2009 tax creditadvisor - nh&ra issues... · 2014-06-03 · d. garry munson whitney capital...

TaxCreditAdvisor

June

2 0 0 9

News, Ideas and Information for

Tax Credit Developers and Investors

www.housingonline.com

Affordable SeniorProject WeathersStorm to Get BuiltDEVELOPER Shelter DevelopmentLLC had a great idea for a newaffordable housing project for seniorsnear Baltimore, and had crafted afinance structure with multiple taxand financing pieces. But then thetsunami rocked the low-income hous-ing tax credit (LIHTC) equity market,and it was back to the drawing board.However, through some creativetwists and the cooperation of its part-ners, Shelter revised its original plansto restore the project to feasibility andmoved ahead to build it.

The 80-unit development, ParkView at Emerson, opened in January

Low-Income Housing..............3Tax Credit

Site Selection.........................11and Market Analysis

Green Building .....................19Historic Rehabilitation .........23New Markets Tax Credit ......25Washington and ...................26State UpdateNational Housing & Rehabilitation Association

2009 Summer InstituteJuly 29 - August 1, 2009

Woodstock Inn & Resort, Woodstock, VT

THEEVENT

OF THE SEASON

Emerson,continued on page 27

Credit,continued on page 29

Weatherization,continued on page 6

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$5 Billion in Extra Funds PromiseEnhanced Retrofit Opportunities OWNERS OF OLDER affordable rental housing projects appear likely tohave access soon to a new windfall of federal “weatherization” funds tohelp pay for energy-efficiency improvements to their properties.

The American Recovery and Reinvestment Act (ARRA) provides amassive extra $5 billion for the Weatherization Assistance Program(WAP) run by the U.S. Department of Energy (DOE). In addition, anew agreement between DOE and the U.S. Department of Housing andUrban Development (HUD) lays the groundwork for greater access toWAP funds for affordable multifamily rental projects.

Under the program, federal appropriations are allocated annually by

Issue Theme: Site Selection & Market Analysis

States Agencies Take Steps to Activate TCAP, Exchange ProgramsSTATE AGENCIES COULD make the first awards of stimulus act fundsto stalled low-income housing tax credit (LIHTC) projects as soon asthis month, according to sources.

Since the May 4th issuance of critical initial federal guidance for thenew “TCAP” and credit exchange programs, state housing credit agen-cies (HCAs) have been busy taking the steps necessary to access the newdollars and to finalize plans for their use.

In many respects, LIHTC industry participants are having to learnabout, ramp up, and figure out how to use a brand new housing program

C a l e n d a r o f E v e n t s

Tax Credit Advisor

June 2009Vol. XXI No. 6

Publisher: Peter Bell

Editor: Glenn Petherick202-939-1774

[email protected]

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Copyright 2009 by Dworbell, Inc.Photocopying or other reproduction ofany part of this publication without the

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EDITORIAL ADVISORY BOARD

Jerome BreedBryan Cave

Richard EdsonHousing Capital Advisors, Inc.

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D. Garry MunsonWhitney Capital Company

David ReznickReznick Group

Michael I. SandersBlank Rome LLP

Wally ScruggsHousing Trust of America LLC

Ronne ThielenCenterline Capital Group

Barbara ThompsonNational Council of State Housing Agencies

IRS Addresses Sub-Metered ProjectsTHE INTERNAL REVENUE Service has issued a new notice (2009-44)that permits utility allowances for units in sub-metered low-income housingtax credit projects. It amends a July 2008 IRS final rule that substantiallyrevised the LIHTC utility allowance regulations.

The gross rent charged for a rent-restricted tax credit unit must include thedollar amount of a utility allowance for any utility (e.g., water, electric) paidfor directly by the tenant, other than telephone, cable TV, or Internet service.

The final rule bars a utility allowance for a unit if the tenant’s payment forthe utility service is made “by or through” the owner, rather than paid directlyby the tenant to the utility company. This change ended the availability ofutility allowances for LIHTC units in buildings with utility sub-metering systems. This typically includes a master meter measuring a building’s totalconsumption of a particular utility service like water (billed to the buildingowner), plus unit-based meters. The latter measure utility consumption byeach apartment; the owner or a third party bills the tenant for actual usage.

The new IRS notice says utility costs paid by a tenant based on actualconsumption in a sub-metered rent-restricted unit will be treated as paiddirectly by the tenant.

Special conditions that must be met, in buildings not required to use theutility allowance schedules of the U.S. Department of Housing and UrbanDevelopment (HUD) or Rural Housing Service (RHS), to receive a utilityallowance for sub-metered rent-restricted units are: (1) The building owner(or agent) can’t mark up the utility rate charged to tenants; (2) The owner(or agent) can charge tenants a reasonable administrative fee, generally notexceeding $5 per unit per month; and (3) If the costs for sewerage are (a)based on the tenants’ actual water consumption as determined by a sub-metering system, and (b) part of a combined water/sewerage bill, the ten-ants’ sewerage cost will be treated as paid directly by the tenants.

Owners must follow applicable HUD or RHS rules to obtain utilityallowances for sub-metered tax credit buildings subject to the HUD or RHSutility allowance schedules.

Compliance expert A. J. Johnson, of A. J. Johnson Consulting Services,Inc., said the new change is beneficial for LIHTC project owners and devel-opers. He said it will enable owners of existing sub-metered properties toresume getting a utility allowance and no longer have to worry aboutwhether the total payment collected from each tenant – for the rent andutility – exceeds the maximum allowable tax credit rent. Johnson said thenotice also removes a hurdle to sub-metering new tax credit projects.

(http://www.irs.gov/pub/irs-drop/n-09-44.pdf ) n

Advertise Your Business!Tax Credit Advisor is now accepting adver-tising. For information or to place an order,contact Scott Oser, Director of AdvertisingSales, 301-279-0468, [email protected]

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Details at http://www.housingonline.com

NCAHMA/Mississippi Home Corp.Setting the Stage: An Introduction to Market Studies

June 9-10, 2009 • Ridgeland, MS

National Housing & Rehabilitation Association 2009 Summer Institute

July 29-August 1 • Woodstock Inn & Resort • Woodstock, VT

NATIONAL HOUSING &REHABILITATION

ASSOCIATION

2009 Summer

InstituteJuly 29-August 1

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For more information, please visit

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3

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09Low-Income HousingTax Credit

Significant New IRS Letter RulingAddresses the Treatment of LIHTC Offsite ImprovementsBy Jerome Breed, William Driggers & John Dalton, Bryan Cave LLP

ON APRIL 17, 2009, THE INTERNAL Revenue Service released Private LetterRuling 200916007 (PLR 200916007), which marks a significant victory fordevelopers of low-income housing tax credit (LIHTC) projects who pay sizableamounts for offsite improvements.

PLR 200916007 concludes that costs of offsite improvements may beincluded in the eligible basis of qualified low-income buildings, and clarifies adiscrepancy between the Internal Revenue Service’s treatment of impact fees,which the IRS has stated are includible in eligible basis, and offsite improve-ments, which the IRS previously had concluded were not includible in eligiblebasis. Given the similarity between these two types of costs from a practicalperspective, the IRS’ disparate treatment of these costs had created substantialconfusion.

The principal beneficiaries of PLR 200916007 will be developers ofLIHTC projects with significant expenditures for offsite improvements, whowill now be able to include the costs of such improvements in the eligible basisof the project, thereby increasing the tax credits and investor equity available tothe project. For example, developers of projects comprised of multiple buildingsor single-family residences to be constructed on unimproved land who arerequired to build public roads or infrastructure for utilities or governmentalservices will now be able to include the cost of these improvements in the eligi-ble basis of the project’s residential rental buildings, rather than allocating suchcosts to improvements to land, which would not be includible in eligible basis.The cost of offsite sewer lift stations, water treatment plants, water retentionponds, and similar structures also will be includible in eligible basis under thenew ruling.

Impact FeesIn PLR 200916007, the Service first reviewed its analysis of the proper

classification of impact fees in LIHTC transactions in IRS Revenue Ruling2002-9 (Rev. Rul. 2002-9).

Rev. Rul. 2002-9 defined impact fees as “one-time charges that are imposedby a state or local government against new development or expansion of exist-ing development to finance specific offsite capital improvements for generalpublic use that are necessitated by the new or expanded development.”

Ruling,continued on page 4

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In analyzing the issue, the IRScited two Internal Revenue Codesections and the associated TreasuryRegulations. Code Section 263(a)and Treasury Regulations Section1.263(a)-2(a) provide that nodeduction is allowed for anyamounts paid out for new buildingsor for permanent improvementsmade to increase the value of anyproperty or estate. Code Section263A provides that direct costs anda properly allocable portion of indi-rect costs of real or tangible person-al property produced by a taxpayermust be capitalized to the propertyproduced. Indirect costs are definedin Treasury Regulations Section1.263A-1(e)(3)(i) as all costs otherthan direct material costs and direct

labor costs and provides that indi-rect costs are properly allocable toproperty produced when the costsdirectly benefit, or are incurred byreason of, the performance of pro-duction activities.

The IRS also relied on twocourt cases that apply the foregoingstatutory provisions to impact fees.In Oriole Homes Corp. v. U.S., 705F.Supp. 1531 (S.D. Fla. 1989), afederal district court held that road,educational, regional park, andmunicipal park impact fees requiredfor the approval and recordation ofplats for subdivisions are capitalexpenditures, to be capitalized as adevelopment cost. In Von-Lusk v.Commissioner, 104 T.C. 207 (1995),the Tax Court noted that the costof obtaining building permits andzoning variances, negotiating per-mit fees, and similar activities “are

Rulingcontinued from page 3

ancillary to actual physical work onthe land and are as much a part of adevelopment project as digging afoundation or completing a struc-ture’s frame. The project cannotmove forward if these steps are nottaken.” The Tax Court held thatthese costs were indirect costs thatwere integral to the taxpayer’s pro-duction of the project for purposesof Code Section 263A and that thetaxpayer must therefore capitalizethe costs.

Based on the foregoing Codesections, Treasury Regulations, andcourt cases, the IRS concluded inRev. Rul. 2002-9 that, where a tax-payer is required by a governmentalentity to pay impact fees to com-pensate the government for thefinancial impact of the developmentof new residential housing, such

Ruling,continued on page 5

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LIHTC Industry Groups CraftNew ‘Carryback’ Proposal

Two industry groups have developed and recruited support for proposed new legislative changes to the federal low-income housing tax credit (LIHTC). The two-part “carryback” proposal is designed to stimulate greater privatecorporate equity investment in housing credits.

The legislative proposal was developed by the AffordableHousing Tax Credit Coalition and the Affordable HousingInvestors Council. Other endorsing organizations so farinclude the Local Initiatives Support Corporation, EnterpriseCommunity Partners, Inc., Housing Affairs Group, andNational Leased Housing Association.

One part of the proposal would permit current investors tobetter utilize LIHTCs they already hold but can’t claim toreduce their federal income tax liability because they don’t havesufficient taxable income. This change would permit investorsto carry back for up to the past five tax years unused LIHTCsfrom tax returns they file in 2008, 2009, and 2010, but only tothe extent that they make new LIHTC investments. A newLIHTC investment would be a binding commitment to investin a building for which tax credits are first claimed after 2008.For example, an investor that makes a binding commitmentfor a new $10 million LIHTC investment in 2009 could carryback, up for up to five years, up to $10 million in accumulatedhousing credits from its 2008 tax return, which the investorwould normally file in the fall of 2009.

The proposal’s second part is designed to increase theattractiveness of housing credits to prospective new investorsconcerned about being able to fully use the tax credits over thenext 10 years, the LIHTC benefit period. This change wouldpermit investors yearly to carry back, for up to the past fiveyears, unused tax credits generated by new LIHTC invest-ments made after 2008. Supporters of the new proposal hope toattach it to some sort of major tax bill moving throughCongress this year. n

Ruling,continued from page 4

impact fees are indirect costs under Code Section263A that directly benefit, and are incurred by rea-son of, a taxpayer’s production activity and so mustbe allocated to the new residential buildings.

PLR 200916007 involves a set of facts that dif-fer from those in Rev. Rul. 2002-9 in only onerespect. Instead of being required to pay impact feesto the local government to reimburse it for the addi-tional infrastructure costs that would result from thedevelopment, the taxpayer was required to build theoffsite improvements itself and then dedicate themto the local government. The specific offsiteimprovements that the taxpayer was required to con-struct included two-lane streets with curbs, side-walks, storm water drainage, domestic water inflowimprovements, and infrastructure for utilities.Relying on the same authorities that it cited in itsanalysis of the treatment of impact fees in Rev. Rul.2002-9, the IRS held that the cost of the offsiteimprovements must be capitalized into the basis ofthe residential rental buildings constructed by thetaxpayer.

The IRS’ conclusion in PLR 200916007 isundoubtedly the correct result and affirms whatmany in the LIHTC community have long held –that the only difference between an impact fee andan offsite improvement is how the amount is paid.Developers may include these costs in eligible basisin properties that are currently under developmentor have not yet established eligible basis, and alsomay include these costs in eligible basis in transac-tions that are claiming less than the allocatedamount of credit due to compliance issues.

Developers may want to seek advice from theirtax advisors as to the impact of PLR 200916007 onpast transactions.

Partners Jerome Breed and William Driggers andAssociate John Dalton are attorneys in the Washington,DC office of law firm Bryan Cave LLP. They work ontransactions involving federal housing, historic, andnew markets tax credits. Breed also is a member ofthe Tax Credit Advisor Editorial Advisory Board.They may be contacted at 202-508-6000, [email protected], [email protected], [email protected]. n

People in the NewsKevin Bell has joined The Woda Group, LLC

as Vice President of Development, in its Crofton,MD office. He has developed affordable rentalhousing in Maryland for 12 years. Prior to that, hewas a practicing attorney and lobbyist. n


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million homes, compared to theusual 100,000 per year.

Boston attorney DavidAbromowitz, a partner in the lawfirm of Goulston & Storrs, said “alot of the questions aren’t answeredyet” as to the extent to whichWAP funds will be made availableto owners of HUD-assisted andLIHTC projects and about howthey can access the funds. Still, hecalled the memorandum a “break-through” and suggested that own-ers begin to evaluate how theymight use the WAP funds in theirproperties, and contact their stateand their local agencies to advocate“how much more efficiently weath-erization can be done on a build-ing-wide basis rather than tenantby tenant.”

States were supposed to submittheir plans to DOE by 5/12/09outlining how they plan to use theWAP funds provided by ARRA.

According to HUD’s newsrelease, the new MOU will alsoimpact residents of rural rentalhousing projects financed by RuralHousing Service Section 515loans. n

that existing income verificationprocedures used to determine ini-tial and ongoing eligibility ofhouseholds to live in public hous-ing, HUD-assisted, and low-income housing tax credit(LIHTC) projects will be sufficientto determine eligibility of residentsand units in these properties forWAP assistance. Further detailswill be needed to determine exactlyhow this will work and what multi-family owners will need to do toaccess WAP funds under stream-lined procedures.

The memorandum, signed5/6/09, says that within 30 daysHUD will give DOE a nationallist of eligible public housing,HUD-assisted, and LIHTC proj-ects. HUD and DOE intend toissue joint guidance within 60 days,and to hold joint public forumsaround the country.

The memorandum definesHUD-assisted rental projects asprojects that receive HUD project-based Section 8 assistance. Excludedare projects also assisted underHUD’s Section 202, 811, 221(d)(3)and (d)(5), and 236 programs.

The goal is for the $5 billion innew WAP funds to weatherize one

Weatherization,continued from page 1

formula to states for distributionthrough local agencies and govern-ments to fund energy-efficiencyimprovements to homes owned oroccupied by low-income house-holds. States craft annual plans onhow the monies are to be spent,including eligibility standards forrecipients and priorities in the useof funds. The local weatherizingagencies – over 900 nationwide –verify the eligibility of applicantresidents, and fund and facilitateinstallation of the energy improve-ments. These can include improvedinsulation, energy-efficient win-dows, and heating/cooling systemupgrades. ARRA raised the generalincome limit to 200% of the pover-ty level, and the maximum averageexpenditure to $6,500 per unit.

Previously, states have generallyfavored single-family homeownersover renters in the award of WAPfunds, typically made as grants.Another barrier for multifamilyprojects has been the need to verifythe eligibility of each tenant house-hold and unit applying for WAPassistance. In most multifamilybuildings, at least 66% of the unitsmust be occupied by income-eligibleresidents to be eligible. Renters alsomust also get permission forimprovements from their landlord.

HUD Secretary ShaunDonovan and DOE SecretarySteven Chu have signed a memo-randum of understanding (MOU)that lays the groundwork for easieraccess by multifamily rental housingowners to WAP funds to helpfinance energy improvements totheir properties.

The memorandum provides

Resources

HUD-DOE Announcement,MOUhttp://www.hud.gov/news/release.cfm?content=pr09-051.cfm

DOE WAP Home Pagehttp://apps1.eere.energy.gov/weatherization

WAP Technical AssistanceCenterhttp://www.waptac.org

Under the program, federal

appropriations are allocated

annually by formula to states

for distribution through local

agencies and governments to

fund energy-efficiency

improvements to homes

owned or occupied by

low-income households.

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In an uncertain market, transparency and financial stability matter more than ever. LIHTC syndicators must be secure enough to weather this economic downturn and structured so they can maintain asset management excellence, even if conditions deteriorate further.

That’s why National Equity Fund (NEF) remains one of the top national syndicators of low-income housing tax credits, despite the current market disruption. We have been in this business since 1987, and we are here to stay. Our balance sheet is strong. Our business is profitable. Our asset management operation is self-funding. And our ability to help investors meet their financial, regulatory and public relations goals remains firmly intact.

On top of all that, we have the backing of the Local Initiatives Support Corporation (LISC)—the nation’s leading community development support organization. In 2008, LISC and NEF invested$826 million to help revitalize distressed communities. Even in this market, NEF remains the company we have always been: we’re still different. We do deals that matter. We believe in partnership. We focus on impact. We can make a difference…and we do.

$6.9 Billion Investment Portfolio

115 Funds Under Management

Fully Funded 15-Year Asset Management

Separate Fund-Level Reserves

www.nefinc.org

Verne Barry Place is a “green” project in Michigan that serves homeless residents, including veterans. NEF invested $13.5 mil-lion on behalf of eight investors to fund it.

Ta x C r e d i t A d v i s o r • L OW- I N C O M E H O U S I N G TA X C R E D I T

THE U.S. Department of Housingand Urban Development (HUD) inMay issued notices making avail-able several different additionalpots of monies provided by theAmerican Recovery andReinvestment Act (ARRA).

Archived HUD Webcasts onthe initiatives may be viewed athttp://www.hud.gov/webcasts/index.cfm.

These new resources include:

Public Housing Capital GrantsNearly $1 billion is made

available for competitive grants topublic housing authorities (PHAs)to help improve their housingstock, promote energy efficiency,and create jobs. These dollars sup-plement nearly $3 billion in earlierARRA formula grants to PHAs tobuild and renovate public housing.

The new competitive fundsinclude: $600 million to create energy-efficient public housing units;$200 million in gap monies to buildor renovate public housing projectsstalled by lack of resources; $100million to transform obsolete publichousing projects into new or reno-vated developments; and $95 millionto improve public housing units forelderly and disabled residents andcreate community facilities wherethese residents receive services.

PHAs must submit applicationsby 7/21/09 for the energy funds; by8/21/09 for the other funds.

(http://www.hud.gov/recovery/phcapfundh.cfm)

tation of affordable rental housing.Recipients must give priority to

projects that can award contractsbased on bids within 120 days ofthe grant agreement.

(http://www.hud.gov/recovery/cdblock.cfm)

Green Retrofit ProgramHUD has issued guidance and

is soliciting applications from own-ers starting 6/15/09 for $250 mil-lion in competitive grants and loansto finance energy efficiency andgreen improvements in eligibleexisting HUD and rural rentalproperties. (See p. 20 for article.) n

Neighborhood StabilizationFunds

HUD has made available an extra $1.93 billion for theNeighborhood StabilizationProgram, for competitive awards toeligible recipients to help buy andredevelop abandoned or foreclosedresidential properties to stabilizeneighborhoods of high foreclosuresand distress. The application, anotice, and other information hasbeen released for this initiative,which is dubbed “NSP2” becausecertain rules and requirements wererevised by ARRA from those of theoriginal 2008 program and fundinground.

Eligible applicants are states,units of local government, nonprof-its, and consortia of nonprofits. Theapplication deadline is 7/17/09.

HUD is also holding a separatecompetition for $50 million inNSP2 technical assistance funds.

(http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg)

Community DevelopmentBlock Grants

HUD has allocated nearly $1billion in extra CommunityDevelopment Block Grant(CDBG) funds to states and localgovernments, to help fund projectsand activities of their choice thatmeet the standard CDBG eligibili-ty requirements. Among eligibleuses are infrastructure and rehabili-

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Funding Opportunities

HUD Makes Available Additional Funds From Economic Stimulus Act

RHS UnveilsDemonstration

Voucher Program

The USDA Rural HousingService has announced the

requirements and proceduresfor a new demonstration RuralDevelopment Voucher Program,and $4,965,000 in available ini-tial funding. Under the program,voucher rental assistance willbe offered to residents of prop-erties financed by RHS Section515 loans that are paid off (after9/30/05) prior to the loan’smaturity date, as the result of aprepayment of the loan or aforeclosure action. The RHSnotice outlines tenant eligibilitystandards and other information.(http://edocket.access.gpo.gov/2009/E9-9828.htm) n

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THE OBAMA Administration’sproposed federal budget for the fis-cal year beginning 10/1/09 calls forincreased funding and several newprograms for the U.S. Departmentof Housing and Urban Development(HUD). (See chart on page 10.)

The detailed budget request,released on 5/7/09, proposes totalfunding of $46.344 billion forHUD in FY 2010, a 10.8% increaseabove the enacted FY 2009 appro-priation. The proposed FY 2010funding is above the billions inextra dollars provided for manyHUD programs by this year’s eco-nomic stimulus act.

The proposed HUD budgetrecommends sizable increases overFY 2009 funding levels for a num-

the supply of rental housing forlow- and very low-income house-holds. The trust fund was estab-lished in 2008 but hasn’t been capitalized yet.

The budget proposes elimina-tion or consolidation of 27 existingHUD programs and activities. Nonew funding is proposed for theHUD HOPE VI public housingredevelopment program. Instead,$250 million is recommended for aproposed new program calledChoice Neighborhoods, whichwould build on HOPE VI butallow funding for a wider range ofactivities and applicants. The pro-gram’s aim would be to transform

ber of key programs, includingSection 8 project-based rental assistance, tenant-based rental assistance (vouchers), CommunityDevelopment Block Grants, andHomeless Assistance Grants. Asmall increase is proposed for publichousing capital funds. Funding forthe HOME program, NativeAmerican Housing Block Grants,Supportive Housing for the Elderly(Section 202) and Persons WithDisabilities (Section 811), andHousing Opportunities for PersonsWith AIDS would remain at thisyear’s level.

The budget proposes $1 billionin initial funding for the NationalHousing Trust Fund, which isintended to increase and preserve

Obama Budget Proposes Increased HUD Funding, New Programs

Budget,continued on page 10

Comparison of Enacted FY 2009, Proposed FY 2009 Budgets Appropriations

(in millions)FY 2009 FY 2010

HUD Programs Enacted ProposedTenant Based Rental Assistance $16,067 $17,836Project-Based Rental Assistance $7,100 $8,100Public Housing Capital Fund $2,450 $2,244Public Housing Operating Fund $4,455 $4,600HOPE VI $120 $0HOME Investment Partnerships $1,825 $1,825Community Development Block Grants $3,900 $4,600Native American Housing Block Grants $645 $645Housing Opportunities for Persons with AIDS $310 $310Homeless Assistance Grants $1,677 $1,794Housing for the Elderly (Sect. 202) $765 $765Housing for Persons With Disabilities (Sect. 811) $250 $250Brownfields Redevelopment $10 $0Rural Housing & Economic Development $26 $0Lead Based Paint Hazard Reduction $140 $140HUD Total $41,833 $46,344

FY 2009 FY 2010USDA Rural Development Programs Enacted ProposedSection 515 Rental Housing Direct Loans $69.5 $69.5Section 538 Rental Housing Guaranteed Loans $129.1 $129.1Section 521 Rental Assistance $902.5 $1,091Section 514 Farm Labor Housing Loans $20 $22Section 516 Farm Labor Housing Grants $9.1 $9Multifamily housing Revitalization Program $27.7 * $27*

* Includes $5 million for rural housing vouchers

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continued by the FY 2009 omnibusappropriation act. Rural housingadvocates, including the Councilfor Affordable and Rural Housing,are trying to get the interest creditsubsidies restored. A bill to do this,H.R. 1989, is pending in the U.S.House of Representatives.

(Budget summaries: HUD,http://www.hud.gov/budgetsummary2010/index.cfm; USDA, http://www.obpa.usda.gov) n

the USDA’s Rural Housing Service.The same funding level as in FY 2009 is proposed for theSection 515 rural rental housingloan program and the Section 538guaranteed rural rental housing loanprogram, and a nearly 21% increaserequested for rural rent subsidies.

The budget request, though,assumes no new funds for interestcredit subsidies for new Section538 loans. Such subsidies were dis-

Budget,continued from page 9

poor neighborhoods into healthymixed-income communities. Fundscould support transformation ofassisted housing development,acquisition and renovation (orreplacement) of unsubsidized privately owned housing, and con-struction of mixed-income housingin strategic locations.

Other proposed new HUDprograms include:

n Sustainable CommunitiesInitiative: $150 million, to integrate transportation andhousing planning and decisionsto maximize choices for resi-dents and businesses, lowertransportation costs, and drivemore sustainable developmentpatterns.

n Energy Innovation Fund: $100 million, to stimulate privateinvestment in energy-efficienthousing, including energyretrofits of existing properties.

n University Community Fund:$25 million, for competitiveawards to universities for inno-vative community developmentstrategies.

n Rural Innovation Fund: $25 million, to support targeted andinnovative approaches that rem-edy concentrated poverty andhousing distress in rural areas.

Rural HousingThe White House proposes the

same level of funding in FY 2010for several key federal rural rentalhousing programs administered by

Site Selection &Market Analysis

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LIHTC Developer Looks for Unique Feature,Edge in Selecting Sites

Site,continued on page 12

MATTHEW GREER, A MAJOR developer of low-income housing tax credit projects (LIHTC) inFlorida, looks for sites that will make his propertiesstand out and be especially attractive to local renters.

This might be the location, physical attributes, ora partner.

These days Greer has two dozen credit projectsunderway in Florida, in various stages of development,mostly high-rise urban infill deals. He’s limiting hisnew development to South Florida. Greer says renterdemand for tax credit units remains strong in manyparts of Florida, such as the counties of Miami-Dade(Miami), Broward (Fort Lauderdale), and Monroe(Key West). “There’s so much need,” he notes. By con-trast, Greer says Central Florida and parts of NorthFlorida – places like Orange, Hillsborough, and LeeCounties – are “more stressed” markets.

Greer is CEO of Carlisle Development Group, aMiami-based LIHTC developer/owner/manager. Hissite selection strategy and approach to developmentreflects a mix of the traditional well-funded developerdoing standard LIHTC deals and the local nonprofitdoing tougher mission-driven projects. Greer saysthere are enormous opportunities in a large market likeFlorida “if you have the strength of a for-profit [devel-oper] and the vision of a nonprofit. We’ve felt like that[has been] a great market niche for us.”

Carlisle’s portfolio contains 8,222 completed mul-tifamily rental units, including 6,775 LIHTC units.

Variety of ProjectsThe variety of Carlisle’s projects is evident in a few

examples:

n In Miami, Carlisle is partnering on a mixed-use project with a YMCA. Carlisle will demolish theoutdated YMCA building, build a state-of-the-artmixed-use facility housing the YMCA and day

care, and construct LIHTC apartments above, uti-lizing air rights the YMCA had no use for.

n In Miami, Carlisle has developed multiple “transit-oriented” tax credit projects, include several next to light rail stops. Carlisle leases orsubleases government-owned land adjacent totransit sites. One current project is being built ona former parking lot for government employees.

n In South Florida, Carlisle is about to do a second,similar project in partnership with a local nonprof-it. Carlisle builds the tax credit housing for for-merly homeless residents, and the nonprofit pro-vides the supportive services.

The LIHTC projects that Carlisle develops typi-cally are new construction. But Greer says his firm hasdone some acquisition/rehabilitation deals utilizingfederal historic tax credits.

Similarly, Carlisle has developed some LIHTCprojects in suburban areas. But Greer said his prefer-ence and niche is new construction on urban infillsites. “We look for good infill locations where we canbuild a denser project that is near services; that fill ingaps in the community.” Greer says these sites gener-ally have strong, long-term market demand, and “it’sthe right thing to do from a policy point of view.”

He notes, “We try to focus on brownfield sites orsites that have already been developed once. That cre-ates an opportunity for us, because they’re not current-ly being utilized.” Greer said infill sites typically arenear critical services and near one or more job centers,such as a medical district, government district, ormanufacturer.

Greer said a project next to a rapid transit stop –metro Miami has an elevated light-rail system –

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Site,continued from page 11

provides a compelling extra amenity for resi-dents who live there and commute to work.“The biggest cost for a low-income tenantother than their rent is their car,” he notes.Therefore, if tenants can leave their carsparked and commute by rail there are multi-ple benefits. Greer says the tenant nowenjoys a higher effective income and a betterquality of life. Plus, the project needs lessparking.

Energy EfficiencyCarlisle is also focusing extensively on

energy efficiency in new LIHTC develop-ments. Greer said Carlisle has completed thefirst LEED-certified housing project inFlorida and is about to build two moreLEED-certified affordable housing develop-ments.

Greer says Carlisle in some marketslooks for a major employer, housing authori-ty with housing vouchers, or a partner withother financing resource – “something thatdifferentiates the project, so that you’rehopefully in a market of one. That’s notalways possible, but that’s what we look for.”

He noted the current economic envi-ronment is good in some respects when itcomes to finding a good site for a newLIHTC project. “Finding sites has gonefrom one of the harder things to accomplishto one of the easier things,” he says, explain-ing that land is abundant, a lot is properlyzoned, sellers are more flexible, and there’sno longer the stiff competition from devel-opers of market-rate apartments and condos.

Still, Greer says the positives are offsetby the much greater difficulty today insecuring tax credit equity. He said he expects to seek the new assistance madeavailable by the economic stimulus act forstalled LIHTC projects for some of hispending deals. n

Market Studies Tougher, MoreComplicated to Prepare Because ofEconomic DownturnPREPARING MARKET STUDIES for proposed low-income hous-ing tax credit (LIHTC) projects is tougher and more complicatedthan ever, according to market analysts. This is largely because ofthe severe economic downturn, they note.

As a result, analysts are having to do more research and leg-work, spend more time on “macro” analysis, assess the “shadowmarket,” and haggle more with developers about the best initialrents for their tax credit projects.

“In an economically challenged marketplace you begin to seeproblems with properties that you typically didn’t see during thegood times,” says Columbus, OH market analyst Rob Vogt, a prin-cipal of VWB Research. He said during the previous good times,well-located and well-managed tax credit projects typically hadoccupancy levels in the high 90s to 100 percent, while even mar-ginally-located and -managed properties were 94, 95 percentbecause of the cushion from a robust economy and strong job andhousehold growth. Inherent problems in these marginal projects,Vogt says, “didn’t come out because there was already a built-inmarket for those [properties]. Now that we’re seeing economicchallenges, those marginal properties begin to show some of theirblemishes, and it takes time to analyze what those [root] problemsare and how they might impact” proposed new LIHTC projects.

Says Columbia, MD analyst Bob Lefenfeld, principal of RealProperty Research Group, Inc., “There are great unknowns today asto whether a deal is going to work and what project makes sense.”

Central ComponentMarket studies are central to the LIHTC program. State hous-

ing credit agencies require a market study for every proposed proj-ect awarded tax credits, generally in the application process.

Generally prepared by a qualified market analyst, a marketstudy is a document that provides the analyst’s reasoned judgmentof whether or not a LIHTC project as proposed (targeted tenanttype, unit sizes, amenities, rents) is likely to be successful. Thisassessment is based on an analysis of a wide variety of collectedinformation and data – about the project, site, surrounding neigh-borhood, market, local population, employment and income, rentsand housing costs, and competing apartment properties. Roughly20 state agencies have adopted in whole or part the recommendedstandards for the content and preparation of LIHTC market stud-

Ta x C r e d i t A d v i s o r • S I T E S E L E C T I O N & M A R K E T A N A LY S I S

Market,continued on page 13

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Market,continued from page 12

ies developed by the NationalCouncil of Affordable HousingMarket Analysts (http://www.housingonline.com).

A review of the proposed site isa key part of the market analysis. “Ifyou’re in what’s perceived as thewrong location, that’s always goingto be a problem,” says Lefenfeld.Increasingly, analysts now are look-ing more intensively at the localmarket and specific sub-market interms of job growth (or contrac-tion), demographic trends, and thelevel of “achievable” tax credit rents.

“What we are doing – and what our clients are asking us to do– is to really pay attention to jobgrowth,” says Bethesda, MD analystH. Blair Kincer, of Novogradac &Company LLP. He said this is onenew trend in market studies; a sec-ond is “a lot more people are read-ing the reports than used to.”

With job growth slowing orstagnant and unemployment risingin many communities, the analyst’sassessments of current and futurelocal economic strength are criticalcalls.

Because local economic per-formance is so unpredictable, Vogtsaid his firm’s market studies for thefirst time provide clients with twosets of projections: one if currenteconomic conditions persist, andthe second if the local economyimproves. Vogt advises developersto “look at the worst-case scenarioso that, if it happens, you’ll be pre-pared for it.”

‘Bigger Picture’Bud Clarke, Manager of the

Investment Valuation Group at

he says. “Understanding cycles andknowing where you are in thosecycles is going to be a much moreimportant tool for the market ana-lyst to understand and communi-cate to the developer, to assist themin which sub-markets to go intowhen looking for sites.”

Vogt, for instance, said certaintraits in one market – like high-endconventional apartment propertieshaving higher vacancies than low-end properties – are just the oppositein other markets. Vogt and othersalso said local economies have andcontinue to shift so rapidly it’soften wise to get an update of anolder existing market study.

Lefenfeld’s firm is expandingits economic analysis beyond justtrends, to monitor many key indi-

Boston-based MMA FinancialLLC, and current chairman of theNational Council of AffordableHousing Market Analysts, saysmarket analysts today need “to focus more on the bigger picture…They need to understand where theproperty or where that sub-marketfits into the larger economy.”

According to Clarke, thismeans determining exactly wherethat sub-market and market is inthe economic, demographic, andbusiness cycles, which collectivelyimpact the local real estate cycle.“Not all MSAs [MetropolitanStatistical Areas] and not all mar-kets are going to be hit by thisrecession as hard as others. Thereare MSAs and markets that aregoing to come out of this recessionsooner and stronger than others,”



ONEContact:Cash Gill

1 (800) 428-3320www.gillgroup.com

[email protected],

Inc.

STOPSTOP

Gill Group, Inc. offers multiple services for due diligence:

Real Estate ServicesMarket Studies ~ Mark-to-Market ~ Real Estate & M.A.P. AppraisalsppNursing Home Appraisals ~ Physical Condition Assessments ~ Project

Capital Needs Assessments ~ Phase I Environmental Assessments Section 42 Tax Credit Inspections and File Audits

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cators monthly and to check for one-time or unconventional events thatwill impact local jobs. For instance,he said Anne Arundel, MD, home ofAnnapolis, will gain 8,000 to 10,000new jobs in 2011 as a result of amilitary base realignment.

Arguably the most importantpiece of the market study is theanalyst’s recommended initial rentsfor a tax credit project – rent levelsthe analyst believes will stronglyattract low-income renters to assureexpedited, full lease-up.

“We’re seeing a lot more scruti-ny on our recommended rents,” saysKincer. He said this is often due toa “disconnect” between the higherrents a developer thinks can becharged in the market, and thelower level that Novogradac sees as

best information comes from put-ting shoe leather to the streets.

Still, the shadow inventory isoften an impact.

Vogt, for instance, said FortMyers, FL, is so overbuilt in condosthat many owners are trying to rentthem for whatever they can get. Hesaid these units are hurting occu-pancy in tax credit projects withunit rents pegged to 60% of the areamedian income (AMI). Vogt saidpercentage occupancy levels in theseprojects are in the mid-80s, com-pared to 95% or more for LIHTCprojects targeting households at30%, 40%, or 50% of AMI.

Site SelectionSan Francisco CPA Michael

Novogradac, of Novogradac &Company LLP, says sites selectedby developers for new LIHTCprojects are still “so much driven”

realistic and achievable for themarket and project. Kincer said hisfirm is saying “no” more often thesedays regarding developer’s originalproposals for new projects, mostlyover initial rents, and is often help-ing them restructure their deals tomake them more viable.

Analysts said they now assessthe “shadow market” in a locality –the type and number of non-tradi-tional rental units that might com-pete for the same low-incomerenters as the LIHTC project (e.g.,rented single-family homes andcondos). This inventory has swollenin much of the U.S. due to homeforeclosures and “doubling up” ofhouseholds.

Analysts said it’s virtuallyimpossible to estimate with preci-sion the size and location of theseshadow units and their likely impacton tax credit projects. One said the


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by state qualified allocation plans –their priorities, preferences, set-asides,points.

Nonetheless, Novogradac and others are seeing changes.

“Affordable housing developers arefinding that the land sellers are sellingat more reasonable prices,” saysNovogradac. “There are more sitesthat are costing less and…they’re get-ting better construction bids.” ButNovogradac and others said these posi-tives are offset by greater difficultysecuring tax credit equity for newprojects.

Boston CPA John Mackey, ofReznick Group, says he’s seeing pro-posed new construction projects “getting crowded out” in some states in the competition for 9% tax creditallocations. “With the difficulty in getting investors for bond deals, andthe reduced [credit] pricing in the marketplace, I’m seeing that a lot ofthe acquisition/rehab deals that wouldnormally be done as tax-exempt bonddeals are now coming in for 9 percentcredits,” he says. “They score well, andthey don’t have this big a feasibilityproblem because [new] construction ismore expensive.”

Mackey’s also advising developersto turn over every rock in their search for gap financing sources. Forinstance, he said one client with a proposed acquisition/rehab projectcomprised of multiple older buildingsis following his suggestion to try toobtain historic tax credits, which cangenerate extra equity. “They thinkthere’s a good chance they’ll get his-toric on many of the buildings,” saysMackey, “and that’ll provide an extraresource that they wouldn’t have oth-erwise gotten.” n

CHANGE AND ADAPTATIONhave been instrumental to the suc-cess of long-time affordable housingdeveloper Bob Greer, president ofMichaels Development Co.

Greer has guided the firm overseveral bumps in the road over theyears while overseeing developmentof one of the largest portfolios oflow-income housing tax credit(LIHTC) projects in the U.S.These include both “stand-alone”LIHTC projects and large-scalepublic housing redevelopment dealsfunded by housing credits and the federal HOPE VI program.

Today, Greer, like others in the LIHTC industry, looks out at alandscape where it’s tough to raise equity for new credit projects andwhere credit pricing to developers has fallen sharply. To respond, sur-vive, and prosper, Marlton, NJ-based Michaels Development has addeda new page to its playbook – raising tax credit equity itself from banksaround the country, rather than from traditional tax credit syndicators asit had done until about 18 months ago.

“We’ve begun the process of becoming a syndicator ourselves,” saysGreer, 71, who joined Michaels 31 years ago. He said this approach hasenabled his firm to successfully raise equity for new deals and to main-tain the price it needs for project feasibility, while providing an econom-ic return to banks and helping them satisfy their CommunityReinvestment Act (CRA) requirement.

According to Greer, this change “required us to stop and reorganizea little bit, [and] change some of our staffing, so that we can provide theeducation to banks who have interest in credits, but who don’t fullyunderstand the program yet.” After educating these banks, Greer says,“we’ve had repeat business with many.”

Greer said other recent changes by Michaels have included purchasingthe portfolios of other LIHTC developers, and coming in as a co-generalpartner with other developers with housing credit awards to help themget their project “across the finish line.”

A few years back, the parent organization of MichaelsDevelopment, the Michaels Organization, decided to leverage its skills,experience, and capacity acquired from developing large projects in theHOPE VI program, to diversify into the development and renovation of

Greer,continued on page 16

Bob Greer Adds New Pages to PlaybookTo Deal With Changing, Tougher Times

Developer Profile

Bob Greer


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Michaels Announces Go-Ahead on Military

Housing Projects

Michaels Military Housing hasannounced it has secured all

of the financing to move forwardwith development of family housingcommunity projects at two U.S.Army installations in Arizona – FortHuachuca and Yuma ProvingGrounds.

The Michaels Organization, par-ent of Michaels Military Housing,together with the U.S. Army andRaymond James Financial Servicescompleted an $82 million publicbond sale to fund the $103 million,five-year development plan. The plancalls for construction of more than200 homes and various communityamenities at the two installations.

Fort Huachuca and YumaProving Ground are two of the lastprojects for the Army under the fed-eral military housing privatization pro-gram. Under this, private developersconstruct, renovate, and operatehousing for military personnel andtheir families at U.S. bases.

Michaels has contracted withtwo local home builders, Castle andCooke and RL Workman Homes, towork on the two projects, a first forthe program.

An historic post established in1877, Fort Huachuca is home to mul-tiple U.S. Department of Defensefacilities, and covers more than70,000 acres. Yuma Proving Groundsis an Army weapons and munitionstesting facility and one of the largestmilitary installations in the world. n

Greer,continued on page 17

Greer,continued from page 15

housing at U.S. military basesunder the federal military housingprivatization program.

Active in 29 StatesMichaels Development has

developed or is developing LIHTCand HOPE VI projects in 29states. It is one of seven integratedcompanies that make up theMichaels Organization, which wasfounded by Michael Levitt in 1973and has developed, financed, oracquired more than 40,000 apart-ments and currently manages33,000 units nationwide. One ofthe affiliates, Interstate RealtyManagement Co., manages all ofthe company’s properties and offers

third-party asset and property man-agement services. Michaels MilitaryHousing develops military housing.

The path Greer took to becomean affordable housing developerhad several zigs and zags – allgrounded in real estate. He gradu-ated from the architecture programat Miami University in Oxford,OH, where, as a freshman, he wasinspired by renowned architectFrank Lloyd Wright, a fellowWisconsin native. “He spoke to mydesign class; it was really quiteamazing,” says Greer.

After graduation, Greer went to work as an architect for an architectural, planning, and consulting firm in Philadelphia.Eventually he moved westward, tojoin the Pennsylvania HousingFinance Agency, where he became

Director of Development.“Working at the state agency withvarious developers gave me anopportunity to see what they weredoing, where they were working,how their deals came together,” he

j j WORKING TOGETHER FOR BETTER COMMUNITIES

For more information, please visit our website at

www.michaelsorganization.com3 East Stow Road I Marlton, New Jersey 08053 I 856.596.0500

We Are a Dedicated and Diverse Team of ProfessionalsProviding Innovative Property Management Services to Create

the Finest Quality Residential Communities.

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Greer,continued from page 16

says. One day developer MichaelLevitt asked Greer to join his firm,and Greer accepted.

Asked what he likes aboutbeing an affordable housing devel-oper, Greer says it’s the company’s“ongoing commitment to providesafe, decent housing for lower-income families.”

He concedes that being able todo this today as a developer is chal-lenging. Equity is tougher to obtainand new LIHTC projects typicallyrequire even more layers of financ-ing than before to pencil out. Thishas further intensified competitionamong developers for available gapfinancing sources. “The rules of thegame have changed,” says Greer.“We’ve changed with it.”

Despite the industry’s currentchallenges, Greer, who exudes aconstant positive attitude, says theLIHTC program isn’t “broken.” Infact, he notes, “I think this hasbeen the best program that pro-vides the best affordable rentalhousing in the country that I’veever worked with.”

Current ProjectsAt present, Michaels has a

number of affordable housing proj-ects under development, includingHOPE VI deals in Chicago, NewOrleans, Tampa, and Sarasota. Asfor military housing deals, thecompany has completed two phasesso far and is starting a third at FortLeavenworth in Kansas, and hascontracts for jobs at two other U.S.Army bases and two Air ForceBases.

One of the projects Greer isproudest of has been the redevelop-

ment of the former Robert TaylorHomes public housing complex inChicago. This mile-long complexonce consisted of rundown emptyhigh-rise buildings. “We’ve accom-plished a total neighborhood revi-talization,” says Greer, “by remov-ing those towers and developingnew contemporary affordable rentalhousing mixed in with otherincome levels to achieve a transfor-mation of that part of the neigh-borhood.”

After decades at MichaelsDevelopment, much of it on air-planes, Greer says “I still love mywork.” But he’s making more timethese days to “smell the roses” –enjoying time with his wife, chil-dren, and grandchildren, and evensome personal travel. “For the firsttime,” he says, “my wife and I took

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a four-week vacation to Australia.That wouldn’t have been possible20 years ago. We had a wonderfultime.” n

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Tax Credit transactions, is a challenging, knowledge-intensive, and relationship-driven enterprise. It requiresup-to-the-minute knowledge and collaboration with top-notch professionals.

That’s where the National Housing & Rehabilitation Association comes in. Since 1971,NH&RA has provided a forum for the most sophisticated real estate developers. Whether it’sissues of financing techniques, equity investment, deal structuring, asset management, subsidyallocations, project design, management operations or new development opportunities, you’ll getthe information here.

NH&RA members recognize the value of sharing information. We meet quarterly for seriousdiscussions of all the significant issues affecting our business. Designed to foster relationships, our meetings and conferences are renowned for their combination of cutting-edge informationand opportunities to network and socialize.

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Making Sense of Solar in AffordableHousing Properties: A PrimerBy Richard Raeke, Borrego Solar Systems, Inc.

IN MY FIRST MONTH in the solar energy business, I saw the future of solar –a Boston sports fan, dressed head to toe in regalia from every pro sports team.He certainly didn’t fit the popular image of the solar customer. All the same, hewanted a solar system for his house.

Why was he the future? Simple. To him, solar made economic, if not envi-ronmental, sense. He was tired of unpredictable electric bills, and incentiveswould cover much of the system’s cost.

Since then, we’ve seen solar energy systems at malls in New Jersey, atCalifornia wastewater plants, and even in affordable housing projects. Today,with lots of tax and financial incentives available and recent market events, solarmakes more economic sense than ever. Contrary to public perception, a proper-ty doesn’t have to be located in a sunny, hot place for a solar electric system tobe viable. In fact, viability comes down more to financing before location.

In San Ysidro, CA, Steadfast Companies, an affordable housing developer,chose to include solar on its 42-building, 400-unit Villa Nueva apartment complex. The firm was already footing the electric bill for the master-meteredproperty – both for common areas and individual apartments. Borrego Solardesigned and installed a solar system that supplies 70% of the project’s electricneeds. Much of the cost was recovered by the owner from federal solar andlow-income housing tax credits and California’s solar incentive. Steadfast willreceive clean power for decades to come, free from rate spikes and escalatingprices from the electric utility.

Why Solar? Why Now?A solar electric (photovoltaic, or PV) system is simple. It includes solar

panels, usually installed on a building’s rooftop, which capture energy from thesun and convert it to electricity. An inverter converts the DC current to AC,which then feeds through a utility meter into the building’s electrical system.

While environmental stewardship has prompted many PV system ownersto go solar, control of future electric costs and economic motivations have beenthe key drivers.

In addition, there’s a wide array of available federal, state, local, and utilitytax incentives, financial incentives, and rebates. (For rundown, go tohttp://www.dsireusa.org.)

For instance, in states that permit “net-metering,” owners can receive a

Energy Efficiency GroupIs Busy on Several Fronts

The Council for Energy FriendlyAffordable Housing (CEFAH), a work-

ing group of some of the most activeowners and managers of affordablehousing, has been busy in several areas.

The goal of CEFAH, a council of theNational Housing & RehabilitationAssociation, is to identify opportunitiesfor significant energy cost savings inaffordable multifamily housing projects,and to work with policymakers to obtainregulatory and legislative changes tomake such improvements feasible andpermissible.

New leadership at the U.S. Depart-ment of Housing and Urban Development(HUD) creates fresh opportunities forCEFAH and private developers to collabo-rate with public-sector partners toimprove the energy and utility perform-ance of HUD-assisted and low-incomehousing tax credit properties. Recent discussions by CEFAH with HUD’s CarolGalante, Deputy Assistant Secretary forMultifamily Housing Programs, and TedToon, Deputy Assistant Secretary, Officeof Affordable Housing Preservation, were productive.

Recently, CEFAH hosted its 2ndGreen Housing Symposium, on May 11,in Los Angeles. In addition, CEFAH hasbeen active analyzing HUD’s new GreenRetrofitting Program funding opportunity(see p. 20) and recent policy changes thatmake it easier for multifamily owners anddevelopers to use federal WeatherizationAssistance Program funds (see p. 1).

Recent Symposium highlights includ-ed a CEFAH public policy update, andpresentations on the mechanics of build-ing energy audits and how owners canmaximize the benefits from them, andabout opportunities for sponsors todevelop solar production facilities using apower-purchase agreement structure.

(For information on CEFAH and itsactivities, contact Thom Amdur, 202-939-1753, [email protected].) n

Solar,continued on page 20

Green Building

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Certification,continued on page 26

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Solar,continued from page 19

credit from the utility for each kilo-watt-hour of electricity that theirPV system produces that isn’t need-ed by their building and is put backinto the commercial electric “grid.”The building can use these creditswhen the owner’s solar system isn’tproducing electricity. When retailrates increase, so does the value ofthese net metering credits.

In some states, system ownerscan also receive renewable energycertificates (RECs) that they can sell.With more states requiring part ofthe annual electric power generatedin the state to come from renewablesources, this trend is likely to grow.

Market forces are also favoringconsumers and developers. The priceof a solar PV system has fallen 20%in the last six months due to theglobal economic slowdown and a glutin the supply of solar panels, whichrepresent about half a system’s cost.

Moreover, the AmericanRecovery and Reinvestment Act(ARRA) extended the federal 30%solar investment tax credit for eightyears, and gives owners a newoption – not yet implemented – toobtain a cash grant from the U.S.Treasury in lieu of the tax credit.

ARRA also provides variousfunds that can be used to pay forsolar PV systems. These include$250 million for competitive awardsto owners for energy retrofits ofexisting HUD Section 8, 202, and811 rental projects, and nearly $1billion to be awarded to publichousing authorities for construc-tion, renovation, and energyimprovements to housing. Finally,states, counties, and cities havereceived billions for energy efficien-

HUD GuidanceIssued for NewRetrofit Program

THE U.S. Department of Housingand Urban Development (HUD)has issued requirements, procedures,details, and the timetable for its newGreen Retrofit Program forMultifamily Housing (GRP). Theprogram offers $250 million ingrants and low-interest loans toowners to fund energy efficiencyand green improvements in eligibleexisting HUD-assisted multifamilyrental housing projects.

HUD released the applicationand held a Webcast on the programon 5/13/09. HUD will accept appli-cations starting June 15.

Program guidance, includingdetails about eligible projects andimprovements, is in HUD Notice H 09-02.

Funds are restricted to HUDSection 8, Section 202, and Section811 projects and USDA RuralHousing Service Section 515 prop-erties with project-based rentalassistance. Funding of up to $15,000per unit is available for improve-ments to reduce energy costs orwater usage, improve indoor envi-ronmental quality, or provide otherenvironmental benefits. Recipientsmust agree to a minimum 15-yearextension of the property’s afford-able use restrictions.

Loan terms will be 15 to 35years, and rates 0% or theApplicable Federal Rate.

(Guidance: http://www.hud.gov/recovery, check tab for Opportunities;Webcast, http://www.hud.gov/webcasts/archives) n

cy and conservation and communitydevelopment block grants that canbe passed on to affordable housingdevelopers for solar installations.

This influx of federal fundingshould mitigate the relatively highup-front capital cost of solar sys-tems, as well as create new financ-ing structures for solar. As a rule ofthumb, a solar electric system costs$7,000 per kilowatt of capacity.Roughly 1.5 kilowatts can supplythe full power needs of a one-bed-room unit. A system that fulfills allthe needs of a 100-unit multifamilyproperty will cost about $700,000.However, in projects that receive thefederal solar and housing tax credits,PV systems usually provide powerjust for common areas and not forthe apartments, in order not to riskthe loss of expected tax benefits.

Typically more than a third of aPV system’s total cost can be recov-ered by the owner from equity gen-erated by the Section 48 federalsolar investment tax credit, andaccelerated depreciation. Anotherthird may come from a federal grantor from a state, local government,and/or utility incentive program.That leaves about one-third of theexpense for an owner or developerto come up with out of pocket.

The federal solar credit,claimed all in the first year, is a taxcredit equal to 30% of the cost(including purchase and installa-tion) of equipment that uses solarenergy to produce electricity, heator cool, provide solar process heat,heat hot water, or power fiber-opticlighting systems.

State, local, and utility incen-tives for solar systems vary widelyfrom state to state.

In Massachusetts, for example,Solar,

continued on page 21

Ta x C r e d i t A d v i s o r • G R E E N B U I L D I N G

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Ta x C r e d i t A d v i s o r • G R E E N B U I L D I N G

owners can receive an upfrontrebate on solar PV systems ofroughly $3,000 per kilowattthrough the Commonwealth SolarInitiative; the exact size depends onthe owner, system size, and compo-nents. In California, the ProductionBased Incentive pays the owner 15to 22 cents per kilowatt-hour pro-duced during the first five years. Asecond California program,Multifamily Affordable SolarHousing (MASH), pays an upfrontrebate for retrofitting solar on low-income housing equal to $3.30 perwatt for common loads and up to$4 per watt for tenant loads. InNew Jersey, the state’s SolarRenewable Energy Certificates cantrade from 30 to 70 cents per kilo-

by producing some additional equi-ty to help pay for the system. In a9% LIHTC project, the combina-tion of the equity from the housingand solar credits should pay for100% of the cost of the system,regardless of the state/local/utilityincentive. In a 4% LIHTC project,two-thirds or more should be cov-ered. This assumes an LIHTC priceof 85 cents, and an investor inter-ested in the solar credits.

For retrofitting solar on existingbuildings, the developer should lookto the state or local incentive pro-grams. California’s MASH programis particularly lucrative for afford-able housing developers. InMassachusetts, the state recentlyadded a rebate of $1 per watt ontop of its existing solar incentive for


Solar,continued on page 22

watt-hour. New Jersey’s utilitiesmust buy these credits to meet thestate’s renewable portfolio standard.

Even with state or local incen-tives, though, an owner must usual-ly cover a portion of a system’s cost,and solar electricity may still notmake sense if local electric rates areexcessively low. Also, some sites justaren’t amenable to solar because ofshading, roof obstructions, or theorientation of the site.

Solar for Affordable HousingAffordable housing developers

have more financing tools at theirdisposal than the average solar cus-tomer.

In addition to claiming thesolar tax credit, most of the cost ofa solar system may be includible ineligible basis for the low-incomehousing tax credit (LIHTC), there-


affordable housing projects.Many municipalities and utili-

ties offer incentives, such as a solarrebate by Austin Energy in Texas.

Solar installers – companiesthat engineer and install solar PVsystems – are the best resource tohelp owners and developers workthrough the maze of governmentprograms and incentives and todesign and size a system appropri-ate to the building. Typically, theinstaller will first view a satellitephoto of the building’s roof, lookingat shading, roof obstructions, andsite conditions. If the roof appearsunobstructed and will allow panelsto be installed so they clearly facefrom southwest to southeast, a req-

larger projects or the ability tonegotiate lower equipment pricesfrom their suppliers.

Funding OptionsAffordable developers and

owners can choose one of threeroutes. First, they can own theinstalled solar system themselves,and directly benefit from the taxcredits and other incentives. A sec-ond option is for the owner to con-tract with a third party that ownsthe system, monetizes the solar taxcredits, and sells the power to theproperty under a long-term PowerPurchase Agreement (PPA). Third,the owner/developer can create aseparate for-profit captive energycompany, which owns the system(or systems, in the case of multipleproperties), monetizes the tax cred-its, and sells the power to thebuilding(s) under what is effectivelya PPA. Under the first and thirdapproaches, the developer/ownercan also collect a developer’s fee onthe installation of a solar system.

A PPA has a set price per kilo-watt-hour and a predeterminedannual escalator. To quote an accu-rate price, a PPA provider shouldhave an installer undertake a thor-ough evaluation of the properties toensure that the system can meetproduction and installed cost esti-mates. The final PPA price willgreatly depend on these variables.

Richard Raeke is the Director ofProject Finance for Borrego SolarSystems, Inc., based in Berkeley, CA.He helps customers negotiate theirfinancing options for funding solarelectric projects. Borrego has builtmore than 3 MW of solar for afford-able housing in the last year. Raekecan be reached at 510-849-5414,[email protected] n

uisite, an installer will visit the site,inspect the condition of the roof,and analyze the property’s electricbills for the past 12 months togauge usage. Ideally, the designedsystem will produce 80% of thebuilding’s electrical load; the exactlevel will depend on site conditionsand available rooftop space.

Solar is less expensive ifinstalled in multiple properties all atonce; the owner/developer cannegotiate a lower price. Before hir-ing an installer, you should ask ifthey have prior solar experiencewith affordable housing properties.Their experience may be limited towarehouses, for instance, and there-fore they may not be familiar withthe idiosyncrasies of affordablehousing. Or they may install onlyon homes and lack experience with

Ta x C r e d i t A d v i s o r • G R E E N B U I L D I N G22JU

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� Tax Credit Monitoring

� HUD Compliance Monitoring

� Credit Underwriting

� Loan Portfolio Management

� Loan Underwriting

� Construction Funds Disbursement

� Davis-Bacon and State Prevailing Wage Compliance Monitoring

Contact AmeriNational at: 866-244-5750

[email protected]

www.amerinational.net

Historic Rehabilitation

Jackson Landmark to Be Rehabilitated asPart of Residential Project

THE STANDARD LIFE BUILDING, a landmark historic office building in thecity of Jackson, MS, will be converted into 76 upscale apartments by HRIProperties, a leading historic preservation developer based in New Orleans.

The 1929 Art Deco masterpiece office tower will be rehabilitated and con-verted into a component of the King Edward hotel and apartments, an historicproperty now under renovation by HRI Properties, the majority owner anddeveloper of the multi-building project. The development team bought theStandard Life building for $1 million from the Jackson RedevelopmentAuthority.

HRI is renovating both the Standard Life Building and the King Edwardusing equity and financing generated by fed-eral and state historic rehabilitation tax creditsand new markets tax credits.

Standard Life will be owned, financed,and operated with the King Edward as a sin-gle integrated unit, said Pres Kabacoff, co-chairman of HRI Properties. Local partnersin Standard Life include Watkins Partnersand former New Orleans Saints star runningback Deuce McAllister. Both are also partici-pants in the King Edward restoration.

“Adding 76 apartment units in StandardLife to the 64 nearing completion in the KingEdward increases the density and critical massthat will draw more residents to downtownJackson and help transform this area into avibrant residential, retail, dining, and enter-tainment neighborhood,” said Kabacoff.

The Standard Life Building, on South Roach Street, contains 21 storieswith 18 habitable floors totaling 96,682 gross square feet, plus an attached one-story annex building of 10,125 square feet.

The Standard Life financing of $33.5 million increases the total investmentin downtown Jackson to $123 million in the combined King Edward/StandardLife development.

The Standard Life Building was designed by architect C.H. Lindsay, whodesigned the Threefoot Building in Meridian, MS, which HRI Properties hasbeen awarded the rights to redevelop into a 125-room hotel.

New Iowa LawAmends State HistoricCredit, Raises Cap

IOWA GOV. CHET Culver hassigned into law a bill (SF 481) thatamends the state’s historic preserva-tion and cultural and entertainmentdistrict tax credit program. This credit is equal to 25% of the qualifiedrehab costs of eligible historic build-ings, including commercial proper-ties, and is applicable against stateincome tax liability.

The law more than doubles, to$50 million, the maximum amount ofstate historic tax credits that can beapproved in any one fiscal year.

It also establishes annual set-asides within the annual volume capfor the award of credits to projects inspecific categories, including: projectsin cultural and entertainment districts(30%); disaster recovery projects(20%); projects creating over 500 newpermanent jobs (20%); projects withless than final qualified rehab costs of$500,000 or less (10%); and any kindof eligible project (20%). Creditsreserved for one category but notawarded may be reallocated to othertypes of projects.

To be eligible for Iowa’s tax credit, commercial buildings must belisted or eligible for listing on theNational Register of Historic Places,or else be contributing buildings inan historic district listed on or eligi-ble for listing on the NationalRegister.

(Legislation: http://www.legis.state.ia.us) n

Standard,continued on page 24

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The Standard Life

Building was designed by

architect C.H. Lindsay,

who designed the

Threefoot Building in

Meridian, MS, which

HRI Properties

has been awarded the

rights to redevelop into

a 125-room hotel.

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Standard,continued from page 23

Apartments, RetailThe renovated Standard

Building will include 2,671 squarefeet of ground-floor retail space, 50one-bedroom units averaging 772square feet in size, and 26 two-bed-room apartments averaging 1,050square feet.

Apartment amenities willinclude private terraces, granitecounter-tops, wood and ceramicflooring; stainless steel kitchenappliances, ceiling fans, washers anddryers in each unit, and high-speedInternet access.

The team of White Constructionand HCI Architecture will serve asthe design-builder for the StandardLife renovation. HCI Architectureis an affiliate of HRI Properties with

extensive experience in the adaptivere-use of historic structures.

The project has been madepossible by the Jackson Redevelop-ment Authority, City of Jackson,Mississippi Development Authority,Mississippi Business FinanceCorporation, and MississippiDepartment of Archives andHistory. Financing comes fromChevron Tax Credit Investments,Inc., Tax Credit Capital, Inc.,Capital One Bank, TrustmarkBank, Whitney Bank, First Bankand Trust, First NBC Bank,National New Markets Fund, andthe National Cities Fund.

The historic King Edward Hotelis expected to open in late 2009 asa 186-room Hilton Garden Hotel.The 64 apartments on the upperfloors are expected to be ready foroccupancy in December. n

Ta x C r e d i t A d v i s o r • H I S TO R I C R E H A B I L I TAT I O N

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PNC is a registered service mark of The PNC Financial Services Group, Inc. (“PNC”). Lending products and services require credit approval and are provided by PNC Bank,National Association, PNC Bank, Delaware and National City Bank. ©2009 The PNC Financial Services Group, Inc. All rights reserved.

WE ARE PNC REAL ESTATE

At PNC, you have access to one of the broadest sets of fi nancial capabilities in the real estate industry. Integratedcapital from PNC allows you to adapt to an ever-changing market. If you’re looking for a dependable source ofhistoric or low-income housing tax credit capital, call Mark Diachok at 703-762-7372 or visit pnc.com/realestate.We’re ready to get started.

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CDFI Funds Reports on Seventh Round

Applications

The Community Develop-ment Financial Institutions

(CDFI) Fund announced on5/14/09 the receipt of 249 appli-cations in its 2009 funding roundfor federal new markets taxcredits.

The applicants have request-ed a total $22,496,767,000 inNMTC allocation authority in theprogram’s seventh round, whichhad an application deadline of4/8/09. The amount available foraward is $5 billion. The CDFIFund expects to announce theallocation awards in October2009.n

New Markets Tax Credit

Florida Lawmakers Pass LegislationTo Create State New Markets CreditFLORIDA’S LEGISLATURE RECENTLY approved and sent to the governorfor his signature a bill (HB 485) to create a state new markets tax credit(NMTC). The Florida credit would be patterned after and have similarrequirements to the federal new markets tax credit.

Louisiana, Mississippi, and Illinois are among the states that already have astate new markets credit.

The Florida credit would be available under a new state New MarketsDevelopment Program.

The credit could be used to reduce Florida corporate income or insurancepremium taxes, and would be equal in amount to 39% of a taxpayer’s qualifiedinvestment in an eligible business in a low-income community. The creditswould be claimed over eight years, though none could be claimed in the firsttwo years. New markets tax credits would total 78% of a taxpayer’s investmentin a business that receives both federal and state new markets tax credits.

The legislation, which would take effect on 7/1/09, would authorize up to$97.5 million in state new markets credits through 12/31/22, with a cap of $20million in any single state fiscal year. There would also be a per-project creditcap of $10 million. Credits would be available on a first-come, first-servicebasis to sponsors that qualify as Community Development Entities under thefederal NMTC program.

The program would be administered by the state Office of Tourism, Trade,and Economic Development, in conjunction with Enterprise Florida, Inc. Thepair would be charged with designating the specific types of industries that areeligible to receive low-income housing community investments qualifying forthe state new markets tax credit. According to the legislation, designated indus-tries “must be those industries that have the greatest potential to create strongpositive impacts on or benefits to the state, regional, and local economies.”

Investments would have to be in low-income communities in Florida. Thelegislation defines a low-income community as any census tract with: (1) apoverty rate of 20% or more; or, (2)(a) a median family income not exceedingthe greater of the metropolitan area median income or the statewide medianfamily income (if the census tract is in a metropolitan area), or (b) a medianfamily income not exceeding 80% of the statewide median family income (ifthe tract is in a non-metro area). n

NH&RA UrgesCritical Fix to NewMarkets Program

The National Housing &

Rehabilitation Association (NH&RA)

has urged Congress to make a critical

fix to the federal new markets tax cred-

it (NMTC) program.

In a recent letter to Senate Finance

Committee Chairman Max Baucus

(D-MT) and Ranking Member

Charles Grassley (R-IA), NH&RA

asked for clarification to permit the use

of the NMTC program’s “integrated

unit test” on projects that consist of

multiple buildings.

Currently, real estate projects must

derive no more than 80% of their

income from residential rental property

to qualify for the NMTC. NH&RA’s

letter urges Congress to clarify that for

projects involving multiple buildings,

that this income test can be applied

project-wide instead of on a building-

by-building basis, as is now required.

The group said this clarification will

help facilitate development of critical

mixed-use projects and services in low-

income communities at a time when

conventional real estate financing is

harder to obtain.n

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Washington and State Update

HUD Solicits Suggestions on FHA Procedures and LIHTCThe U.S. Department of Housing and Urban Development (HUD) is

soliciting public comments and recommendations by 6/29/09 on how it canexpedite approvals of applications for FHA multifamily mortgage insurance forlow-income housing tax credit projects. The HUD notice requests suggestionsfor changes to current administrative requirements and procedures. The noticereflects HUD’s attempt to implement 2008 LIHTC-related statutory changes.

(http://edocket.access.gpo.gov/2009/E9-9677.htm)

Applications Solicited in Rural Housing ProgramsThe USDA Rural Housing Service is soliciting applications under two

programs. In one notice, RHS solicits new applications by 6/29/09 for Section515 rural rental housing loans, including under different funding set-asides andfor states with rental assistance programs (http://edocket.access.gpo.gov/2009/E9-9742.htm). A second notice solicits pre-applications by 6/29/09 fromproject owners to participate in RHS’ Multi-Family Housing RevitalizationDemonstration Program. This is open to owners with existing Section 515loans or Section 514 or 516 off-farm labor housing loans and grants, and offersgrants and loans designed to revitalize existing projects by restructuring theirfinancing (http://edocket.access.gpo.gov/2009/E9-9831.htm).

Updated NMTC Compliance Guide IssuedThe Community Development Financial Institutions Fund has released a

new document that poses and answers frequently asked compliance-relatedquestions about the federal new markets tax credit program. Entitled,Compliance and Monitoring Frequently Asked Questions, it updates an older document and contains new information and guidance. The new document isposted at http://www.cdfifund.gov.

HUD Releases New Report on LIHTC DatabaseHUD has released a new, updated report that analyzes the Department’s

national database of low-income housing tax credit projects placed in servicesince 1987. The new report reflects the addition of data for projects placed inservice in 2006, and discusses trends in project size, income targeting levels, etc.

(http://www.huduser.org/Datasets/lihtc/report9506.pdf ) n

State BriefsOhio Offers New Funding Resource

The Ohio Housing FinanceAgency has begun a new program tosupport affordable housing initiativesnot eligible for funding under stan-dard OHFA programs. The newHousing Investment Fund offersloans and grants to developers andothers for: pre-development, con-struction, and/or permanent financ-ing for development of rental or for-sale housing; acquisition of property;capital improvements to existingOHFA-financed projects; and otheruses. Two funding rounds will beheld yearly. The second in 2009 willbe later this year.

(http://www.ohiohome.org/housinginvestmentfund.aspx)

Philadelphia Gets OK to SellProperties

The Philadelphia HousingAuthority (PHA) says it’s receivedapproval from the U.S. Departmentof Housing and Urban Developmentto sell nearly 1,800 vacant houses andlots that it owns. PHA ExecutiveDirector Carl Greene indicated thatPHA will list available properties andstart accepting bids after HUD com-pletes certain necessary preparations.

(http://www.pha.phila.gov/press/index.asp?id=167) n

C A P I TA L B R I E F S

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and is already 80% occupied. Theproject is in Laurel, MD, within anew master planned community insuburban Howard County, betweenBaltimore and Washington, DC.

Park View at Emerson is justone of the properties developed byShelter under its “Park View” brand– independent living senior commu-nities that combine affordable rentswith custom tailored services.

Need for Senior HousingMaria Miller, Senior Develop-

ment Director at Baltimore-basedShelter Development, says ParkView at Emerson addresses a sig-nificant need in Howard County,affordable apartments for seniors.The county has an average house-hold income of $101,000, an excel-lent school system, and other posi-tive attributes. Developments likePark View at Emerson enable long-term local residents to be able toafford to remain in the countywhen they get older.

Park View at Emerson, a four-story building, contains 58 one-bedroom and 22 two-bedroomapartments, all housing credit units,restricted to seniors 62 and older oflow-income and extremely low-income. Nine units are reserved fortenants at or below 30% of the areamedian income (AMI); 24 units,40% of AMI; 14 units, 50% ofAMI; and 33 units, 60% of AMI.

Monthly rents vary by size ofunit and income bracket but rangefrom a low of $365 for a one-bed-room unit to a high of $930 for atwo-bedroom unit.

Amenities include a fitnesscenter, library, community room,

tion ahead of schedule in lateDecember 2008, and began leasingunits in January 2009.

Market Turmoil, FinancingShelter closed on all the

financing for the project in May2008, after having to adjust theoriginal financing plan because ofthe upheaval that began in the taxcredit equity market – a decliningsupply of equity from investors anda sharp fall in credit prices beingpaid to developers.

Miller noted the steadfast sup-port of Shelter’s partners – taxcredit syndicator Boston Capital,the county, and state – resulted in arevised structure that maintained theviability of Park View at Emersonand enabled it to move ahead.

The largest single source offunding for the $12.6 million proj-ect was equity provided by BostonCapital, which syndicated the 9%housing credits. Miller said despitethe shift in the market, BostonCapital held to its original commit-ment and paid 88.5 cents per credit

business center with computers,billiards room, putting green, beautysalon, walking paths, and a “well-ness center” where visiting doctorsand health professionals can pro-vide health services to residents.

Miller said Shelter Developmentfirst got the idea for the projectwhen it heard that The RouseCompany, a renowned Baltimoredeveloper that Shelter had workedwith previously, was going to leadthe effort to develop Emerson, anew 570-acre master planned com-munity. Rouse developed one ofthe first planned communities inthe country, in nearby Columbia.

General Growth Propertiesacquired The Rouse Company toreplace Rouse as the master devel-oper of the Emerson masterplanned community. Emerson has200 acres of dedicated open spaceand will eventually contain 1,200residential units, three office parks,a village center, community ameni-ties, and walking paths.

Shelter bought the parcel ofland for Park View at Emerson for$1.2 million, completed construc-

Emerson,continued from page 1

Emerson,continued on page 28

Park View at Emerson, Laurel, Maryland

Pho

to c

ourt

esy

of H

arki

ns B

uild

ers


Emerson,continued from page 27

dollar for the housing credits.Other funding sources include a

soft second mortgage from theMaryland Department of Housingand Community Development (40years, 4%), a first mortgage (40years, 8.18%) insured by the FederalHousing Administration under theSection 231 mortgage insuranceprogram of the U.S. Department ofHousing and Urban Development(HUD), and a deferred developerfee from Shelter. The HUD Section231 program provides constructionand permanent financing for devel-opment of rental housing projectsfor seniors.

To free up sources, the HowardCounty Housing Commission used$1.2 million in federal CommunityDevelopment Block Grants to buythe land beneath the project fromShelter, in exchange for a 51%interest in the general partner ofthe partnership that owns theimprovements. This enabled Shelterto recoup its $1.2 million outlay toacquire the land and redirect thesedollars to other project expendi-tures. The county then provided a99-year ground lease of the land ata favorable rent. The lease gives thecounty the first right to buy theimprovements after 15 years.

The county also made a one-time contribution of $190,000 thatwill be used to provide shallow rentsubsidies to select tenants ofextreme need.

To make the project pencil out,Miller said Shelter deferred more ofits developer fee, the county con-tributed an additional $500,000 inCDBG funds, and the stateincreased its funding.

The property also has a 40-yearPILOT agreement with the countythat will substantially reduce theproperty’s annual tax payments tothe county.

“We really did work in partner-ship with Shelter on this transac-tion,” said Stacy Spann, Director ofthe Howard County Department ofHousing and Community Develop-ment, and Executive Director of the Howard County HousingCommission. He described ParkView at Emerson as “spectacular,”and said the quick pace of lease-upattests to the property’s appeal and tothe strong need in Howard Countyfor affordable apartments for seniors.

Miller said the project has a 40-year affordability period, due toan election made by Shelter to com-pete for the 9% housing credits.

A portion of the project’s unitsmust remain affordable in perpetu-

ity to tenants at or below 60% ofthe county median income. Thiswas required by the county’sModerate-Income Housing UnitProgram, which mandates afford-ability of 10% or 15% of the unitsin new apartment projects.

Laura Surdel, of BostonCapital, said Park View at Emersonwas the first project by Shelter thatBoston Capital has funded withequity. She explained that BostonCapital was attracted to the dealbecause it wanted to begin a rela-tionship with the “premier” devel-oper. In addition, she said HowardCounty is an attractive location forsome “CRA” tax credit investors.

“What we try to do is to origi-nate and tie up and invest in qualityreal estate with quality developers,”said Jeffrey Goldstein, of BostonCapital. “Clearly this was one dealthat fit all those parameters.” n

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Park View at Emerson – Source and Uses Summary

PERMANENT SOURCES

FHA Insured 1st Mortgage (Section 231) $2,138,800Elderly Rental Housing Funds (DHCD) $1,592,000County Funds - CDBG Ground Lease $1,200,000Rental Subsidy Account $190,0009% LIHTC Equity $7,267,460Developer Equity $302,482Total Sources $12,690,742

USES

Land $1,200,000Construction $7,809,561Architect/Engineering $393,695Legal $109,550Financing Fees $248,586Studies/Due Diligence $159,349Fees/Permits $392,000Soft Costs $2,378,001Total Uses $12,690,742

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– actually two – right from scratch.And these new programs imposetight time frames.

“We’re right back in 1987,”said Washington, DC attorneyAnthony Freedman, a partner inHolland & Knight LLP, referringto the first year of the LIHTCprogram.

The two new programsauthorized by the AmericanRecovery and Reinvestment Act(ARRA) are the Tax CreditAssistance Program (TCAP) andthe credit exchange (“Section1602”) program.

ARRA allocates $2.25 billionfor the TCAP program to 52 stateHCAs to make competitive awards

of financial assistance to projectswith LIHTC awards (9% or 4%)received during the three-year peri-od ending 9/30/09.

Under the exchange program,56 state HCAs can turn in unusedhousing credits to the U.S.Treasury for cash grants, to make“sub-awards” of funds to stallednew construction or acquisition/rehabilitation projects – with orwithout a credit award – that havea funding gap. States can exchangeup to 100% of their 2009 per capitaand national pool credits, and up to100% of unused 2008 housing cred-its and of credits returned in 2009.

On May 4, initial written guid-ance, requirements, and forms wereissued by HUD for the TCAP pro-gram and by Treasury for creditexchange. On May 6, both agencies

took part in an explanatoryWebcast where new details cameout. The officials also announcedemail addresses where people cansend in questions about the twoprograms ([email protected];[email protected]), andsaid their agencies will be postingthe answers on their Web sites.These would be in addition toQ&As posted by HUD on May 4.(A special report on the new guidance,distributed on May 6 to Tax CreditAdvisor subscribers, is posted athttp://www.housingonline.com/Documents/TCA Issues/guidance.pdf )

Freedman described the initialHUD and Treasury guidance as“good, intelligent, and flexible.”

State HCAs must apply toHUD by 6/3/09 to participate inthe TCAP program and accesstheir allocated funds. Virtually allare expected to participate. Thestate participation rate for theexchange program is unclear. StateHCAs can apply anytime toTreasury to participate, and havethrough 2010 to submit one or

Credit,continued from page 1

Resources

Links to State Notices, Planshttp://www.novoco.com/low_income_housing/news/hot_topics/recovery.php#state

HUD TCAP Web Pagehttp://www.hud.gov/recovery/tax-credit.cfm

Archive of HUD Webcastshttp://www.hud.gov/webcasts/archives

Treasury Credit Exchange Web Pagehttp://www.treas.gov/recovery/LIH-grants.shtml

more requests to exchange credits.

States’ ImplementationState HCAs are at different

stages in their implementation ofthe two programs.

Freedman, outside counsel tosome HCAs, said, “Some of themare inviting applications. But mostof them are putting together theapplication to Treasury under theTreasury guidance, and the plan forHUD under the TCAP notice.”Before submitting their TCAPapplication, HCAs must hold afive-day public comment period ontheir proposed competitive projectselection criteria for TCAP awards.

The Ohio Housing FinanceAgency (OHFA) submitted sepa-rate applications to HUD forTCAP and to Treasury for creditexchange within days after the ini-tial federal guidance. OHFAHousing Credit AllocationManager Kevin Clark, interviewedon 5/20/09, said his agencyreceived HUD verbal approval inabout a week, and is awaitingTreasury’s response. “Right now ourplan is to exchange 10 percent ofour 2009 allocation,” says Clark,“That’ll give us about $21 millionof [credit exchange] cash grants touse to start off with. And then, aswe go further into the year, we maydecide to exchange more.”

He noted, “hopefully we canstart taking applications [for theARRA funds] at the beginning ofJune, and then hopefully by the endof June we’ll be able to have ourfirst awards.”

Garth Rieman, of the NationalCouncil of State Housing

Agencies, anticipated some stateswill begin awarding the ARRAfunds to projects early this summer.“I think many of the states willhave TCAP funds and exchangefunds under their control in June,”he noted. Rieman indicated somestates may take longer than othersto start making awards because ofextra time needed to determinewhich projects to assist, or becausetheir selection/ approval process islengthier. He said many states noware “getting their proposed [imple-mentation] plans out for publiccomment.”

Clark said OHFA will likelyaward TCAP funds to projects aslow-interest loans, and will awardexchange funds as grants. Headded, “We’re open to mixingthem, if need be.”

OHFA has finalized its imple-mentation plan on how it will useTCAP and credit exchange funds,and has held its public commentperiod.

Clark said the plan’s first prior-ity for awards is 9% deals with2007 and 2008 housing creditreservations that haven’t yet closedon tax credit equity with a syndica-tor or investor.

He said OHFA has 48 of theseprojects. Clark said OHFA isdetermining, one-by-one, exactlywhere each project is in the devel-opment process. This includeswhether or not the sponsor has firmcommitments for equity and forconstruction or permanent financ-ing, and a completed appraisal andsurveys. “Those that are the fur-



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Like a symphony, successful affordable housing deals require precise timing, theright players, and an accomplished leader who can bring everything together.

Reznick Group has the resources to get even the most complex deals completedquickly and successfully. We approach each transaction balancing the economic andtax considerations, and with full understanding of the equity community’s needswhen structuring the deal.

For more information, call your local Reznick Group office or visit us online atwww.reznickgroup.com.

LET US ORCHESTRATEYOUR NEXT DEAL

Reznick Conductor_1/4_TaxCreditAdvisor.08:7.31.08 9/22/08 5:30 PM Page 1Credit,

continued on page 31



thest along are the ones we’ll lookat first for the TCAP and creditexchange [dollars], to get thosegoing,” said Clark.

He said OHFA has fieldedexpressions of interest for ARRAfunds from sponsors of a few 4%bond deals – another plan priority.

Clark said OHFA by 7/2/09will select projects for 2009 LIHTCcredits in its current fundinground. He expected TCAP fundswill be the source of funds forawards to 2009 deals that have gaps.

Clark said OHFA wants to setaside some credit exchange fundsfor awards to projects that haveawards both of credits and statehousing trust fund dollars. Heexplained that these projects,

because of the trust funds, havealready gone through a state envi-ronmental review, so OHFA wantsto avoid putting them through asecond, federal environmentalreview – a requirement for TCAPbut not credit exchange funds.

Clark said OHFA will be contracting out the asset manage-ment functions mandated byARRA for both programs, andalready has consultants workingwith in-house staff to craft themore intensive underwriting thatwill be used in reviewing projectsseeking assistance.

Surprises, New InformationThe initial federal guidance for

TCAP and credit exchange con-tained surprises for some LIHTCindustry participants. These includ-ed that:


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n Exchange program funds can’t be provided as loans – onlygrants. State HCAs, on theother hand, can award TCAPfunds as grants or loans.

n Exchange program funds can’t be “disbursed” after 12/31/10by HCAs to projects to pay forexpended eligible costs. Somehad believed 12/31/10 wouldbe the deadline just for com-mitting funds to a project.

Washington, DC attorney Richard Goldstein, a partner inNixon Peabody LLP, said one pieceof “good news” was clarificationthat federal cross-cutting require-ments like Davis-Bacon andmandatory federal environmentalreviews won’t apply to the credit

Monthly LIHTC,

AFR Rates

Go to:http://www.

housingonline.com.


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exchange program. These do applyto TCAP.

New information and clarifica-tions include that:

n Projects must have at least a “nominal” amount of housingcredits in them to be eligiblefor TCAP funds. Projects aren’teligible if they had credits butreturned them. HUD hasn’tdefined nominal, but rather isleaving this up to states.

n TCAP funds can be provided to projects that receive advanceawards of 2010 credits by9/30/09.

n ARRA’s “Buy America”provisions don’t apply toTCAP or credit exchange.

The IRS is expected to issue,possibly in June, additional guid-ance to clarify some of the rules forthe credit exchange program. TheService is said to be mullingrequests for formal guidance toexplicitly state that an award ofcredit exchange funds won’t reducea project’s eligible or depreciablebasis, and that a grant of credit

ate state taxable income for recipi-ents in some states. He cited a riskin states that don’t use federaladjusted gross income as the start-ing point for determining stateincome tax liability.

Goldstein pointed out thatTCAP funds can’t be used to pur-chase land, a normal starting pointin an LIHTC project, since theguidance limits the use of thesedollars to costs includible in eligi-ble basis. n

exchange funds won’t create taxableincome for the recipient for federalincome tax purposes. Another isguidance to states on how to reducetheir 2009 housing credit ceilingamount for credit exchanges.Another area of possible guidanceis about recapture.

Practitioners cited a couple ofissues. San Francisco CPA MichaelNovogradac, of Novogradac &Company LLP, said exchangefunds provided as grants could cre-