10Years $2,916,000 10 Year
Credit Allocation X.90 Todays Credit Pricing $2,624,400 Potential
Purchase Price X 99.99%Investor Percentage $ 2,624,138Investor
Equity 61
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Is your Site in a Qualified Census Tract (QCT)? Housing
constructed in a QCT or in a County designated as a Difficult
Development Area (DDA) is eligible for a credit boost of 30%,
although TDHCA has excluded DDAs. 9% Only Under a new law, States
have the right to allocate a 30% credit boost for certain areas or
project types. The Texas 2014 QAP allowed this boost for projects
in rural areas, projects in High Opportunity Areas, those which
propose deeper targeting, and which offer supportive housing units.
Additionally, the boost is offered for non-elderly developments
covered by revitalization plan. These projects qualify for 130% tax
credits instead of 100%, resulting in more credits to sell to the
investor. Instead of $6,054,954 in equity, this project would
receive $7,871,440! An increase of nearly $2M! 62
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The Debt Side The Amount of Debt is determined by the gap
between total development costs and the amount of the investor
equity. The lower the rents, the less debt a project can support.
The equity raised through the sale of the Housing Tax Credits to an
investor reduces the debt so that developments can serve lower
income households. 63
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How Much Loan Will the Project Need? $9,800,000 Total
Development Cost - $6,054,954 Total Equity $3,745,046 Debt
Requirement Or $1,928,560 IF located in a QCT or 130% boost area
NOTE: The debt MUST be able to be repaid through rent collections.
64
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How are Tax Credit Rents Calculated? Favorable rent, but not
subsidized Based on 30% of Area Median Income (AMI) level, e.g.,
30% of 60% AMI, or 30% of 50% AMI No rental assistance Band of
affordability: 40 60% AMI What about Texas? Are all rents the same?
Most definitely not! San Antonio and Austin are only 75 miles
apart, but their income limits for 4 person families differ by
nearly $10,000. 65
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Austin Income Limits July 2014 Family Size60% AMI 50% AMI 1
Person$31,680 $26,400 2 Person$36,240 $30,200 3 Person$40,740
$33,950 4 Person$45,240 $37,700 5 Person$48,900 $40,750 6
Person$52,500 $43,750 66
Slide 68
San Antonio Income Limits July 2014 Family Size60% AMI 50% AMI
1 Person$24,720 $20,600 2 Person$28,260 $23,550 3 Person$31,800
$26,500 4 Person$35,280 $29,400 5 Person$38,160 $31,800 6
Person$40,980 $34,150 67
Slide 69
Austin Tax Credit Rent Example: Calculating Rent on a 2BR Unit
Two Bedroom Rent assumes 3 person family (1.5 persons per bedroom)
Imputed income at 60% of AMI: $40,740 Multiplied by: x30% Maximum
Annual Rent: $12,222 Divided by (months): 12 Maximum Monthly Rent:
$1,018* *must include both rent and utilities approx. utility
allowance on 2BR is $123. Max rent would be $895. 68
Slide 70
San Antonio Tax Credit Rent Example: Calculating Rent on a 2BR
Unit Two Bedroom Rent assumes 3 person family (1.5 persons per
bedroom) Imputed income at 60% of AMI: $31,800 Multiplied by: x30%
Maximum Annual Rent: $9,540 Divided by (months): 12 Maximum Monthly
Rent: $795* *must include both rent and utilities approx. utility
allowance on 2BR is $84. Max rent of $711. 69
Slide 71
How Much Debt Can Be Serviced by Affordable Rents? Variables
Unit Mix (1, 2, 3 & 4 BR units) Income Targeting Number of
units at 30% and 50% rents? Expenses (utilities & taxes on the
rise) Interest Rate charged by Lender and term of loan (standard is
18 year term, 30 year amortization) Debt Service Coverage
Requirement 70
Slide 72
When Equity and Debt Arent Sufficient Gap Financing Developer
Fee (Deferred) HOME/CDBG Funds (from Local Govts or TDHCA) Local
Contributions (grants, low-interest loans) Housing Trusts
(State/Local) Affordable Housing Program (FHLB) Foundations/Private
Sources 71
Slide 73
Can You Combine HOME $ and Tax Credits? Yes very definitely. To
calculate HOME Assisted Units, divide the total amount of HOME $$
by the HOME Eligible Costs. The resulting percentage is your
percentage of units that are considered HOME Assisted. If you are
using TDHCA HOME funds, you will be required to provide up to a 5%
match. 72
Slide 74
Example: Sources of Funds Tax Credit Equity $6,054,954 Mortgage
$2,800,000 HOME Funds $600,000 Deferred Developer Fee $345,046
Total Sources $9,800,000 73
Slide 75
Example: Uses of Funds Land $525,000 Construction Costs
$7,500,000 Soft Costs $400,000 Developer Fees $1,000,000
Syndication/Financing Fees $50,000 Reserves $225,000 Total Uses
$9,800,000 74
Slide 76
And thus, dear students, we have arrived at the formula for
understanding the Housing Tax Credit Program... 75
Slide 77
Questions & Answers Edwina Carrington, President CHK
Enterprises, LLC 404 Cedar Oak Drive West Lake Hills, TX 78746
512.797.4493 [email protected] Diana McIver, President
DMA Development Company, LLC 4101 Parkstone Heights Drive, Suite
310 Austin, TX 78746 512.328.3232 x 4504 [email protected]
76