tax creditadvisor - nh&raservices.housingonline.com › nhra_images › tca february...

TaxCreditAdvisorP U B L I S H E D I N A S S O C I A T I O N W I T H T H E N A T I O N A L H O U S I N G & R E H A B I L I T A T I O N A S S O C I A T I O N

February 2012 | Volume XXIV No. 2

Tax Credit Equity Sources

PAGE 16

Sounding the Alarm for the Housing Credit

PAGE 6

Demystifying the Investor Watch List

PAGE 28

California’s Redevelopment Blues

PAGE 8

While We Wait

Ioften use this column to provide updates on the state of the low-income housing, his-toric rehab, and new markets tax credits. Previously, I have warned about the prospectsof comprehensive federal tax reform. This month’s issue of Tax Credit Advisor has a great update on the state

of tax reform (see page 6). Therefore, I’d like to talk about other housing policy developments that aren’t gettingas much press – but which could prove to be just as important to the long-term viability of affordable housing,community development, and historic preservation.

The seven-member presidentially appointed Federal Reserve Board, in conjunction with the Federal ReserveSystem, serves as the nation’s central bank, governing monetary policy, regulating banking institutions, maintain-ing the stability of the financial system, and providing liquidity to depository institutions.

The Fed has traditionally been an independent and non-political organization. As a result, it has generallyshied away from expressing opinions on housing policy, deferring to the Congress, HUD, and the TreasuryDepartment. However, this dynamic is changing and the effects could be significant.

If you have followed the recent financial news you would have noticed three notable and potentially game-changing actions by the Federal Reserve Board. First, Fed Chairman Ben Bernanke recently sent a letter toCongress urging it to take action in the housing sector as a means to prime the pump for the rest of our econo-my. Second, the Fed issued a detailed policy white paper that in its essence proposes converting REO homesinto rental properties. Third, the Fed recently indicated that it will begin to issue forecasts on its future plansregarding the level of short-term interest rates.

It’s too soon to tell how (or if) these new developments will shape the debate, but I think they are significantwild cards.

Next: Remember the political discourse from late 2008 and early 2009? Judging by the Congressional rhetoricat the time, it looked as though Fannie Mae and Freddie Mac held one-way tickets to oblivion. Today, the gov-ernment-sponsored enterprises (GSEs) continue in business, and Congress is no closer to a “solution” regardingtheir future. Reforming Fannie and Freddie is a complicated enterprise, and the deeper that the legislators diginto the weeds the more issues crop up.

It appears there is a growing consensus in Congress that the GSEs serve an important role in multifamilyfinance; I think this view bodes well for our industry. That said, the GSEs remain a political football. The GOPpresidential candidates and many in Congress continue to kick Fannie and Freddie around in the press and indebates, threatening to abolish them. Congressional Republicans have even put a hold on the nomination ofCarol Galante to be FHA Commissioner until President Obama releases a plan for the future of the GSEs. YetCongress raised GSE guarantee fees to help pay for the recent two-month extension of the payroll tax cuts andof jobless benefits.

Like tax reform, it seems increasingly unlikely that significant GSE reform will happen before the 2012 elec-tions. But lines are being drawn, and slowly but surely the issue will be debated. Unfortunately, the uncertainty asto the GSEs’ future – as well as their additional financial burdens – does have repercussions for our industry.Throw in a dash of the Fed’s medicine and we’ve got an interesting road ahead of us. I hope that the waiting (andnot after) is the hardest part.

THOM AMDUR: New Developments

Thom Amdur is Associate Publisher of the Tax Credit Advisor and Executive Director, National Housing & Rehabilitation Association.

Thom Amdur

The waiting is the hardest part Every day you see one more card You take it on faith, you take it to the heart The waiting is the hardest part

– Tom Petty, from the song, Waiting (Is the Hardest Part)

Table of Contents

February 2012 | Tax Credit Advisor 1

Tax Credit AdvisorFebruary 2012Vol. XXIV No. 2

Publisher: Peter Bell

Associate Publisher: Thom Amdur

Editor: Glenn Petherick202-939-1774 • [email protected]

Director of Communications & Marketing: Marty Bell

Advertising: Scott Oser301-279-0468 • [email protected]

Copyright 2012 by Dworbell, Inc.Photocopying or other reproduction of any partof this publication without the permission of the

publisher is prohibited.

Subscriptions are $329 per year. Special rates are available for community-based

nonprofit groups; call 202-939-1790.

Address correspondence to:Circulation

1400 16th Street, NW, Suite 420Washington, DC 20036

Tel 202-939-1790, Fax 202-265-4435www.housingonline.com

Editorial office at same address as above.

Editorial Advisory Board

Jerome BreedBryan Cave LLP

Will Cooper Jr.WNC & Associates, Inc.

Anthony FreedmanHolland & Knight LLP

Cash GillThe Gill Group

Richard GoldsteinNixon Peabody LLP

Debra KoehlerSage Partners, LLC

Bob LefenfeldReal Property Research Group, Inc.

John Leith-TetraultNational Trust Community Investment Corporation

Kenneth LoreBingham McCutchen LLP

Ginger McGuireLancaster Pollard

Lee PetersonReznick Group

Nancy RaseHomes for America, Inc.

David ReznickReznick Group

Mark ShelburneNorth Carolina Housing Finance Agency

Timothy SherrySVA

Ronne ThielenR4 Capital Inc.

Barbara ThompsonNational Council of State Housing Agencies

Armand TiberioTax Credit Group of Marcus & Millichap

Marianne VottaBank of America Merrill Lynch

Advertise Your Business!Tax Credit Advisor is now acceptingadvertising. For information or to placean order, contact Scott Oser, Directorof Advertising Sales, 301-279-0468,[email protected]

ISSUE THEME : Tax Credit Equity Sources

16 The LIHTC Market in 2012: A Rosy Path Ahead?

18 Corporate Tax Credit Fund Watch

22 No Major Changes Seen in 2012 to Historic Tax Credit Market

Low-Income Housing Tax Credit

2 Synergy in Practice: Developers Combine Three Section 515 Properties in Maryland into Single LIHTC Development

6 Battle Cry: Speakers Warn of Very Serious Threat to LIHTC Program

28 Your Investor’s Property Watch List: What It Means

Other

12 HUD Issues Sweeping Proposed Rule for HOME Program

Historic Rehabilitation

35 Can Direct Funds Replace Tax Credits? Michigan Launches New Program to Assist Historic Rehab, Brownfield Projects

New Markets Tax Credit

Columns

Inside front coverThom Amdur:New DevelopmentsWhile We Wait

24 David A. Smith:The guru is InDo I have your attention now?

32 Timothy R. Leonhard:The Debt CornerAffordable Multifamily Debt in 2011 and the Outlook for 2012

Departments

22 In Brief

26 NH&RA News

39 People in the News

40 State Roundup

41 Capital Briefs

Quite a Pickle:California Supreme Court Ruling Spells End to Redevelopment Funds for Housing

p.8

p.37

Building to Heal: Mixed-Use Project to Foster a ‘Re-Knit’ of Boston’s Jackson SquareNeighborhood

Ren

dering by ADD, Inc

.


2 Tax Credit Advisor | February 2012 www.housingonline.com

Rendering of Fox Ridge Manor ApartmentsRendering by Cho Ben Holback + Associates, Inc.Synergy in Practice

Developers Combine Three Section 515 Properties in Maryland into Single LIHTC Development

Sometimes the whole can be more valuable thanthe sum of the parts.

That’s the case in the small rural community ofElkton (pop. 14,800) in Eastern Maryland, where twocompanies are combining three existing USDA RuralDevelopment Section 515 properties into a single devel-opment and rehabilitating them using low-income hous-ing tax credits and other resources.

The developers of Homes at Elkton, both based inAnnapolis, Md., are nonprofit Homes for America, Inc.,the 60% managing general partner, and for-profit SevernDevelopment, the 40% GP.

Homes for America owned ChesapeakeApartments, a property of single-story cottage-stylerental units that it acquired in 2004 that serves seniors62 and over. Severn Company owns and manages theother two general occupancy properties, Fox RidgeManor Apartments I and II, consisting of eight separatebuildings. All three properties – located next to oneanother – were transferred to the new owner (a new

partnership) formed for the $12.8 million transaction,which closed December 8th.

“The plan is to renovate the existingunits,” says Kathy Ebner, developmentdirector at Homes for America. “There’s90 existing units: 32 one-bedroom unitsat Chesapeake and 58 one- and two-bedroom units at Foxridge.

“We’re going to renovate and completely updatethe existing units,” she continues. “We’ll install newkitchens and provide energy-efficiency measures such asnew HVAC, new windows, and new energy-efficientappliances. In addition, between the two parcels there’sa vacant piece of land. There we plan to construct eightnew [general occupancy] one-bedroom units in a two-story building and a separate community building.”

Wide Range of Tenant IncomesConstruction has begun and is expected to be com-

Elkton, continued on page 3

Kathy Ebner

www.housingonline.com February 2012 | Tax Credit Advisor 3

Elkton, continued on page 4


pleted around year-end. Once finished, Homes at Elkton,managed by Severn Management, will be a 100% LIHTCdevelopment with 45 apartments reserved for tenantsearning no more than 30% of the area median income(AMI); 4 units, 40% of AMI; 32 units, 50% of AMI; and 17units, 60% of AMI. At 60% of AMI, the current annualincome limit is around $34,000 for a one-person house-hold and nearly $49,000 for a four-person family.

Initial monthly rents will be $576 and $650, respec-tively, for the one- and two-bedroom units at the FoxRidge buildings, and $612 for the one-bedroom apart-ments at the Chesapeake dwellings. A variety of serviceswill be provided for residents.

Nancy Rase, president of Homes forAmerica, expects the current residentsto stay on during renovations, which willbe done with tenants in place. “It’s agood stable population at both proper-ties and we don’t expect turnover of anysignificant amount.”

She noted that one impetus for the project was thefact that the three properties were aging and in need ofsignificant improvements and renovations. “We had afew small grants to do minor rehab at Chesapeake,”Rase explains. “But it was getting to the point where itwas starting to need more substantial rehab...So westarted talking [to Severn], saying ‘Wouldn’t it make senseto combine all three of these projects under one owner-ship and one financing plan and get them renovated?’”

An added plus was that the two organizationsalready had a good working relationship. Not only hadthey joint ventured on one project previously, butSevern also manages a number of Homes for America’sother rental properties. In addition, Rase quips, “They’reright across the street from us. We can actually see eachother’s offices.”

Multiple Funding SourcesThe transaction is utilizing 12 different financing

sources, including:

• About $4.7 million in equity generated by the sale of low-income housing tax credits to Columbia,Md.-based syndicator Enterprise CommunityInvestment, Inc. (ECI);

• About $3.4 million from the assumption of the threeexisting Section 515 loans on the properties;

• A $3 million, 2% loan of federal HOME program funds from the Maryland Department of Housingand Community Development (DHCD);

• A state “BE SMART” loan from DHCD to help pay for energy efficiency improvements; and,

• An energy grant, various other assumed loans, and other sources.

The HOME dollars are providing constructionfinancing. Other than the Section 515 loans, there is nohard debt. Fifty-three units will continue to receive RDrental assistance.

The Section 515 loans were re-set to a term of 30years and have an effective interest rate of 1%.

Maryland DHCD allocated 9% housing tax creditsfor the project, in the amount of $529,529, whileEnterprise committed in March 2011 to buy the creditsfor 89 cents per credit dollar.

Enterprise was attracted to the project for severalreasons, says ECI Vice President for Syndication Stephen

Source and Uses Summary

SOURCES

LIHTC Equity (Enterprise Community Investment, Inc.)....$4,712,808Section 515 Assumed Loans............................................$3,437,380HOME Loan (Maryland DHCD).........................................$3,000,000BE SMART Loan (Maryland DHCD) .....................................$306,776Deferred Fee........................................................................$275,082Fed. Home Loan Bank Assumed Loan..............................$250,000HOME Assumed Loan ........................................................$245,000Interim Income.....................................................................$209,241Existing Reserve for Replacement Escrows ......................$186,447Md. Affordable Housing Trust Assumed Loan .................$100,000Md. Affordable Housing Trust Assumed Loan ...................$65,000HFA Energy Grant ...................................................................$7,800Total Sources.......................................................$12,795,535

USES

Acquisition Costs..............................................................$4,452,256Construction and Rehabilitation Costs...........................$5,483,078Construction and Rehabilitation Fees ...............................$685,708Syndication Related Costs ....................................................$41,181Guarantees and Reserves ...................................................$640,800Financing Fees and Other Charges................................$1,492,512Total Development Cost .....................................$12,795,535

Elkton, continued from page 2

Nancy Rase

Smith. “It’s a great development team; we’ve closed 17 proj-ects with Homes for America,” he notes. Additionally, Smithsaid the properties are “great real estate” and cited “theopportunity to preserve this property as affordable housingfor many years to come.”

Smith indicated that there is a need for affordable hous-ing in Elkton and Cecil County, which are seeing populationgrowth as a result of the federal military base realignment –or BRAC – program. “And the demographics of the county(Cecil) are showing growth,” he adds.

RD Approvals, Fair Housing IssuePivotal to the deal was obtaining various approvals from

Rural Development. Ebner and Rase said the staff in the RDoffice for Maryland and Delaware, in Dover, were great towork with and helpful in facilitating the approvals. Theseincluded approving the new partnership, the transfer of theSection 515 properties to the new owner, the assumption ofthe Section 515 loans, and the other financing sources.

“Our experience working with the Delaware office hasbeen very good,” says Rase. “The staff are very responsive.They try to be really helpful within the constraints of all themany rules and requirements that they have.”

Another challenge was figuring out how to assure compli-ance with the federal Fair Housing Act after combining thethree properties, since the Chesapeake Apartments unitswould continue to be restricted to seniors while the Fox Ridge apartments would continue as general occupancy.

The sponsors obtained guidance from HUD on the FairHousing issue regarding the way the property was to be operated. In addition, Ebner notes, “We provided assuranceto the state of Maryland [DHCD] on the ways in which wewould be operating the properties separately. We will haveseparate lease agreements, separate applications, separatetenant selection policies, and separate waitlists, for family versus elderly units.”

There will also be separate entrances and signage for thesenior and the family properties. “After rehab,” says Rase, “itwill look like two separate projects: the one-story cottagestyle units for seniors, and the two-story walkups for families.”

Rase says combining and renovating multiple proximateexisting RD Section 515 properties under one new ownershipwith one financing plan – Homes at Elkton is the nonprofit’ssecond project of this type – is an “effective model...Weintend to do more of this.”



Elkton, continued from page 3

TCA

Consolidating Multiple RD Properties

Combining multiple existing Rural Development(RD) Section 515 properties for a single new acquisition/rehabilitation project isquite viable. But RD offices vary intheir willingness to approve them,says Carl Wagner, a Columbus,Ohio-based executive with mort-gage lender Lancaster Pollardwho once worked at the FarmersHome Administration, RD’s prede-cessor agency.

Lancaster Pollard, an approved RD, Fannie Mae,and FHA lender, has originated new loans in a num-ber of these consolidation transactions, says Wagner.Typically what happens is that the existing RDSection 515 properties – with one or different owners– are transferred or sold to a new owner (i.e. partner-ship) and are renovated and recapitalized. TheSection 515 loans are assumed and new financing isobtained – such as low-income housing tax creditequity, an additional loan from RD (Section 538 or515) or other sources, and gap funds.

Wagner said the benefits in such transactionsinclude that the Section 515 loans can be restruc-tured, to, for example, lower the rate and extend theterm. Plus, any interest credits on the loans are trans-ferred, and existing RD rent subsidies on the proper-ties are continued.

RD must approve the owner as well as otheraspects, including the transfer of the properties tothe new owner, the assumption of the Section 515loans, putting the Section 515 loans in a subordinateposition, and the new financing.

While RD’s National Office must ultimately signoff on transactions, the call in providing approvals islargely up to the individual RD district and/or stateoffices in whose jurisdiction the properties are locat-ed. Although national policy is to favor consolidationtransactions, RD district and state offices differ inhow amenable they are to them, their requirements,and their experience level with such deals, Wagnerindicated.

He noted that the physically closer the Section515 properties are to one another the better theodds for RD approval – and for property manage-ment viability. Combining properties in the jurisdic-tions of more than one RD office can be problematicfor turf reasons, if one office is reluctant to surrender a project from its case load.

Another key factor is the level of experience (orlack of) by the particular RD office in processing con-solidation transactions. Wagner says some of the RDstate offices that have done quite a few are theseare in Indiana, Iowa, Kansas, Michigan, and Ohio. TCA

Carl Wagner

At Stratford Capital Group we understand that multifamily rental housing, and in particular, affordable housing represents an entirely unique real estate sector. Andnow as new faces, players and more capital enter the marketplace; it is critical that you work with a partner that is not just a real estate company, but a multifamilyinvestment specialist. Our proven record of success spans over 15 years and is built around a disciplined, rigorous approach towards targeting and acquiring multifamilyproperties, as well as comprehensive due diligence on the markets and their long term potential.

To learn more about our successful experience and how we can be your trustedpartner, visit www.stratfordcapitalgroup.com.

Successful Experience. Trusted Partner.

Investment with Integrity

MASSACHUSETTS: 100 Corporate Place, Suite 404, Peabody, MA 01960 / Phone: 978.535.5600 / Fax: 978.535.1141VIRGINIA: 8300 Greensboro Drive, Suite 800, Mclean, VA 22102 / Phone: 703.918.4888 / Fax: 703.918.4841stratfordcapitalgroup.com



est top 10 federal tax expenditures benefiting corporatetaxpayers, the LIHTC program usually ranked No. 6 or 7.

Rozen and Washington, D.C. attorney RichardGoldstein, a partner at Nixon Peabody LLP and counselto the Affordable Housing Tax Credit Coalition, stressedthat all LIHTC program participants and supportersneed to aggressively lobby members of Congress nowto maintain the support of current allies and to win overadditional lawmakers. “Everybody has to work evenharder in the management of this program and in the

selling of this program to elected officials,”Rozen said.

Speakers also warned of a likelihood ofmore negative press articles during 2012focusing on specific LIHTC projects withhigh per-unit development costs, whichcould undermine support for the programin Congress. They said program supportersneed to be prepared with a solid responseregarding costs.

Extension of 9% FloorIn another area, Rozen indicated that

it’s unclear whether Congress this year will approve anextension of the current minimum 9% credit rate for the 70% present value housing credit. If not extended,projects placed in service after December 30, 2013 will instead have to use the prevailing variable creditpercentage, which by comparison was 7.44% in January2012.

Bills introduced in the House and Senate wouldextend the minimum 9% rate permanently, as well ascreate a minimum rate of 4% for the 30% present valuehousing credit for acquisition costs for non-bond proj-ects (i.e. allocated credits).

The first likely test, and possible early indicator ofCongressional support for the LIHTC program, couldcome shortly.

Congress is expected to try to craft and pass anadditional, long-term extension of the payroll tax cutand of unemployment benefits; a two-month extension

The low-income housing tax credit program is verymuch at risk today as Congress moves towardpossibly writing tax reform legislation, warned

speakers contemplating the legislative outlook for theLIHTC program in 2012 and beyond on January 11 at aWashington, D.C. conference sponsored by the NationalCouncil of State Housing Agencies.

“This program, which has been around for 25 years,faces the greatest risk to its continued existence. And thatrisk is for tax reform,” warned Washington, D.C. attorneyRobert Rozen of Washington Council Ernst &Young, who helped write the LIHTC programstatute as a Congressional staffer.

Rozen said that tax reform “is not goingto happen in 2012. And it may not happen in2013. But there’s a very serious study goingon right now and efforts toward enacting taxreform.”

Naturally, much will depend on whichpolitical party wins control of the House,Senate, and White House in the fall 2012elections. That said, industry officials arenervous about what might happen to theLIHTC program, given all the talk and Congressionalhearings on tax reform and the deficit-reduction mindsetin 2011, and despite the historically broad bipartisan support for the housing credit.

Continued Tax Reform HearingsRozen expected Congressional hearings on tax

reform to continue in 2012. And speakers suggestedthat virtually all current federal tax expenditures –including federal tax credits like the housing credit – willbe scrutinized for their cost and efficiency. Given thatmany lawmakers want to sharply cut current federalincome tax rates, especially for corporations, many cur-rent federal tax expenditures would have to be repealedor cut back to achieve this goal.

During 2011, there were multiple studies andreports outlining various options for curtailing federalspending and federal tax expenditures to reduce thefederal deficit. Rozen said that on the lists of the costli-

Battle CrySpeakers Warn of Very Serious Threat to LIHTC Program

Legislative, continued on page 7

‘This program, which

has been around for

25 years, faces the

greatest risk to its

continued existence.

And that risk is for

tax reform.’

– Robert Rozen



enacted in late December expires February 29.In December, some lawmakers had put together an

“extenders” package that they wished to attach to thepayroll/unemployment extension bill, consisting of cur-rent federal tax incentives that expired at year-end 2011(e.g., tax credits, deductions). Rozen said a Democraticextenders package included a provision to extend theminimum 9% credit.

He warned, however, that this provision could bedropped if lawmakers decide just to allow the attachment,to the long-term payroll cut/unemployment benefitsextension bill, of extensions of tax breaks that expired at

year-end 2011. He suggested that the best case out-come under such a scenario might be simply a one-yearextension of the minimum 9% rate.

Other VehiclesBeyond the payroll tax cut/unemployment benefits

extension bill, it’s unclear what other tax bills, or “vehi-cles,” might be acted on by Congress later this year towhich the minimum 9% and 4% credit rate provisionsmight be attached. A possibility is tax legislation toextend some or all of the Bush tax cuts that expire atyear-end 2012.

In the interim, advocates of the federal new markets tax credit are lobbying Congress to extend theNMTC program. The authority for the NMTC programran out on December 31st, though the CommunityDevelopment Financial Institutions Fund will soon beannouncing $3.5 billion in new allocation awards, whichshould assure a good supply of new markets credits in 2012.

Legislative, continued from page 6EXPERTISE.

COMMITMENT. RESULTS.

First Sterling’s track record of success spans over 30 years, 650 properties and 45 states. We thank our developer, agency and investor partners for the opportunity to build this foundation together.

Contact us today about our equity, debt, syndication and asset management services. 516-869-7400 firststerling.com

Lasting partnerships, like buildings, begin with a strong foundation.

IMMOCPXE

TNEMT. ESITRE

TCA

Online Advocacy Resource

As a service to the industry, the National Housing &

Rehabilitation Association has put together an advocacy library

on its Web site, at http://www.housingonline.com/advocacy.aspx.

It provides a one-stop-shop for affordable housing professionals

interested in advocating to elected officials to support key

affordable housing and tax credit programs. The online library

contains a variety of documents, reports, templates, and best

practices that should be helpful in this effort. TCA

Tax Credit Advisor


had been introduced, including one to preserve RDAs’ unencumbered redevelopment funds for housing.

“The ruling has a huge impact throughout the stateof California on a variety of levels,” says Laura Archuleta,president of Jamboree Housing Corporation, a nonprofitheadquartered in Irvine that has developed more than6,000 units of affordable housing throughout the state –over 95% rental.

“On the housing front it’s huge,” she noted. “Nextto the federal government, the [RDAs’] housing set-aside funds are the next largest source of affordablehousing finance here in California.”

The RDAs had received tax increment funds, whichKennedy said in the aggregate averaged about $5.4 bil-lion a year. Of this, each RDA was required to use atleast 20% of its annual redevelopment funds to helpfinance low- and moderate-income housing. The statelegislation ended this stream of tax-increment funds toRDAs and the housing set-aside.

Archuleta said that redevelopment funds have beena crucial subsidy in many of Jamboree’s projects, whichinclude numerous low-income housing tax credit (LIHTC)developments. Of Jamboree projects assisted with redevelopment funds, these funds have averaged about $25,000 per unit, she noted.

Geoffrey Brown, president of USA Properties Fund, Inc., a for-profit affordable housing and LIHTC

The California Supreme Court has issued a rulingbacking state legislation abolishing local redevel-opment agencies and ending a dedicated funding

stream used for years to help finance affordable housing.The ruling prompted reactions of disappointment in

the redevelopment and affordable housing communitiesand has created confusion on many fronts.

Last summer, the California legislature passed andGovernor Jerry Brown signed two bills (AB 1x 26 and 27)terminating local redevelopment agencies (RDAs) butpermitting them to continue if the city or county govern-ment that created them made payments to a state fundbenefiting schools and special districts. The CaliforniaRedevelopment Association and California League ofCities sued to challenge the acts as unconstitutional,and the California Supreme Court held a hearing andreleased its decision on December 29th.

The Court held that the law to abolish the RDAs wasvalid but that the second bill’s alternative paymentmechanism was unconstitutional.

‘Worst Possible Outcome’“Effectively the decision, from our perspective, was

the worst possible outcome,” said Jim Kennedy, interimexecutive director of the California RedevelopmentAssociation. “Which was that the agencies could be dissolved and payment to the [state] program would not be permitted.”

Kennedy indicated that February 1st is the deadlinefor California’s 399 active RDAs to be dissolved. But hesaid that his association and the League of Cities wereworking to seek the passage of new legislation to (1)postpone the deadline to April 15th, and (2) to “create a new form of redevelopment or jobs and neighborhoodrenewal programs that would be sort of a successor toredevelopment in California.” He said the second part,to establish a “reformulated model,” would authorizestate funding for six types of activities, many of whichhave been funded by RDAs: affordable housing; job creation; transit-oriented development; remediation ofcontaminated property; military base conversion; andbasic infrastructure needs. As of press time, some bills

Quite a PickleCalifornia Supreme Court Ruling Spells End to

Redevelopment Funds for Housing

California, continued on page 10


17782 Sky Park Circle, Irvine, California 92614 | 714.662.5565 | wncinc.com

WNC INSTITUTIONAL CA FUND 9

$93,000,00012 Tax Credit Properties

All California9 Institutional Investors

FEBRUARY, 2011

WNC NEW MARKETS FUND 6

$8,300,000The Ford CenterMinneapolis, MN

New Markets Fund

NOVEMBER, 2011


$10,000,000Wellness Plaza

New Brunswick, NJNew Markets Fund

SEPTEMBER, 2011

WNC INSTITUTIONAL FUND 33/36


4 StatesSingle Investor Funds

DECEMBER, 2011

WNC RETAIL FUND


6 States391 Individual Investors

OCTOBER, 2011


$7,950,000Behavioral Healthcare Campus

Burien, WANew Markets Fund

DECEMBER, 2011

WNC INSTITUTIONAL FUND 34


11 States10 Institutional Investors

JUNE, 2011

MA STATE TAX CREDIT FUND


All Massachusetts7 Institutional Investors

JULY, 2011

INNOVATE, SUSTAIN, THRIVE

years

Investor Contact, Christine Cormier 949.236.8233Developer Contact, Darrick Metz 949.236.8237 New Markets Contact, David Shafer 949.236.8113

Thank You to Our Valued Partners in 2011alued Partners in 2011VThank Y

alued Partners in 2011ou to Ou Y You to Our

alued Partners in 2011ou to Our

alued Partners in 2011

10 Institutional Investorstesta11 S

edit Prax Cr18 T Tax Cr

$116,200,000WNC INSTITUTIONAL FUND 34

V


9 Institutional Investors10 Institutional Investors

ax Cr12 T

$93,000,000WNC INSTITUTIONAL CA FUND 9

tesopertiesedit Pr

$116,200,000WNC INSTITUTIONAL FUND 34

9 Institutional Investors


orniaAll Califopertiesedit Prax Cr

$93,000,000WNC INSTITUTIONAL CA FUND 9

undsSingle Investor Ftesta4 S

opertiesedit Prax Cr6 T Tax Cr

105,90071,$WNC INSTITUTIONAL FUND 33/36

JUNE, 2011

ets FNew MarkNew Brunswick, NJ

ellness PlazaW

$10,000,000KETS FUND 7WNC NEW MAR


FEBRUJUNE, 2011

und


ets FNew Brunswick, NJ

ellness Plaza

$10,000,000KETS FUND 7


, 2011YARFEBRU


ea saryy

391 Individual Investors

CEMBER, 2011DE

undsSingle Investor F

testa6 Sopertiesedit Prax Cr8 T

$20,000,000AIL FUNDETWNC R


SEPTEMBER, 2011

ets FNew Mark

All Massachusettsedit Prax Cr3 T

$50,061,000EDIT FUNDAX CRTE TAMA ST


SEPTEMBER, 2011

New MarkMinneapolis, MNThe For

$8,300,000WNC NEW MAR

undets F

All Massachusettsoperties

$50,061,000EDIT FUND

undets FNew MarkMinneapolis, MN

d CenterThe For

$8,300,000KETS FUND 6WNC NEW MAR

ea saryy

OBER, 2011

und

OCT

391 Individual Investors

ets FNew MarkABurien, W

e Campusvioral HealthcarBeha

,950,0007$KETS FUND 9WNC NEW MAR

, 2011YJUL

, 2011 NO

VEMBER, 2011NO

TE, SUSAVINNO

CEMBER, 2011DE

AIN, THRIVETTE, SUS

AIN, THRIVE

vine, Ircleark Cir2 Sky P8771

5562..6614714 | ornia 926alif, Cvine

omwncinc.c | 5556

vid ShaDaets Contact,New MarkDarrick MetzDeveloper Contact,

Christine CormierInvestor Contact,

949.236.8113erfvid Sha949.236.8237 Darrick Metz

949.236.8233Christine Cormier

projects in California going forward without the set-aside of redevelopment funds.

“California is going to be hit really hard with no softfunds,” said Santa Ana-based Ronne Thielen, with LIHTCsyndicator R4 Capital Inc. “And in the whole country,there has been cutback in HOME and CDBG funds, soit’s going to be harder to make these deals feasible.”

Several sources said the most vulnerable will betax-exempt bond-financed projects, which require largeramounts of gap financing than 9% credit projects.

When interviewed on January 11th, William Pavão,executive director of the California Tax Credit Allocation

Committee (CTCAC), didn’t anticipate thatCTCAC will propose any additionalchanges to its rules for its 2012 LIHTC pro-gram because of the Supreme Court ruling.CTCAC expected to finalize these rules onFebruary 1st and plans two applicationrounds in 2012.

Pavão noted that of the projectsreceiving housing credit awards fromCTCAC in 2011 that had commitments ofredevelopment funds, CTCAC will be seek-ing to determine which have commitments

that will be honored, enabling the projects to move for-ward, and which have commitments that may not be hon-ored. He noted CTCAC may give 2011 recipients someextra time to determine the status of their commitments.CTCAC made 9% credit awards to 107 projects in 2011.

“We’re not proposing [in California’s 2012 LIHTCprogram] to back off on our emphasis on other publicresources,” Pavão said. “But I recognize fewer resourcesare going to come in, and we’re probably going to endup doing fewer 9% deals in 2012 than we did in 2011.”

He indicated that in 2012 CTCAC will probably needto award more credits to many projects that no longerwill get redevelopment funds to close the funding gap.Pavão also anticipated many 2012 applicants won’t statea lower eligible basis than they are entitled to whenapplying for credits – a common practice in the past tomaximize points in the scoring – because of the fundinggap issue. He also indicated that approving a 30% basisboost for more projects isn’t really an option, since mostprojects awarded credits each year are in high-costareas and already eligible for the 30% basis boost.

(Supreme Court opinion:http://tinyurl.com/8a8wgyd)


Tax Credit Advisor

developer/owned based near Sacramento, also said anumber of his company’s affordable rental projects havereceived redevelopment funds.

Archuleta pointed out that the Court’s ruling and statelegislation will have a far broader and harmful impact inCalifornia than just for affordable housing. “To have awhole industry of redevelopment go away, it’s just goingto have a dramatic huge, huge impact on cities.Redevelopment financing was funding much more thanyour big box retailers or your auto malls or shopping centers and affordable housing. In ourblighted neighborhoods, it was fundingcrime prevention, crime control, codeenforcement – a whole list of things to makea difference in our very low, poverty-strickenneighborhoods.”

Beyond the potential longer-term impact,affordable housing industry participants weretrying to figure out the near-term effects aswell in the wake of the Court’s ruling.

“Right now everyone’s trying to take adeep breath and a long pause to try to understand what the impacts are,” says MichaelNovogradac, a CPA and managing partner of the SanFrancisco office of Novogradac & Company LLP, a nation-al accounting, consulting, and business advisory firm.

Archuleta was trying to find out for certain aboutwhether RDA redevelopment funding commitmentsreceived for a few pending LIHTC projects will ultimatelybe honored and the monies come through, a situationthat many developers in the state are experiencing andthat syndicators are monitoring. Brown had one suchproject. The pair noted they also have other currentprojects where the redevelopment funding is safe. Yeteven for safe deals, Brown said there is uncertainty forthe moment about which specific “successor” agencieswill be designated by cities and counties to take overthe duties once handled by their local redevelopmentagency, in order to execute the various documents andtake other actions needed for projects with valid fund-ing commitments to be able to move forward.

Funding Gap, LIHTC ProgramAffordable housing industry participants say it’s

unclear how funding gaps will be closed in new LIHTC

California, continued from page 8

Affordable housing

industry participants

say it’s unclear how

funding gaps will be

closed in new LIHTC

projects in California

going forward.

TCA


This advertisement is for informational purposes only. RBC Capital Markets is a registered trademark of Royal Bank of Canada. RBC Capital Markets is the global brand name for the capital markets business of Royal Bank of Canada and its affi liates, including RBC Capital Markets, LLC (member FINRA, NYSE and SIPC); RBC Dominion Securities Inc. (member IIROC and CIPF) and RBC Europe Limited (authorized and regulated by FSA). ® Registered trademark of Royal Bank of Canada. Used under license. © Copyright 2012. All rights reserved.

Contact us at 1.888.875.9223 | rbccm.com/tceg

Heritage at Johns Creek WalkJohns Creek, GA

A Leader in Affordable Housing.

RBC Capital Markets’ Tax Credit Equity Group provides local project expertise through a growing team of 80 professionals across 9 regional offi ces. In FY 2011, we raised $617 million of syndicated investments that will result in the construction or rehabilitation of more than 5,700 affordable homes across the nation. Put our affordable housing experience to work for you in 2012.

Take Confi dence in Our Approach

Stacie AltmannDirectorWest [email protected]

Brian FlanaganDirectorSoutheast Regionbrian.fl [email protected]

Dan KierceDirectorCentral [email protected]

Dave UrbanDirectorGulf Coast [email protected]

Craig WagnerManaging DirectorTax Credit [email protected]

RBC-TCEG National Footprint

Charlotte, NC

St. Petersburg, FL

New York, NYChicago, IL

Columbus, OH

Cleveland, OH

Denver, CO

Phoenix, AZ

Sacramento, CA

tions will be giving “increased scrutiny” to the peopleserved by HOME-assisted projects.

The proposed rule comes after several articles inThe Washington Post last year that were critical of theHOME program and focused on some incomplete proj-ects. The articles were followed by a Congressionaloversight hearing, and Congress last year sharply cutfunding for the HOME program for the federal fiscalyear (FY 2012) that began last October 1.

The rule’s proposed changes would affect many dif-ferent participants in the HOME program, including the“participating jurisdictions” (state and local govern-ments or their entities) that receive and award HOMEfunds as well as rental housing project developers, own-ers, and property managers.

The proposed rule would:

• Require participating jurisdictions (PJs) to adopt policies and procedures to improve their oversightof projects, develop a system for assessing the rela-tive risk of projects, and more closely monitor theirHOME-funded sub-recipients;

• Require PJs to assess a developer’s capacity and thelong-term viability of the project, before they com-mit HOME funds to a project;

• Require more frequent reporting by PJs to enable HUD to more closely track projects once they’reunder way; and,

• Set a higher performance bar by establishing specifictimeframes for taking appropriate corrective actionsagainst PJs that fail to complete what they started.

The rule would revise or clarify a number of the definitions used in the HOME program, including ofhousing, single-room occupancy housing, and annualincome for households. It would also tighten certainrequirements for rental housing projects assisted withHOME funds.

The proposed changes include provisions that would:

• Require HOME-assisted rental units to be occupied by an initial tenant within a defined time period

The U.S. Department of Housing and UrbanDevelopment has issued a proposed rule thatwould make numerous and sweeping changes to

the requirements for its HOME Investment Partnershipsprogram, which provides federal funds to create afford-able housing for low-income households.

The rule was published in the Federal Registeron December 16; the public comment deadline isFebruary 14.

Compliance expert A. J. Johnson, president of A. J.Johnson Consulting Services, Williamsburg, Va., sug-gested that the primary effect of the proposed HOMErule for affordable rental housing developers and ownerswill be “increased oversight from the participating juris-dictions. They’re going to be looking a bit more closelyat [project] timing issues. If a developer has HOMEfunds relating to the construction of a project, it will becritical for him to meet any deadlines and time framesthat the agency has put on him to complete those.”

In addition, he anticipated that participating jurisdic-

HUD Issues Sweeping Proposed Rule for HOME Program


Tax Credit Advisor

Home, continued on page 14

The HubBoston Financial’s newly released Investor Portal -

transforming the industry.

Takinginvestment

managementto a

new level.

• Permit HOME funds to be used for development of HOPE VI housing units provided that no publichousing capital funds are also used;

• Bar owners of HOME-assisted rental housing projects from charging tenants fees that are not reasonable or customary;

• Allow PJs to charge fees for monitoring and physicalinspections of HOME projects;

• Update property standards; and,

• Facilitate efforts by PJs to preserve financially troubled HOME-assisted housing projects.

The rule would exclude all types of student housingprojects from assistance with HOME funds, not just dor-mitories as is the case currently. However, low-incomehousing tax credit units occupied by student house-holds meeting one of the exceptions to the LIHTC program’s student rules would remain eligible, accord-ing to Johnson.

(Proposed rule: http://tinyurl.com/6oufp93)

Tax Credit Advisor


after project completion. (HUD seeks suggestionson the appropriate length, but gives 90 days to sixmonths as a placeholder.) In any event, HUD wouldrequire repayment of the HOME funds invested inunits not initially occupied within 18 months;

• Require PJs, at least annually, to examine the financial condition of rental projects with at least 10HOME-assisted units;

• Permit PJs to limit rental projects or home buyer programs to specific sub-populations, such as artists orpolice officers, provided certain requirements are met;

• Clarify that PJs must use the same definition of income for all their HOME-assisted programs (e.g.,downpayment assistance, rental housing);

• Allow the use of HOME funds for utility deposits as long as they are also used for tenant-based rentalassistance or security deposits; TCA

Home, continued from page 12

New to tax equity investments?

For more than 15 years, Ernst & Young LLP has been helping organizations consider tax equity investments. We have experience with everything from writing the fi rst Low-Income Housing Tax Credit due diligence reports for investors in 1993, to advising tax departments as they consider tax equity investments. Our team’s deep industry knowledge of investor issues, including income tax, real estate and other business concerns, helps organizations consider tax equity investments with confi dence. It’s how we make a difference for our clients.

For more information, please contact one of the following Ernst & Young LLP professionals:

Paul Naumoff+1 614 232 [email protected]

Michael Bernier +1 617 585 [email protected]

Ravi Ravindran+1 949 437 0377 [email protected]

Kristen Walsh+1 617 585 [email protected]

Brian Herman +1 502 585 6468 [email protected]

Renee Ibarra+1 617 585 [email protected]

© 2

012

Erns

t & Y

oung

LLP

. All

Righ

ts R

eser

ved.

> mortgage banking

> affordable housing debt

> affordable housing equity

> asset management

Centerline Capital Group provides real estate financing and asset management services, focused on affordable

and conventional multifamily housing. Centerline offers both debt and equity financing to developers, owners, and

investors. Centerline is structured to originate, underwrite, service, manage, refinance or sell through all phases

of an asset’s life cycle. A leading sponsor of Low-Income Housing Tax Credit (LIHTC) funds, Centerline has raised

more than $10B in equity across 136 funds, and invested in more than 1,200 assets spanning 47 states. The firm’s

multifamily lending platform services more than $11B in loans. Founded in 1972, Centerline is headquartered in New

York City, with ten offices throughout the United States.

> LEADER IN MULTIFAMILY

mortgage banking William T. Hyman 212 317 [email protected]

affordable housing debt

Philip Milton 972 868 [email protected]

affordable housing equity

Michael Riechman 212 521 [email protected]

asset managementMichael J. Curran 212 521 6385 [email protected]

www.centerline.comTo learn how Centerline can help you, contact:

Industry participants expect another good year for thelow-income housing tax credit (LIHTC) equity marketin 2012 – provided after-tax yields to investors on

multi-investor funds don’t drop below 6%.But they also cited some concerns and some chal-

lenges for the market in recent interviews and in com-ments on panels at a National Council of State HousingAgencies’ conference in Washington, D.C. on January 11.

“I’m jazzed about this year,” said Bob Moss of syn-dicator Boston Capital. “I think the investor demand isgoing to be very strong this year.”

Sources said 2011 was a very good year for theLIHTC equity market. Rick Floreani, of Carlisle Tax CreditAdvisors, and Greg Judge, of syndicator BostonFinancial Investment Management, estimated thatabout $8 billion in total LIHTC equity was raised in 2011,an increase from 2010.

Syndicators reported raising impressive amounts ofLIHTC equity in 2011, and some have targeted largervolumes for 2012. Syndicators and the amounts they

reported raising in 2011 and (in parentheses) their tar-gets for 2012, include: Enterprise CommunityInvestment, Inc., $712 million ($775 million); BostonCapital, $640 million ($680-$700 million); RaymondJames Tax Credit Funds, Inc., $619 million (modestincrease in 2012); RBC Tax Credit Equity Group, $460million ($700 million); WNC & Associates, Inc., $350-$400million (above $450 million); City Real Estate Advisors,Inc., $331 million ($400 million); Boston Financial, $325million ($400 million); Centerline Capital Group, justunder $150 million ($300 million); and Ohio CapitalCorporation for Housing, $225 million (same in 2012).

The Richman Group raised $914 million andNational Equity Fund, Inc. closed $833 million in LIHTCequity investments in 2011.

Period of VolatilityThis past year was marked by volatility. Projected

yields on new multi-investor funds declined steadily dur-ing the year while credit prices to developers rose – the

LIHTC Market in 2012A Rosy Path Ahead?


LIHTC, continued on page 17




result of much more investor capital chasing a limitedsupply of LIHTC product. A large chunk of the additionalcapital came from insurance companies, part of thegroup of “economic investors” interested purely in yieldon LIHTC investments, as opposed to the “CRA”investors – major banks – that want both economicreturn and credit for their investments under theCommunity Reinvestment Act (CRA).

Before year-end yields on some funds had dippedbelow 6% while prices for credit projects had risen innearly all markets, even ranging above $1 per dollar oftax credit for some projects in “hot CRA” markets suchas New York City and San Francisco. A number of eco-nomic investors, due to the lower yields, curtailed theirLIHTC investing activity.

Judge estimated that the current range of credit pric-ing around the country is generally from the mid-80s toaround $1.05 (per dollar of credit). Sources said projectedyields on current multi-investor funds – the favored vehi-cle for insurance company investors – are generally 5.75to 7.5 percent, with most clustered in the 6 to 6.5 percentrange. “Yields seem to be staying in that sweet spot,”said Michael Gaber of WNC & Associates, Inc.

John Mackey, a CPA in Boston with Reznick Group,expects LIHTC fund yields to investors and credit pricesto developers to stay pretty much where they currentlyare in 2012 – a view shared by many industry partici-pants. They noted that the current low interest rates stillmake yields on LIHTC investments attractive comparedto alternative investments.

“The yields will stay low and the prices will stayhigh,” predicted Michael Novogradac, a CPA in SanFrancisco with Novogradac & Company LLP. But heexpected that the gap in pricing between CRA and non-CRA markets will narrow, with pricing in the “hot” CRAmarkets holding steady while prices move up a bit forprojects in non-CRA or less popular CRA markets.

Sources don’t expect much as far as significant newLIHTC investors in 2012."At these yields, it’s gettingmore difficult to entice new capital sources into the mar-ket,” says Floreani.

The $64,000 QuestionWhether 2012 is another good year for the LIHTC

equity market will depend largely on whether insurance

LIHTC, continued from page 16 companies continue to be major investors. “It looks like[insurance companies] hit their yield floor at about 6% in2011,” said Raoul Moore, of syndicator EnterpriseCommunity Investment, Inc.

“I don’t see the [insurance company] capital beingas robust as it was in 2011,” said Michael Riechman ofsyndicator Centerline Capital Group. “But the mainstaybanks and CRA buyers are going to be there, probablyat a higher level than they were, offsetting some of theloss in the insurance companies.”

Fred Copeman, of Reznick Group, reported somedisturbing information: In 2010 about 22 insurance com-panies with $2.5 billion in capital entered the LIHTC mar-ket. “We are now at eight companies,” he said. “We’velost roughly two-thirds of that group, because of yields.”

Boston Capital’s Bob Moss, though, said only a fewof the company’s insurance company investors have sus-pended investing, noting that insurance companiesaccounted for 15 of the 20 total investors in BostonCapital’s $330 million national multi-investor fund (6%yield) that closed at year-end 2011.

Copeman predicted only a “couple” of insurers willbe left in the LIHTC market if yields fall to 5.5%.

Mary Pat McKeown, Portfolio Manager at AllstateInvestments, LLC, the investment arm for Allstate, theNorthbrook, Ill-based insurance and financial servicescompany, said the company’s LIHTC investment commit-ment volume in 2011 was about $320 million, and thatthe budget for 2012 is similar volume. But she added, “Itall depends upon what the quality of the deals that we’llsee, and also what kind of yields are out there...Rightnow [multi-investor fund] yields still look attractive.”

Optimism, Concerns, ChallengesIn the meantime, syndicators are already busy in the

early part of 2012 raising equity. A number have newfunds on the street or expect to launch them shortly (seesidebar on p. 20).

While generally anticipating a good year for theequity market, industry participants cited some concernsand challenges that could impact or change the picture.Beyond the future trends in credit yields and pricing,these include:

• Erosion in deal terms. Some sources expressed dismay about the softening of certain deal terms to


1) All data ha

s bee

n provided

dire

ctly by the fund

sponsors. Accordingly, n

either Ernst & Youn

g LLP

nor Th

e Tax Credit Advisortake

any

responsibility fo

r the accu

racy of the

data or an

y calculations m

ade by the sp

onsors. 2) The

data on tax cred

it eq

uity raised to

date for all o

fferin

gs (since

198

7) applie

s to programs for co

rporate and

individua

l inv

estors. Howev

er, the

surve

y of c

urrent fu

nds includ

es only inve

stmen

t programs designe

d fo

r co

rporate in

vestors. 3) The

gross equity nee

ded

for propertie

s for which

an ex

ecut-

ed syn

dication co

ntract is in

place

, as a perce

ntag

e of total e

xpec

ted gross proce

eds, assum

ing all sing

le-paymen

t cash in

vestors. 4) T

he estim

ated

exp

ense lo

ad is the

perce

ntag

e of g

ross proce

eds the sp

onsor ex

pec

ts to exp

end fo

r offe

ring costs an

d exp

enses,

acquisitio

n fees and

exp

enses, broke

rage co

mmissions and

all other front-end

costs (other tha

n working cap

ital reserve

s) assum

ing all available units are sold to single-paymen

t cash in

vestors. If y

ou would like

to have a fund

listed

in the

nex

t ed

ition ofT

he Tax

Credit Advisor, call Jillian

Flynn

, Tax Credit Inve

stmen

t Adviso

ry Service

s, Ernst & Youn

g LLP, a

t Jillian

.Flynn

@ey.com, 6

17-375

-379

6. The

re is no cha

rge for a listin

g.

CURRENT L

IHTC C

ORPORATE F

UND

Spons

or(1)

Fund

Nam

eGeo

graphic

Tax Credit

Exp

ected

Ave

rage

Cas

h # of

% of

Estim

ated

To

tal E

quity

Total

Tax Credit U

nits/

Inve

stor Contac

tFu

nd Typ

e Fo

cus

Equity

Size

of

Net Tax

Nee

ds

Pro

perties

Gro

ssFront End

Raise

dEquity

Pro

perties

Acq

uisition Contac

tRaise

dCurrent

Credit

Bas

is IRR

Spec

ified

Pro

ceed

s(3)

Exp

ense

Sinc

eRaise

dUnd

er A

sset

to D

ate

Fund

Price

Load

(4)

Ince

ption

(2)

in 2011

Man

agem

ent

Alliant Cap

ital

Alliant Tax Credit Fund 66

Carl W

ise (818

) 668

-283

7multi-inve

stor

Nationa

l$0

$200

M$0

.99

6.25

%34

95%

8.00

%$4

.5B

$354

M63

,500

/ 694

Scott Kotic

k (818

) 668

-280

1

Boston Cap

ital Corporation

Boston Capital Corporate Tax Credit Fund XXXV

Kev

in Costello (6

17) 6

24-855

0multi-inve

stor

Nationa

l$3

50M

$350

M$0

.86

6.00

%53

100%

7.50

%$7

.7B

$681

M17

1,11

0 / 3,01

3Brend

a Cha

mpy (617

) 624

-887

4

Boston Financial Investm

ent

ITC 37

Manag

ement

multi-inve

stor

Nationa

l$1

12M

$155

M$0

.86

7.00

%21

95%

10.00%

$9.5B

$325

M19

6,81

1 / 1,81

2 Greg Jud

ge (617

) 488

-355

6Greg Voye

ntzie (617

) 488

-320

3

City Real E

state Advisors, Inc.

CREA Corporate Tax Credit Fund XXVI, LLC

Tony

Bertoldi (61

7) 892

-607

1multi-inve

stor

Nationa

l$1

05M

$135

M$0

.89

6.25

%22

100%

7.35

%$1

.02B

$331

M10

,443

/ 134

Jeffrey

A. W

hitin

g (3

17) 8

08-717

8

Community Affordab

le Housing

Community Equity Fund XVI, LP

Equity Corporation

multi-inve

stor

Southe

ast an

d$1

07M

$127

M$0

.81

7.50

%31

98%

7.25

%$1

.2B

$102

M16

,635

/ 365

Mark Gipne

r (919

) 788

-180

1Mid-A

tlantic US

Chu

ck N

ewco

mer (9

19) 7

88-180

2

Great Lakes Cap

ital Fun

dGreat Lakes Capital Fund for Housing Limited Partnership XXVI

Marge Novak (517

) 364

-892

9multi-inve

stor

IL, IN, M

I, $5

0M$1

00M

$0.84

6.75

%24

50%

6.00

%$2

B$1

40M

30,000

/ 500

Jenn

ifer Eve

rhart (517

) 364

-891

1MN, N

Y, W

I

Merritt Community Cap

ital Corporation

Merritt Fund XIV

Matthew

Haa

s (818

) 505

-319

2multi-inve

stor

CA

$29M

$75M

$0.95

5.00

%7

55%

4.00

%$4

00M

$87M

4,27

0 / 70

Karen

Smyd

a (510

) 444

-787

0

PNC Real E

state

PNC Real Estate Tax Credit Capital Institutional Fund 50, LP

Todd Jone

s (502

) 581

-333

4multi-inve

stor

Nationa

l$0

$150

M$0

.878

6.00

%25

100%

8.00

%$5

.61B

$518

M12

7,24

5 / 1,36

0Bob Courtney

(502

) 581

-326

0

Raymond

Jam

es Tax Credit Fun

ds

Raymond Jam

es Tax Credit Fund 38

Stev

e Kropf (80

0) 438

-808

8multi-inve

stor

Nationa

l$1

50M

$225

M$0

.90

6.00

%32

100%

7.00

%$3

.75B

$619

M50

,000

+ / 1,000

+Craig D

escalzi (80

0) 438

-808

8

RBC Tax Credit Equity Group

RBC Tax Credit Equity National Fund - 15, L.P.

Russell Ginise (614

) 564

-274

6multi-inve

stor

Nationa

l$1

43M

$157

M$0

.88

6.00

%20

100%

8.92

5%$3

.82B

$460

M51

,761

/ 614

Craig W

agne

r (980

) 233

-645

9

Stratford Cap

ital Croup

Stratford Fund VII, LP

Ben

jamin D

. Mottola (9

78) 5

35-560

0multi-inve

stor

Nationa

l$7

5M$1

00M

$0.97

6.25

%14

80%

7.00

%$3

90M

$135

M8,30

0 / 71

Kyle F. W

olff (97

8) 535

-560

0

The Richm

an Group

U.S.A. Institutional Tax Credit Fund LXXXVII L.P.

Affordab

le Housing Corporation

multi-inve

stor

Nationa

l $2

56.5M

$256

.5M

$0.914

6.00

%32

100%

7.00

%$8

.4B

$914

M11

1,32

7 / 1,27

7Step

hen M. D

aley

(740

) 321

-135

5David Salzm

an (2

03) 8

69-090

0 ex

t 33

3

WNC & Associates, Inc.

WNC Institutional Tax Credit Fund 35, L.P.

Micha

el G

aber (7

14) 6

62-556

5 ex

t 13

0multi-inve

stor

Nationa

l$1

00M

$100

MNA

NA

1510

0%NA

$2.8B

$300

M58

,196

/ 1,125

Darric

k Metz (888

) 798

-055

7

CORPORATE T

AX C

REDIT

Fun

d W

atch

–Fe

bruary 2012



developers in 2011 and felt any further concessionscould undermine investor interest.

• Possible competition from renewable energy projects. Novogradac noted that renewable energyprojects – those assisted by federal energy invest-ment tax credits (ITCs) or production tax credits(PTCs) – might compete with LIHTC projects forequity. The federal Section 1603 program, whichexpired at year-end 2011, permitted sponsors ofrenewable energy projects to take a cash grantinstead of ITCs, or swap PTCs for ITCs and then takethe grant. A huge share of renewable energy proj-ects took this option, thereby negating the need forproject sponsors to try to raise equity from investors.Novogradac, noting that the annual volume ofSection 1603 grants was about $5 billion, including$3 billion for wind energy production projects, indi-cated that whether this competition occurs in 2012from renewable energy projects will depend largely

LIHTC, continued from page 17


on whether Congress extends the Section 1603 pro-gram and extends the wind energy PTC (slated toexpire at year-end 2012).

• The Washington Scene. Judge cited possible tax reform legislation as the biggest issue, a view sharedby some others. A number also cited concernsabout further efforts to reduce the federal spendingand cut the deficit.

• Soft dollars, subsidies. Several industry participantsexpressed concern that there will be a smaller

I N V E S T M E N T B A N K I N G

Visit our website at www.carreden.com.eden.c.carrwwt we aebsitisit our wV om.eden.c


A & S I P CM E M B E R F I N R


A & S I P C

NH&RA continues to monitor the state of the taxcredit equity market. Tax equity roundtables arescheduled at each of the organization’s upcoming

events in Palm Beach, Fla. (Feb. 22-25);Washington, D.C. (March 29-30); and

Marina del Rey, Calif. (May 21-22). Details athttp://www.housingonline.com/events.aspx

amount of soft dollars availableto close the funding gap for newLIHTC projects because of fewerresources at the federal andstate levels. Ronne Thielen, ofsyndicator R4 Capital Inc., citedthe sharp cuts in annual fundingfor the federal HOME and CDBG programs, plus the end to the dedicated set-aside oflocal redevelopment funds foraffordable housing in California.In addition, sources said new projects will likely get squeezedfurther beginning somewherearound mid-year if Congress has not approved an extensionof the minimum 9% credit rateby then (the minimum 9% creditapplies to projects placed inservice before December 31,2013). Funders and credit agencies will have begun underwriting proposed projectsassuming the much lower vari-able credit rate.

For now, though, LIHTC syndica-tors, investors, developers, and oth-ers are relishing the good times ofthe present – and maintaining a rosyoutlook for 2012.

“It’s going to be a strong year,”says Hal Keller III, president of theOhio Capital Corporation forHousing, sponsor of Ohio’s stateequity fund. “But it’s going to bebusier, because of the rush to closedeals.”

Noted Marc Schnitzer, of R4Capital Inc., “If tax credit pricingremains stable, and yields can remainsort of where they are now or evenjust a bit higher, I think it will beanother good year.”



LIHTC, continued from page 19

TCA

LIHTC Multi-Investor Fund Activity• Boston Capital closed a $330 million national multi-investor fund (6% projected

yield) at the end of 2011, said executive Jeffrey Goldstein.

• Boston Financial Investment Management anticipates a final closing for its current $150 million national multi-investor fund (7% yield) in February, said exec-utive Greg Judge. The company plans to begin marketing a new $150-$200national multi-investor fund (yield between 6 and 6.5 percent) in February, toclose in late summer.

• Centerline Capital Group plans to come out with a revised national multi-investor fund of about $100 million (yield not yet finalized) within a few weeks,executive Michael Riechman said January 9. The firm plans two multi-investorfunds and a handful of proprietary funds in 2012.

• City Real Estate Advisors, Inc. is on the street with a $120 million multi-investor fund (6.25% yield) that is 100% specified and 80% subscribed, said executiveTony Bertoldi.

• Enterprise Community Investment, Inc. closed two funds in late December, a $100 million national multi-investor fund (5.75% yield) and a $103 millionCalifornia properties only fund (5.15% yield), said executive Raoul Moore. Heanticipated the roll-out within the next few months of a new national multi-investor fund of perhaps around $200 million.

• Ohio Capital Corporation for Housing plans to launch and close a new multi-investor fund in 2012 of hopefully $150 million or so, plus three new proprietaryfunds for existing investors Nationwide Insurance, Huntington National Bank,and Fifth Third Bank, said President Hal Keller III.

• R4 Capital Inc. began marketing its first multi-investor fund in December and hopes to close the $100 million fund (7% yield) in the first quarter, said executiveMarc Schnitzer. Schnitzer said the goal is to do a second multi-investor fund of atleast $100 million later in 2012, plus one or two proprietary funds.

• Raymond James Tax Credit Funds, Inc. is working toward a February close of a $235 million national multi-investor fund (6% IRR), said executive Steve Kropf.The firm is also working on a California-only multi-investor fund to close in April(size and yield to be determined).

• RBC Tax Credit Equity Group is marketing a roughly $160 million national multi-investor fund (6% IRR) projected to close in February, and will be rolling outanother national investor fund of about $150 million (6% IRR) in the spring, saidexecutive Tony Alfieri.

• The Richman Group closed a $257 million national multi-investor fund (6% yield) at year-end 2011, and expected to roll out a roughly $200 million national multi-investor fund with a similar yield the week of January 16th, said executiveStephen Daley.

• Stratford Capital Group closed an $85 million multi-investor fund (9% yield) in October that had eight institutional investors, and is out with a new $100 millionmulti-investor fund (6.25% yield) expected to close in the second quarter, saidexecutive Benjamin Mottola.

• WNC & Associates, Inc. closed a $20 million LIHTC retail fund in October and a $75 million proprietary fund in December, and expects to close its current nationalmulti-investor fund at $100 million or larger (6% yield) in February, said executiveMichael Gaber. The firm also expects to close a $50-$75 million California multi-investor fund in March and roll out a second national fund later this year. TCA

212-297-1800 | www.redstoneco.com

Red Stone is a national multifamily realestate finance company providing innovativefinancial products to the affordable housingindustry.

Recently ClosedTransactions

10,300,0009% LIHTC EquityFamilyNew Construction and RehabPhiladelphia, PA

$5,379,6329% LIHTC EquityFamilyNew Construction and RehabSanta Barbara, CA

$7,500,000LIHTC Tax-Exempt Bond PurchaseFamily HAP PropertyHistoric RehabilitationCleveland, OH

Tax Credit Equity

Eric McClelland

216-820-4750

Tax Exempt Bonds

James Spound

212-297-1800

HUD/FHA Lending

Steve Wessler

303-221-2160

Innovative Thinking. Done Deals.

In BriefHUD Publishes Research on theLocation of LIHTC Properties

The U.S. Department ofHousing and Urban Developmenthas published the results ofresearch on the location of low-income housing tax credit proper-ties in 10 metropolitan areas inthe U.S. The analysis found thatLIHTC projects in all 10 areaswere more densely clustered thanin the random housing patternsused for comparison. This cluster-ing revealed that LIHTC proper-ties tend to be located in closerproximity to one another (within 5miles). New York had the largestpercentage (71%) of clusteredproperties, while Houston (13%)and Dallas (16%) had the fewest.The research also highlights therole that federal incentives fordeveloping in particular areasmay play in the clustering ofLIHTC projects, and suggests thatchanging the incentives structurefor LIHTC tax credit allocationscould potentially affect whereprojects are built in the future.

(http://tinyurl.com/86rr4gx)

Amicus Brief Filed in HistoricBoardwalk Hall Appeal

The National Trust for HistoricPreservation is one party in anamicus brief filed in Decemberwith a federal appeals court in the Historic Boardwalk Hall case.The Justice Department recentlyfiled an appeal with the court onbehalf of the Internal RevenueService, asking it to overturn aU.S. Tax Court decision that ruledagainst the IRS in its challenge ofan historic rehabilitation transac-tion in New Jersey. The amicusbrief responds to the argumentsin the IRS’ appeal.

(For background, see TaxCredit Advisor, December 2011,p. 38)



No Major Changes Seen in 2012 toHistoric Tax Credit Market

No major changes are likely in the federal historic rehabilitation tax cred-it equity market in 2012, in the investor pool, yields to investors, andpricing for credits, according to experts.

Much smaller than the low-income housing tax credit market in number ofinvestors, equity raised, and number of projects funded annually, the historictax credit market hums along quietly.

John Mackey, a CPA in Boston with Reznick Group who works on historic taxcredit deals, says the major investors in historic tax credit deals are U.S. BancorpCommunity Development Corporation, Chevron, Bank of America Merrill Lynch,PNC, and Sherwin Williams. He has also seen Square D, an affiliate of parentSnyder Electric, a foreign company that produces electrical and lighting materials.

Mackey said he hasn’t seen any new investors in the last 12 months forstand-alone historic tax credit deals.

He said the current range of pricing for federal historic tax credits varies bydeal size but is generally anywhere from 85 cents to perhaps $1.10 per dollarof tax credit.

Eric Darling, of Boston-based Carlisle Tax Credit Advisors, said pricing for smallprojects (less than $3 million in equity) is generally from 85 to 95 cents, while forlarger projects ranges up to $1 or even $1.10 – and in a few cases even higher.

Darling said some recent changes include more lenders willing to providedebt for historic tax credit projects, and a greater variety of projects. “During therecession most of what we saw was multifamily residential, the safest asset class,”he said. “Now we’re seeing a fair number of hotels and other types of morespeculative developments. They’re getting investors and they’re getting lenders.”

Darling sees a couple of significant issues and challenges for the historictax credit market in 2012. One is uncertainty about the future outcome of theInternal Revenue Service’s appeal in the Historic Boardwalk Hall case, in whichthe IRS is asking an appeals court to overturn a U.S. Tax Court decision thatfavored the taxpayer in an historic tax credit transaction.

Darling also mentioned the uncertainty about transactions with state taxcredits caused by a federal appeals court decision that overturned a U.S. TaxCourt decision pertaining to transactions involving Virginia state historic taxcredits. He noted that there is still no industry consensus about how to struc-ture certain historic tax credit deals with state tax credits, and that this hasmade it more difficult to find investors in transactions for certain state taxcredits, such as those of North and South Carolina where there are a smallnumber of potential corporate investors. (See Tax Credit Advisor, December2011, p. 38, for background on Historic Boardwalk Hall; see Tax Credit Advisor,July 2011, p. 37 for background on Virginia case.)

The historic tax credit equity market could also be at risk if Congress getsserious about passing tax reform legislation, though no one expects such leg-islation to pass in 2012. TCA TCA


BREAKING NEWGROUND. AGAIN.

Nationwide LIHTC syndication and asset management.

25-year industry relationships with developers and investors.

History of $12 billion LIHTC investments with 100 institutional investors.

A national affiliated group of multifamily real estate companies.

New York City | Boston

Unparalleled experience. Unmatched resources.

Marc D. Schnitzer, President646 576 7659 | [email protected]

Peter Dion, Executive Vice President617 502 5943 | [email protected]

www.R4cap.com

DAVID A. SMITH: The guru is In

“I don’t have to listen to this.”

“You’re right pal, because the good news is,you’re fired. The bad news is you’ve got oneweek – one week! – to get your jobs back.”

Pause. “Oh – do I have your attention now?”

– David Mamet, Glengarry Glen Ross

Affordable housing being a creature of consciousgovernment policy, all of us in effect serve at thepleasure of elected officials, and if we are not

attentive to their policy and political imperatives, theyhave ways of making us notice. My friends in Californiahave just been handed their heads by the CaliforniaSupreme Court, which upheld the legislature’s elimina-tion of the state’s redevelopment agencies (RDAs), anaction that will eventually recapture $5 billion annuallyfor the cash-strapped state.

This blow was years in coming, and yet caught manypeople completely by surprise. Despite thestate’s well-documented calamitous budgetdeficits, despite the direct connection that moremoney for RDAs meant less for California’spublic schools, despite newly elected GovernorJerry Brown’s announced intention to elimi-nate them, and despite the legislature’s actu-ally passing legislation to do so, proponentsof RDAs believed that they would prevail.Turning to the courts, they sued to preservethe existence of RDAs by claiming, withremarkable brass, that the same legislaturewhich had authority to create them had noauthority to eliminate them.

They thought themselves strong. Twentypercent of all RDAs’ redevelopment fundswere funneled into Housing Set Aside Funds (HSAFs),forming the principal source of affordable housing softdebt to close gaps between what hard debt and low-income housing tax credit equity could raise and the spi-raling-upward cost of developing new affordable housingin California’s anti-everything localities.

Everywhere one looks, units of American govern-

ment are broke. Municipal bankruptcy, once unthinkable,has now become commonplace (including a hideousand protracted bankruptcy in Vallejo). Politicians of allstripes are confronting painful cuts in local services orreducing, deferring, or canceling heretofore-sacrosanctpublic-employee pensions and doing things they hate

doing for one implacable reason: their governments cannot afford otherwise.

All these grim facts were known toCalifornia’s urban redevelopers and itsaffordable housing proponents. Affordablehousing is too important to California, Iheard my colleagues say. We do good work.They know us. They are our friends. But thesuperstructure of laws that has grown atopthe flawed foundation of Proposition 13made it all too clear, to everyone from theGovernor to the editorialists to the legisla-tors, that every dollar the RDAs spent – onaffordable housing or any other worthyendeavor – was a dollar taken directly fromthe public schools. And in political terms,

when a niche industry goes up against the broader pub-lic, the niche loses.

That’s only one state, I hear you thinking. LIHTC is flourishing nationwide. Prices have trampolinedupward. Competition for properties and for allocationsis fierce. New syndicators are sprouting like daffodils.


David A. Smith

Do I have your attention now?

Guru, continued on page 25

If we were to ask

Jane Soccermom to

name an affordable

housing problem, her

answer wouldn’t be

new rental for very

poor people, it would

be her mortgage and

the foreclosure down

the street.

The program remains permanent and has had broadbipartisan support.

Yet if we were to ask Jane Soccermom to name anaffordable housing problem, her answer wouldn’t be newrental for very poor people, it would be her mortgageand the foreclosure down the street. Were we then to askher Member of Congress to choose which constituency tosave, deserving poor renters or homeowning mothers, Iwouldn’t like our chances.

They say that every modern American trend starts inCalifornia and comes east. The spending cuts California isenacting today, the nation as a whole will have to choosetomorrow. Jerry Brown may be the unlikeliest of fiscalhawks, but once in office he showed neither hesitationnor mercy.

Whoever wins the upcoming Presidential election, fis-cal conservatives will make substantial gains at the nation-al, state, and local level, for the identical simple reasonthat state-level incumbents are cutting public spending –we can no longer afford everything we have promised.


Guru, continued from page 24 Whatever our political environment today, 2013’s will beworse for elected officials, and if we don’t address theirimperatives, they will find ways of getting our attention.

The Californians were defending permanently established entities throughout the state. They werestronger statewide than LIHTC is nationwide. They werewell organized and committed. They were going againstpeople whom they thought were secretly on their side –a liberal Democratic governor and a liberal legislature.Offered the chance to take half a loaf via a reprieve thelegislature enacted contemporaneous with its RDA elimination, they refused to compromise and chose atrial of strength.

They got obliterated, losing 7-0 on their eliminationand 6-1 on their stay of execution.

Oh – do I have your attention now?

David A. Smith is Chairman of Recap Real Estate Advisors, aBoston-based real estate services firm that optimizes the valueof clients’ financial assets in multifamily residential properties,particularly affordable housing. He also writes Recap’s freemonthly essay State of the Market, available by [email protected].

TCA

FOR DEVELOPERS

Christopher LongVice [email protected]

FOR INVESTORS

Christoph GablerSenior Vice [email protected]

AEGON. We’re invested with you. Community Investments | 505 Sansome St., Ste. 1700 | San Francisco, CA 94111

www.aegonrealty.com/en/Home/Investment-approach/Tax-Credit-Investing/

39089_TCA 1011

Community Investments

AEGON. W

.com/en/Homyealtyg.aegonrwww

505 Sansome St., Ste. 1700 | Community Investments

e e’rre invested with you.AEGON. W

edit-Investing/pp ax-Croach/TTax-Crme/Investment-appr

San Francisco, CA 94111| 505 Sansome St., Ste. 1700

e invested with you. you you gsting/

San Francisco, CA 94111

h you.

NH&RANewsInformation on NH&RA and its Councils is availableonline at http://www.housingonline.com

NCAHMA Continues Work on New White Papers

The National Council of Affordable Housing MarketAnalysts (NCAHMA) is making progress in developing


Upcoming ConferencesTo register, and for more information, go to http://www.housingonline.com

National Housing & Rehabilitation Association2012 Annual MeetingFebruary 22-25, 2012The Breakers, Palm Beach, Fla.

National Housing & Rehabilitation Association2012 Winter New Markets Tax Credit SymposiumFebruary 22, 2012The Breakers, Palm Beach, Fla.

NH&RA/National Council of Affordable Housing Market Analysts2012 Spring Affordable Housing Policy & Underwriting ForumMarch 29-30, 2012Four Points Hotel, Washington, D.C.

National Council of Affordable Housing Market AnalystsFHA MAP Market Study & Underwriting SymposiumMarch 28, 2012NCAHMA Conference Center, Washington, D.C.

National Housing & Rehabilitation Association2012 Spring Developers ForumMay 21-22, 2012The Ritz-Carlton Marina del Rey, Marina del Rey, Calif.

National Housing & Rehabilitation Association2012 Summer New Markets Tax Credit SymposiumJuly 25, 2012Harbor View Hotel, Edgartown, Martha’s Vineyard, Mass.

National Housing & Rehabilitation Association2012 Summer InstituteJuly 25-29, 2012Harbor View Hotel, Edgartown, Martha’s Vineyard, Mass.

National Housing & Rehabilitation Association2012 Fall Developers ForumOctober 29-30, 2012The Langham Hotel, Boston, Mass.

two new white papers. One is on the scope of work tobe included in market studies for affordable housingprojects. The second is on analysis of sites for housingprojects. Both white papers are expected to be finalizedlater this year.

(For details on NH&RA’s Councils, go tohttp://www.housingonline.com/Councils.aspx)

NCAHMA Starts Effort to RebrandOrganization

The National Council of Affordable Housing MarketAnalysts (NCAHMA) has begun an effort to rebrand theorganization, including a new name and a broader mis-sion. The group is going to expand beyond marketanalysis for affordable housing projects, to add marketanalysis and market analysts for additional types of resi-dential rental real estate such as conventional market-rate apartment properties. As such the Association willseek to broaden its membership, array of work products,and activities. Once a firm proposed plan has beendeveloped the matter will be put before the NCAHMAmembership for approval.


Tennessee Council Educates HFA Board Members

NH&RA and representatives of its TennesseeDevelopers Council (TDC) conducted an educationalsession recently for members of the Board of Directorsof the Tennessee Housing Development Agency, thestate allocating agency, to provide a perspective onTHDA’s 9% and 4% low-income housing credit programsfrom the developer’s viewpoint.

For months, NH&RA has been working actively withTHDA, making a number of suggestions for changes toits regulations and allocation plan for its housing taxcredit program, a number of which have been adopted.


NH&RA News, continued on page 27


NH&RA News

NH&RA News, continued from page 26

New Markets Tax Credit Council to SubmitComments

NH&RA’s New Markets Tax Credit Council is about tosubmit written comments to the CommunityDevelopment Financial Institutions (CDFI) Fund contain-ing suggestions for improvements to the federal newmarkets tax credit (NMTC) program.

The comments respond to a November 7th FederalRegister notice that sought recommendations for ways toimprove the NMTC program and responses to a series ofspecific questions. The comment deadline is February 6.


Legislative Committee Sets PrioritiesMembers of NH&RA’s Legislative Leadership

Committee met by conference call recently, to review the achievements made by the Committee and byNH&RA in 2011, and to formulate legislative priorities for2012, particularly at the federal level. One of the priori-ties is to continue to educate members of Congress onthe importance and value of tax credit programs, includ-ing the low-income housing, new markets, and historicrehabilitation tax credits.


Registration Open for ConferencesRegistration remains open for several upcoming

conferences of the National Housing & RehabilitationAssociation and of the National Council for AffordableHousing Market Analysts (NCAHMA). These include:NH&RA’s 2012 Winter New Markets Tax CreditSymposium, February 22, and 2012 NH&RA AnnualMeeting, February 22-25, both in Palm Beach, Fla., aswell as for the NH&RA/National Council of AffordableHousing Market Analysts 2012 Spring Affordable HousingPolicy & Underwriting Forum, set for March 29-30 inWashington, D.C. NCAHMA will also hold a one-day FHA MAP Market Study and Underwriting Symposium onMarch 28 in Washington (see box at right for agenda).

Registration is also open for NH&RA’s 2012 SpringDevelopers Forum, which will be held on May 21-22 atThe Ritz-Carlton Marina del Rey hotel in Marina del Rey,Calif.

(To register for upcoming conferences and for details,go to http://www.housingonline.com/Events.aspx)

Save the Dates for NH&RA’s 2012 Fall Forum

NH&RA will hold its 2012 Fall Developers Forum on Monday-Tuesday, October 29-30 in Boston, Mass.Further details will be provided shortly, at www.housingonline.com.

NH&RA Executive Director Speaks atFlorida Conference

National Housing & Rehabilitation ExecutiveDirector Thom Amdur spoke recently on a panel at anaffordable housing conference in Florida held byNovogradac & Company LLP. He discussed the revisedFHA multifamily loan underwriting requirements andrequirements for market studies contained in HUD’supdated Multifamily Accelerating Processing (MAP)guide. A number of the changes contained in the guidereflect suggestions made by NH&RA’s National Councilof Affordable Housing Market Analysts.

NCAHMA’s FHA MAP Market Study & Underwriting Symposium

Wednesday, March 28, 2012Washington, D.C.

CONFERENCE AGENDA

9:00 am Welcome & Introductions

9:45 am Putting the MAP Program in Context and Understanding Underwriting Objectives

11:00 am Reconciling the Economic Market Analysis Division (EMAD) With the Market Study and Underwriting of HUD MAP Loans

12:00 pm Lunch & Keynote Address

1:15 pm Discussion on Key Market Study Issues for the MAP Program

2:45 pm Niche Underwriting Issues

3:45 pm Recap, Wrap Up, Next Steps

4:30 pm Conclusion of Program

For details on NCAHMA’s 2012 Spring Affordable HousingUnderwriting & Policy Forum, March 29-30 in Washington, D.C.,go to http://www.housingonline.com/Events.aspx

TCA

Your Investor’sProperty Watch ListWhat It Means


As a general partner (GP) of a low-income housingtax credit (LIHTC) partnership, you may havewondered why your property has ended up on

your limited partner’s (LP’s) watch list. The mortgage iscurrent, the real estate is in compliance, and it is deliver-ing the requisite tax benefits. What is going on here?

The purpose of this article is to clarify what the watchlist is, what it typically is used for, and what this all meansfor the GP of a watch list property.

For most investors, the watch list is a tool used tomanage risk in large portfolios. It helps the investorfocus its attention on the subset of assets that havedemonstrated some level of weakness. At Bank ofAmerica, we have nearly $10 billion invested in morethan 5,600 LIHTC partnerships. Asset managers on thestabilized team (those managing properties that havecompleted construction/lease-up) spend most of theirtime on watch list properties. A property on the watchlist is NOT necessarily in workout.

It is the asset manager’s job to identify properties inhis/her portfolio that are performing below “base case” –the expectations from the underwriting. The issue couldbe operational, market-driven, compliance-based, or dueto management. Regardless, something has occurredthat has negatively affected the property’s performanceand elevated the investor’s perceived risk of the asset.The asset manager defines the issue, rates the degree of

severity using the investor’s risk-rating criteria, listsactions being taken (or not taken) to remedy the prob-lem, gives an expected timetable for improvement, andadds the asset to the watch list.

Metrics for Risk RatingAs stated above, not every property on the watch list

is expected to end up as a loss, nor do they all pose thesame level of risk. Therefore, the asset manager’s job isto classify the risk level of each property using specificmetrics against defined criteria. These may vary amonginvestors, but typically they would include:construction/lease-up; physical/structural; debt servicecoverage (DSC); occupancy; market; compliance; andmanagement. The industry has moved to standardize thecriteria, especially among syndicators.

When an investor is relying on the third party syndi-cator to risk-rate the asset, it is imperative for the integri-ty of the investor’s watch list that all syndicators risk rateassets using the same criteria and rating system. TheAffordable Housing Investors Council (AHIC), along withrepresentatives from the syndication industry, has recent-ly updated watch list criteria and risk ratings (see side-bar). Some of the larger investors have their own in-house asset management teams and may have their ownratings, but in general they correlate directly to theindustry standards.

By Marianne C. Votta, Bank of America Merrill Lynch

Watch List, continued on page 30


n. 1. Permanence 2. Resilience 3. Able to continue or last; firmly

established; enduring or permanent (e.g., Enterprise’s stability as a

reliable syndicator of Low-Income Housing Tax Credit equity has met

investor and developer needs and helped the country’s critical demand

for affordable housing.) 4. The Enterprise Syndication Team

www.EnterpriseCommunity.com

Stability

When you seek stability in a LIHTC partner, look up Enterprise.

Raoul Moore, Sr. Vice President, Tax Credit Syndication 877.585.8495 | [email protected]

(sta bil it )

© 2

012

Ente

rpris

e C

omm

unity

Inve

stmen

t, In

c. A

ll rig

hts

rese

rved

.

LIHTC & New Markets Tax Credit Equity | Multifamily Mortgage Finance | Predevelopment & Acquisition Loans | Public Policy Technical Assistance | Asset Management | Housing Development | Capital Markets | Green Initiatives

Learn more about Enterprise:Scan the QR code with your smartphone.

3:30 PM



In general, there are three ratings of watched assets.The first classifies a perceived short-term, low risk of loss(possibly seasonal) problem where the asset is expectedto turn around within one year. The second classifiesassets with issues that may take longer to resolve orwhere the issue may never be resolved, but some miti-gant exists to lead the investor to believe that no loss isexpected. The asset manager will stay on top of thisasset, working with the GP to ensure a plan exists toavoid a loss or to downgrade if the risk escalates to thethird category. Here the risk of loss is very real. Pleasenote that although watch lists may be large, the actualnumber of assets where loss is expected tends to be verysmall. There are “chronic” watch list assets where theasset has been on “watch” for more than two years. Butas a whole, the watch list tends to be fluid.

Watch List, continued from page 28 Use of Watch ListSo what is the watch list used for? The watch list pro-

vides the basis for key exposure reporting from the taxcredit line of business to the investor’s senior manage-ment. It helps the line of business demonstrate to seniormanagement that it understands their business, is awareof the inherent weakness, and can forecast potential loss.In fact, at Bank of America the watch list is a key tool inpreparing financial forecasts for our tax credit businessline. The watch list also provides valuable information ontrends. Are there geographic locations with a concentra-tion of similar issues? Are there specific property typesthat consistently under-perform, and, if so, do they haveany common attributes? Because of the size of Bank ofAmerica’s portfolio, we have an immense data bank ofperformance information. The Bank’s Asset Managementteam will share the information with our Originationsteam. This shared information can be used to mitigatepotential weakness in the underwriting of new assets.

We also share strategies and negotiation tactics thathave proven successful in the past with GPs whose prop-erty have similar issues. Sometimes consistent compli-ance or program issues on watch lists have become thebasis for outreach to the National Council of StateHousing Agencies, the Internal Revenue Service, or, insome instances, Congress, to work on enhancements orchanges to the program.

So how does this affect the GP? First and foremost,having a watch list property or properties with a particu-lar investor in general does NOT mean that the investoror industry will not do any new investments with that GP.

In fact, in many instances, a GP’s transparent han-dling of a problem property and full disclosure with hisLP – as well as his ability to resolve the problems – servesto enhance or reinforce a positive relationship betweenthe investor and the GP. The asset management team atBank of America, as well as most large investors, under-stands that real estate performance can be unpre-dictable, especially over 17 years, and that problems mayarise. How the GP deals with problems and works withthe investor is typically a more meaningful metric thanthe fact that problems have arisen in a property.

Marianne C. Votta is Asset Management Executive in the TaxCredit Investments department of Bank of America MerrillLynch in Boston, Mass. She is also a member of the EditorialAdvisory Board of the Tax Credit Advisor magazine. She maybe reached at [email protected].

Affordable Housing Investors CouncilRisk Rating Guidelines*

• The Asset is evaluated on a quarterly basis

• There are five Risk Ratings: A – Excellent: The Asset is performing according tooriginal projections B – Average: The Asset is stable but slightly under-performing based on original projections C – Weak: The Asset is unlikely to meet originaloperating or targeted projections. The Assetexhibits two or more of the characteristics outlinedin the Risk Rating Guidelines and requires an addi-tional level of oversight. In the case of DSC,Occupancy, Program Compliance, Recapture orConstruction/Lease-Up, the one issue alone may besufficient to warrant at least a “C” RatingD – Moderate Risk: The Asset has deteriorated to alevel where credits are at risk and there is significantrisk of recapture. The Asset exhibits three or more ofthe characteristics outlined in the Risk RatingGuidelines and intense oversight F – Significant Risk: Recapture is imminent

• An Asset that is rated a “C” or below should be considered Watch List

• An Asset whose operations are ($3,000) or less in negative cash flow in any given quarter should showa declining trend in the following quarter beforemeeting the criteria to be added to the Watch List

* Revised risk rating guidelines for LIHTC properties as adopted by AHIC in 2011.

TCA


Laying a foundation

for affordable housing success

in Tampa.

Opportunity at every step.™

The Ella at Encore provides seniors with an affordable place to live, while also preserving and renewing

community life. Here and across the U.S., Bank of America Merrill Lynch works closely with developers,

syndicators and public housing authorities to invest in Low Income Tax Credit Equity and create high quality

affordable housing where it’s needed most.

Learn more at bankofamerica.com/CommercialRE

“ Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking af�liates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Equal Housing Lender . Securities, strategic advisory, and other investment banking activities are performed globally by investment banking af�liates of Bank of America Corporation (“Investment Banking Af�liates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Af�liates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. ©2012 Bank of America Corporation

Tax Credit Advisor


Debt Corner, continued on page 34

Last year (2011) proved to be robust for affordablemultifamily housing debt, with Fannie Mae, FreddieMac, and HUD all matching or exceeding loan vol-

ume production records.In August, the downgrades by Standard & Poor’s of the

U.S. and of the government-sponsored enterprises (GSEs)created concern about a potential impact to the cost ofdebt financing for affordable multifamily rental housing.Those fears proved to be unfounded, as the demand forGSE debt issuances remained very brisk and as interestrates remained at or near all time lows throughout 2011.

The continued low rates and consistent availability oflow-cost financing for affordable housing led to impres-sive year-end production numbers from the GSEs:

Freddie Mac - $1.1 billion• $450 million of New Issue Bond Program (NIBP)

business• $650 million of new low-income housing tax credit

(LIHTC) and preservation loans

Fannie Mae - $1.75 billion• $300 million of NIBP• $1.45 billion new LIHTC and preservation

HUD/FHA – $3.3 billion• $1.1 billion new LIHTC transactions• $2.3 billion in other affordable (Section 8, preservation

– predominately FHA Section A-7/223(f) refinancingThe above includes FHA risk-sharing loans with GSEs and Housing Finance Agencies (HFAs)

Expected Trends for 2012• Private placement will continue to expand in banks’

Community Reinvestment Act (CRA) markets (e.g.,California, New York, Washington, D.C., etc.)

• New conduit bond issuers will enter the market (NewJersey Housing Mortgage and Finance Agency, IllinoisHousing Development Authority, various local issuers)

• Assumption of existing HUD Mark-to-Market (M2M) subordinate loans on acquisition/rehab transactionswill become more prevalent

• Traditional subsidy financing will not be as readily available in 2012(e.g., Florida SAIL funds, CaliforniaProp 13 dollars, federal TCAP andExchange monies, etc.)

• Adjustable-rate mortgages (ARMs) and other loans with flexible pre-payment terms will continue to be in high demand

• The steady volume of Section 8 acquisition/rehab transactions utilizing LIHTCs will continue

• Apartment markets should continue to improve in most parts of the nation. Vacancies should remainlow, rental rates increase further, and the overallsentiment in the apartment industry should remainpositive. Investors in income-producing propertiesshould continue to pursue multifamily assets

New Developments in 2012• HUD is expected to implement an FHA pilot program

for certain preservation transactions by the end of thesecond quarter. This pilot is expected to focus onpreserving existing Section 8 and LIHTC assets underthe Section 223(f) program and allow rehab of up to$40,000 per unit. HUD will offer expedited processingwith the goal to go from application to firm commit-ment in 90 days. Initially, the pilot will be offered in aselect few HUBs until the program is fully vetted andlaunched, with a goal to make it available nationwideby year-end 2012

• Freddie Mac is working on a “private placement”-liketax-exempt bond execution, allowing more net loanproceeds by lowering the overall interest rate andtransactions costs. This product is expected to belaunched by the end of the second quarter.

Current Debt Market ConditionsHUD-insured loans remain a viable option nation-

wide for new construction, substantial rehab, acquisi-tion, and refinancing, but come with a tremendous lead

Affordable Multifamily Debt in 2011and the Outlook for 2012

TIMOTHY R. LEONHARD: THE DEBT CORNER

Timothy R. Leonhard


YOUR PARTNER FOR TAX CREDIT DISPOSITION AND ADVISORY SERVICES

$2.8 B-PLUS

56

38

419

75

UNLIMITED

ONE

Delivering Results and Creating Strong Client Relationships Have

Made Us the Clear Market Leader for LIHTC Disposition Services

Tax Credit Advisor


Current FHA, Fannie Mae, Freddie Mac Financing Options

FHA/HUD – Taxable New Construction or Sub Rehab Loan Parameters [Section 221(d)(4)]DSCR: 1.11 to 1.20 LTC: 83% to 90% Rate: 3.75% (plus MIP) Loan term: Up to 40 years Amortization: 40 years

FHA/HUD – Taxable Acquisition or Refinancing Loan Sizing Parameters [Section 223(a)(7), 223(f)]DSCR: 1.15 to 1.20 LTV: 85% Rate: 3.25% (plus MIP) Loan term: Up to 35 years Amortization: 35 years

Fannie Mae/Freddie Mac Taxable Acquisition or Refinancing Loan Parameters (without new LIHTC)DSCR: 1.20 to 1.25 LTV: 75% to 80% Rate: 3.75% to 5.75% Loan term: 5 to 30 years Amortization: 30 years

Fannie Mae/Freddie Mac Taxable Acquisition or Refinancing Loan Parameters (with new LIHTC)DSCR: 1.15 LTV: 90% Rate: 5.25% to 5.75% Loan term: 15 to 30 years Amortization: 35 years

Fannie Mae/Freddie Mac Taxable Adjustable Rate Acquisition or Refinancing Loan Parameters (without new LIHTC)DSCR: 1.20 to 1.25 LTV: 75% to 80% Rate: 2.30% to 3.10% Loan term: 5 to 30 years Amortization: 30 years

over 30-day LIBOR

Source: Timothy R. Leonhard, Oak Grove Capital, Dallas, Texas, 817-310-5800; as of mid-January 2012

available in California and Illinois. Other issuers expectedto have remaining NIBP cap include, but are not limitedto, New York, Florida, Colorado, Maryland, and Wisconsin.

NIBP bond rates have increased over 2011 but remainslightly inside of the prevailing rate for “market bonds.”The anticipated rate for NIBP bonds in 2012 is approxi-mately 3.60%. Bond terms will range from 17 to 40 yearsdepending on which source of volume cap an issuer uti-lizes to fund a 2012 NIBP transaction. The good news fordevelopers who cannot access NIBP is that interest rateson “market bonds” have decreased sharply over just thelast 30 to 45 days by as much as .50%. This represents asubstantial movement in rates and could lead to morebond-financed projects becoming viable in 2012.

2012 OutlookWe expect 2012 to be a somewhat challenging year

for affordable housing debt financing – not because ofthe debt markets but due to the affordable housingindustry as a whole. Attractive incentives such as theLIHTC Section 1602 Exchange Program will not be avail-able in 2012. Budgetary challenges at virtually all localand state governments as well as at the federal level willlead to a sharp decline of local, state, and federal subsi-dies. This will collectively reduce the number of newaffordable housing developments that will be viable.Additionally, Congress is unlikely to approve any newstimulus for affordable housing in 2012.

Timothy R. Leonhard is Executive Vice President of Oak GroveCapital, a Fannie Mae, Freddie Mac, and FHA multifamilylender based in Dallas, Texas. He may be reached at 817-310-5800, [email protected]

time ranging from 7 to 14 months depending on theparticular HUD office and the type of transaction.

Banks continue to be active in their targeted CRAmarket areas.

Fannie Mae and Freddie Mac continue to be verycompetitive on products for rehab projects not involvingsignificant tenant displacement or a significant change innet operating income. On new construction financing,Fannie Mae and Freddie Mac offer a competitive execu-tion for tax-exempt bond credit enhancements. However,their product offerings for taxable permanent forwardcommitment financing for new construction 9% LIHTCprojects continue to remain costly and non-competitive.

Unrated private placement bond executions areincreasing in availability but are still generally only beingoffered by banks in certain CRA markets.

Other Recent DevelopmentsThe federal New Issue Bond Program (NIBP) has

been officially extended by the U.S. Treasury throughyear-end 2012, giving participating issuers an extra yearin which to disburse the proceeds on bonds issuedunder their original authority. Treasury has allowedissuers with existing NIBP multifamily bond cap to utilizethis remaining cap through the end of 2012. Additionally,issuers with remaining single-family NIBP cap can nowmove those proceeds over to multifamily and utilize themthrough year-end 2012. Total remaining NIBP for multi-family in 2012 is estimated to be about $750 million.

The majority of the remaining NIBP for 2012 will be

Debt Corner, continued from page 32

TCA

Michigan is embarking in a new direction in howit subsidizes the costs of historic rehabilitation,brownfield, and business development proj-

ects, providing direct funding rather than the state taxcredits of the past.

The new approach may well be a model watched inother states, since governors and/or legislators in anumber of states – including Missouri – have beenmulling the curtailment of some or all of their existingstate tax credits.

Michigan LegislationMichigan tax reform legislation enacted last

year abolished the state historic tax credit, statebrownfield tax credit, and state MEGA (busi-ness development) tax credit as of January 1,2012, and legislators approved an initial annualappropriation of $100 million to help fund thesame kinds of projects previously assisted withthese state tax credits. In December 2011enabling legislation was enacted to create thesuccessor Michigan Community RevitalizationProgram (CRP) and the Michigan BusinessDevelopment Program (BDP).

The CRP program offers financial assis-tance for historic rehabilitation and brownfield projects, while the BDP program offers assistance to businessesthat create jobs or achieve other qualified purposes. Ofthe initial appropriation of $100 million for the fiscal yearending September 30, 2012, at least $20 million isreserved for the CRP program.

Both programs are administered by the MichiganStrategic Fund (MSF), which is staffed and run by theMichigan Economic Development Corporation (MEDC).MSF’s board adopted final guidelines for the CRP andBDP programs on December 22.

MEDC Senior Vice President Mark Morante noted itwas felt that providing funds directly to assist communi-ty revitalization projects is a more efficient and less cost-ly way than with the prior state historic and brownfieldtax credits, which he said were refundable, generallycost the state about $180 million a year, and usually soldfor 80 to 90 cents per credit dollar.

But with just $100 million for FY 2012to be shared by the two programs andavailable for both community revitaliza-tion and business development proj-ects, there will be fewer historic rehabprojects each year going forward thanthere were under the state historic taxcredit program, predicted Morante and Rob Edwards, aCPA in East Lansing, Mich. with Plante & Moran PLLCwho has worked on structuring historic rehab and

brownfield projects in Michigan.

Proposals Being AcceptedWhile there is no formal application yet

for the CRP program, Morante said that thewindow is now open for developers to sub-mit proposals for community revitalizationprojects and request financial assistance.Sponsors interested in submitting an appli-cation, he said, should contact one ofMEDC’s community development specialists.

Under the CRP program, MSF can pro-vide funding for projects in the form of aloan, grant, or other economic assistance,or any combination of these. Funding is

available for “eligible investments” in eligible proper-ties. MSF support for a single project can’t exceed 25%of the eligible investment or $10 million, whichever isless, and grants can’t exceed $1 million.

According to Morante, financial assistance will bedisbursed to projects only after the completion of con-struction, and projects will have to meet specific per-formance milestones after receiving a funding commit-ment in order to keep it.

Eligible Investments, PropertiesEligible investments include unreimbursed costs for a

project for:

• The alteration, construction, improvement, demolition, or rehabilitation of buildings;

• Site improvements;



Can Direct Funds Replace Tax Credits?Michigan Launches New Program to Assist Historic Rehab, Brownfield Projects

Michigan, continued on page 36

Rob Edwards

Financial assistance

will be disbursed to

projects only after

the completion of

construction, and

projects will have

to meet specific

performance

milestones.

historic tax credits must be approved by both the SHPOand National Park Service and meet the federalSecretary’s Standards for Rehabilitation.

CRP program guidelines list 19 criteria that must beconsidered in the evaluation of an application for MSFsupport. Among these are job creation, the importanceof the project to the community, the applicant’s financialneed for the incentive, the extent of re-use of vacant andhistorical buildings, the adherence to federal historicrehab standards, and the level of private sector andother contributions. Preference is to be given to projects“which include revitalization of regional urban areas.”

Industry ConcernsPlante Moran’s Rob Edwards expressed several con-

cerns about the new CRP program and the direct fund-ing approach, and the ability of historic rehab projectsto compete for assistance. In addition to predicting thatfewer historic rehab projects will be assisted each yearthan under the previous state tax credit program, henoted that the initial program guidelines allow fundingfor a very wide range of projects. Also, he said, theabsence of highly specific program guidance so farbeyond the general program guidelines allows a greatdeal of subjectivity by the MSF board in deciding whichprojects to approve for assistance. The current guid-ance, says Edwards, “gives no weighting or priority atall to the decision makers in terms of what kinds of proj-ects it picks. It basically says here is a list of things thatyou need to consider.” In addition, he noted, the newforms of assistance may raise some significant issuessurrounding taxable income and the so-called “true-debt” analysis, which could impact federal tax creditinvestor appetite and pricing.

Edwards also noted that because the initial $100 mil-lion is available on a first-come, first-served basis, proj-ects applying for funds later in 2012 – even if verystrong and worthwhile – could be out of luck if all of themonies have been committed by that point, and mayhave been committed to projects with less impact. Andfinally, he indicated that there is the risk of no annualappropriation for the program in future years.

The size of the previous state historic tax credit wasas much as 25% of qualified rehab costs for projects; 5%if the project also expected to receive federal historictax credits. The brownfield tax credit ranged in size upto 15% of hard costs.

(CRP final program guidelines: http://tinyurl.com/6ug9sdu)

• Additional machinery, equipment, or fixtures; and,

• Architectural, engineering, surveying, and similar professional fees. Many kinds of soft costs arespecifically excluded, among them developer fees,appraisal fees, and loan fees.

The range of properties eligible for funding underthe CRP program is broad. Funding is available for thedevelopment or redevelopment of properties that arebrownfields (i.e., redevelopment of buildings located ona brownfield), historic resources, blighted, functionallyobsolete, or located on a parcel of land adjacent or con-tiguous to a property falling under one of the previouseligibility categories.

A historic resource is a publically or privately ownedhistoric building or structure located within a federally,state, or locally designated historic district. Historicrehab projects not seeking federal historic tax creditsmust be approved by Michigan’s State HistoricPreservation Office (SHPO). Projects also seeking federal


Michigan, continued from page 35


CPAs and advisors specializing

in the affordable housing industry

Denver | Kansas City | St. Louis www.rubinbrown.com

For more than 20 years, RubinBrown’s Real Estate Services Group

has built an admired reputation nationally as a premier accounting

firm in the real estate industry, focused almost entirely on affordable

housing and tax credits.

Our specialized experts can help with the complexities related to

audit, tax, and consulting, including complex deal structuring for

LIHTC, historic tax credits, NMTC, renewable energy tax credits, HUD,

state housing finance agencies, and much more.

Bryan Keller, CPA

Partner-In-Charge

Real Estate Services Group

[email protected]

314.290.3300

RubinBrown

is now also

located in

Denver,

Colorado!

Building equity...for the affordable housing industry

RubinBrownRubinBrowwn

is now alsoi s n o w a l s o

located inl o c a t e d i n

Denver, D e n ve e r ,

Colorado!Colorado!


housing and tax credits.




forh o u





the a ffordable ffu s i n g i n d u s t ry ry

www.rubinbrown.com





B r y a n Ke e l l e r , C PA PA Bryan Keller, CPA

Parttner-In-CChargePartner-In-Charge

R e a l E s t a t e S e r vi i c e s G r o u p

314.290.3300

[email protected]

Real Estate Services Group

in the affordable housing industry

CPAs and advisors specializing

D e n v e r | K a n s a s C i y ty y | S t . L o u i sDenver | Kansas City | St. Louis





TCA


225 Centre Street, a mixed-use real estate projectunder construction in Boston, will start the healingof an open wound in the Jackson Square neighbor-

hood.Set for completion in the third quarter of 2013, the

single-building development of five floors above gradeand one below will contain a residential component anda commercial component. The former will include 68market-rate and 35 affordable apartments – the latterfunded in part by federal and state housing tax credits –together with 51 parking spaces, a fitness center, a com-munity room, and an on-site management office. The lat-ter, occupying the first two floors, will contain about16,200 square feet of “neighborhood scale” retail spaceand 35 parking spaces, and is being funded in part byfederal new markets tax credits.

Separate allocations of new markets tax credits(NMTCs) for the commercial portion of the $52.7 millionproject have been provided by two community develop-ment entities (CDEs): the Massachusetts HousingInvestment Corporation (MHIC), a Boston-based non-profit that also syndicates tax credits and provides capital

for affordable housing and economic development proj-ects; and Build America CDE, an affiliate of the AFL-CIOHousing Investment Trust.

Mitchell Properties, a Boston-based for-profit com-pany, is the developer of the NMTC project, while thefirm and The Community Builders, Inc. (TCB) are thedevelopers of the residential project. Boston-based TCBis a large nonprofit that develops affordable housingprojects in a handful of major metro markets in the U.S.

Neighborhood Split in TwoThe impetus for the project is a

somewhat sad tale, spun from a failedurban renewal effort, as relayed byAndrea Daskalakis and Peter Sargent ofMHIC, and by Bart Mitchell, the newPresident & CEO of The CommunityBuilders and the founder of MitchellProperties.

“What attracted us to this project was the incredibleopportunity to re-knit the neighborhood back together,”says Mitchell.

Building to HealMixed-Use Project to Foster a ‘Re-Knit’ ofBoston’s Jackson Square Neighborhood

Boston, continued on page 38

Rendering of 225 Centre Street, Boston, Massachusetts Rendering by ADD, Inc.

Andrea Daskalakis


Once a vibrant neighborhood, the Jackson Squareneighborhood was targeted with a bull’s eye in the1960s when public officials decided to clear a path torun Interstate 95 through the community. Through emi-nent domain, lands were taken and properties acquiredand demolished over 40 years ago to provide a right ofway for the highway. While neighborhood protests even-tually caused the highway project to be abandoned,Jackson Square was left with a long strip of cleared landwhere housing and small shops had once stood.

About 10 years ago, through a broad-based com-munity planning effort that involved a mayoral-appointedtask force, community groups, and hundreds of resi-dents, the Boston Redevelopment Authority crafted amaster plan for the redevelopment of the vacant strip,with the designated master developer being JacksonSquare Partners – a partnership formed by MitchellProperties and three strong local nonprofits: UrbanEdge Community Development Corporation, JamaicaPlain Community Development Corporation, and HydePark Task Force.

225 Centre Street is the first stage of a multi-phase$250 million master development to be built on theempty land that will ultimately include 14 buildings with438 apartments and 60,000 square feet of commercialspace, parking, new public open space, an indoor recre-ational facility, and a youth and family center.

“One of the things that the nonprof-it partners and the city and state agen-cies and we advocated, and whicheverybody bought into,” says Mitchell,“was that the first phase had to be ofadequate scale to be transformative.And the first phase had to be mixed-

use and mixed-income.”

Many Different Funding SourcesDaskalakis noted that it took a number of years to

put the 225 Centre Street project together, in partbecause of the many different funding sources (14 in all)that had to be secured as well as other fits and starts,such as the sharp downturn in the LIHTC equity marketa few years ago. “It kind of hit a wall when the marketmelted down,” says Sargent. “But 225 kept alive. It justtook a lot longer and a lot more effort.”

Sargent, Daskalakis, and Mitchell praised the otherparticipants that stuck with the project and workedthrough issues, including the City of Boston’sDepartment of Neighborhood Development andRedevelopment Authority, the state’s Executive Office ofHousing and Economic Development, MassHousing,U.S. Bancorp Community Development Corporation, TDBank, the AFL-CIO Housing Investment Trust, BuildAmerica CDE, and others.

U.S. Bancorp is the equity investor that purchasedthe new markets tax credits, for a price of 69 cents perdollar of credit. TD Bank bought the 4% federal low-income housing tax credits for a price of 95 cents perdollar of credit, and a third party is the state housing taxcredit investor. MassHousing issued tax-exempt bondsfloated under the federal New Issue Bond Program(NIBP) to fund a low-interest FHA-insured risk share per-manent mortgage. The AFL-CIO Housing InvestmentTrust purchased the bonds. There were additional othersources of funding as well, some of which were used tocapitalize a leveraged loan for the NMTC project.

In addition to providing an allocation of new mar-kets tax credits for the project, MHIC, together with thecity and the Local Initiatives Support Corporation, pro-vided a pre-development loan in 2010. Four years earli-er, MHIC had also participated with a consortium oflocal nonprofit and public agency lenders in a pre-development loan to Jackson Square Partners to jump-start the implementation of their redevelopment efforts.

As a condition for the participation of Build AmericaCDE and the AFL-CIO Housing Investment Trust, theproject is using union labor. The project is expected tocreate 300 construction jobs over 18 months and 19 full-time jobs after completion in the commercial spaces.The commercial spaces have not been pre-leased,though Sargent indicated that there have been talkswith different drugstore chains.

Deal Structure AcrobaticsSargent, Daskalakis, and Boston real

estate attorney Stephen Nolan indicatedthat it took time and care to create astructure for the residential-commercialdevelopment that addressed all of therequirements and concerns of the differ-ent funding sources and gave them comfort.


Boston, continued from page 37

Boston, continued on page 39

Peter Sargent

Bart Mitchell

Photo by Th

e Commun

ityBuilders, In

c.

Nolan, a partner in the law firm ofNolan Sheehan Patten LLP, said thatseparate condominiums for the residen-tial component and for the commer-cial/NMTC component will be createdat the completion of construction. Inaddition, while there is one fee ownerfor the entire development, there are two leases. One isof the NMTC component of the project. The secondlease, a master lease, is of just the 35 affordable apart-ments, for 40 years to a separate limited liability compa-ny. The apartments will be leased to residents with arange of incomes, of no more than 30, 50, and 60 per-cent of the area median income.

The master lease of the affordable units solved sev-eral challenges with the residential component. TD Bankwanted to get credit under the Community ReinvestmentAct (CRA) for the full amount of its LIHTC equity invest-ment. The entire component would have met the “20-50” set-aside to qualify for tax-exempt bond financingfor all of the residential units, since 35 of the 103 totalunits (33.9%) would be affordable. However, if theaffordable units account for less than 50% of the units ina residential rental project, an investor can only get par-tial CRA credit for its equity investment. Therefore TDBank would have received CRA credit only for a pro ratashare of its investment (33.9%). But by creating a 100%

low-income “project” by the lease of the 35 affordableapartments to the LLC, TD Bank will receive CRA creditfor the full amount of its LIHTC investment. “By masterleasing the affordables to another entity,” says Nolan,“we were able to create a project that was 100 percentaffordable for them to invest in.”

Master leasing the affordable units to create a 100%low-income project also resolved another thorny issuearising from the different definitions of “project” underthe LIHTC and multifamily tax-exempt bond programsand how to apply the “next available unit” rule. Withouta carve-out of the affordable apartments to create aseparate project, situations could have arisen, such aswhen a LIHTC unit tenant became over-income, wherethe next available market-rate unit would have to berented to an LIHTC income-eligible tenant. Nolan,though, noted that a federal tax code provision [Section142(d)(3)(c)] permits a bond project, for purposes of the“next available unit” rule, to use the LIHTC programdefinition of “project.” As a result, the 35 affordableapartments will constitute a 100% low-income project sothe next available unit rule will not be an issue.



Boston, continued from page 38

Stephen Nolan

207.767.8000www.spectrumlihtc.com

Spectrum Enterprises is

theto Compliance

KeyConsulting

Put your LIHTC portfolio into a comprehensive review schedule.

Asset management assistance.

Inspections

File Reviews

Train your staff to addresstax credit, Fair Housing and

affordable housing program issues.

On Site AssistanceCall us for hands on assistance during rent ups to ensure your

files are in compliance from the start.

Hire Spectrum to inspect your properties in preparation for

UPCS, REAC and other regulated inspections.

Training

Send files to Spectrum for review and approval. We analyze files to

ensure compliance.

TCA

People In the NewsLawrence B. Simons, 87, former Assistant Secretary for

Housing/FHA Commissioner during the Carter Administration,passed away on December 29 in Hilton Head, S.C. After leav-ing HUD he practiced law. He also served as co-chair of aNational Housing & Rehabilitation delegation that traveled toChina in 1981 to discuss urban development issues, and wasa life-time trustee of the National Housing Conference.

Michael Stegman, a housing and domestic policy direc-tor at the MacArthur Foundation, has joined the U.S. TreasuryDepartment as a counselor to Secretary Timothy Geithner onhousing finance issues.

Ronne Thielen has joined R4 Capital Inc., an affordablehousing tax credit syndicator and investment managementfirm led by Marc Schnitzer, as an Executive Vice President tohead its new Santa Ana, Calif. office. She will work on WestCoast acquisitions, business development, and investor rela-tions. She was previously at Centerline Capital Group and itspredecessor Related Capital. TCA

Maryland Launches Affordable Rental HousingProgram

Maryland Gov. Martin O’Malley and the Maryland

Department of Housing and Community Development

(DHCD) recently announced a new $15 million rental hous-

ing initiative, Rental Housing Works, which will provide

funding for up to 20 affordable housing projects in the

state. The program is designed to create jobs and provide

much-needed affordable housing for families, seniors, and

individuals with special needs, and will double the amount

of state capital funding for rental housing projects.

(http://tinyurl.com/84dp6hb)

Delaware Releases Final Allocation PlanThe Delaware State Housing Authority recently

released its final qualified allocation plan for its 2012low-income housing tax credit program, and has openedits funding round to take applications. The applicationdeadline is April 13.

(http://tinyurl.com/7zztbnu)

State Roundup


Bills Would Establish State New Markets Tax CreditsBills to establish a state new markets tax credit are

pending in the state legislatures in California andIndiana. In California, AB 643 as recently amendedwould enable the California Tax Credit AllocationCommittee, which currently awards low-income housingtax credits, to provide up to $50 million annually in statenew markets tax credits during 2013-2019 to fund invest-ments in economic development, business, and certainother types of eligible projects. In Indiana, a newly introduced bill (H.B. 1248) would authorize a NewMarkets Job Growth Tax Credit, starting in 2013 with anannual program limit of $20 million. The tax credit wouldbe equal to 39% of the purchase price of an eligibleinvestment and limited to no more than $10 million per transaction.

(California, http://tinyurl.com/7x3nh3v ; Indiana,http://tinyurl.com/77ehh6g)

California Agency Releases Proposed LIHTC Rule Changes

On January 12, the California Tax Credit AllocationCommittee released a summary of the proposedchanges to its low-income housing tax credit programfor 2012 that it plans to recommend to CTCAC’s boardfor adoption on February 1st. The document alsoresponds to public comments received earlier on pro-posed changes to the rules. CTCAC plans two fundingrounds in 2012 with application deadlines of March 22and July 11.

(http://tinyurl.com/82fwucy)

Colorado Approves Final 2012 Allocation PlanThe Colorado Housing and Finance Authority

recently released the final qualified allocation plan for its2012 low-income housing tax credit program. Two fund-ing rounds are scheduled with application deadlines ofMarch 1 and July 2.

(http://tinyurl.com/7kkgxl4)

Alabama Announces Application WindowThe Alabama Housing Finance Authority recently

announced that it will be accepting applications for low-income housing tax credits and HOME funds duringMarch 13-15, 2012.

(https://www.ahfa.com) TCA

HUD Offering $110 Million for ChoiceNeighborhoods Grants

The U.S. Department of Housing and UrbanDevelopment (HUD) is soliciting applications for $110million available under the new Choice Neighborhoodsprogram for implementation grants to transform publicand assisted housing developments and revitalize com-munities. The application deadline is April 10. HUDexpects to make four to five grants of a maximum $30million each in December 2012.

(http://tinyurl.com/8y2v4mx)

HUD Updates Multifamily Loan LimitsOn December 22, HUD published a notice in the

Federal Register that provides the revised loan limits forcalendar 2012 for various FHA/HUD multifamily housingmortgage insurance programs.

(http://tinyurl.com/84kn7rv)

Rental Policy Working Group Releases Alignment Report

The Obama Administration’s Rental Policy WorkingGroup has released a report describing its administra-tive proposals for the realignment of federal affordablerental housing programs and the status of them. Thereport, Federal Rental Alignment AdministrativeProposals, describes proposals intended to reduce costsand administrative burdens for users, agencies, and oth-ers of various federal affordable housing programsoperated by the HUD, USDA, the Treasury Department,and other agencies. The proposals relate to aligningproject physical inspections, income reporting, financialreporting, energy efficiency requirements, appraisals,market study standards, subsidy layering, capital needsassessments, data sharing, and fair housing complianceenforcement. (For background, see Tax Credit Advisor,September 2011, p. 30.)

(http://tinyurl.com/7uh9afw)

Capital Briefs


IRS Grants Relief for Iowa LIHTC ProjectsNew IRS Notice 2012-7 permits existing low-income

housing tax credit projects in Iowa, with the approval ofthe state housing credit agency, to lease units temporarilyto persons displaced by 2011 floods, without regardingto the program’s tenant income limits and certain otherrequirements.

(http://tinyurl.com/6tnmpjc)

USDA Announces RD Offices to Be ClosedThe U.S. Department of Agriculture recently

announced plans to close 43 Rural Development fieldoffices in 17 states as part of a strategy to streamlineoperations and cut costs. USDA issued a fact sheet thatidentifies the 43 offices.

(http://tinyurl.com/7cf7e58)

IRS Issues Letter Ruling On Townhouse ProjectRecently released IRS Private Letter Ruling

201149011 addresses questions asked by a taxpayerregarding a low-income housing tax credit project com-prised of multiple townhouse units and a clubhouse.Each townhouse unit had an outside front door and anattached garage. The unit tenant could opt to rent thegarage for a fee under a separate lease agreement. Ifthe tenant chose not to, the owner could lease thegarage for a fee to another lessee for storage purposes,and provide the lessee access through the garage door.The taxpayer didn’t include the cost of the garages inthe project’s eligible basis, and alternative parking wasavailable for tenants. In response to the questionsposed, the IRS held that (1) the optional lease feecharged for access to and use of a garage is not count-ed in computing the allowable rent for the housingcredit unit; and (2) the adjusted basis of the garagesisn’t included in the project’s eligible basis.

(http://tinyurl.com/7ethv77) TCA

PRSRT STDUS Postage

PA IDMerrifield, VA

Permit No. 1253

Dworbell, Inc.1400 16th Street, NW, Suite 420Washington, DC 20036

NATIoNAl HouSINg & ReHAbIlITATIoN ASSoCIATIoN AND

NATIoNAl CouNCIl oF AFFoRDAble HouSINg MARkeT ANAlySTS

2012 Spring Affordable Housing Policy & underwriting Forum

March 29-30, 2012Four Points Hotel, Washington, D.C.

NATIoNAl CouNCIl oF AFFoRDAble HouSINg MARkeT ANAlySTS

NCAHMA FHA MAP Market Study &underwriting Symposium

March 28, 2012NCAHMA Conference Center, Washington, D.C.

RegISTeR ToDAy AT:

Housingonline.com/events.aspx

National Housing

& Rehabilitation

Association

2012 Annual MeetingFebruary 22-25, 2012The BreakersPalm Beach, Fla.

National Housing & RehabilitationAssociation

2012 Summer Institute

July 25-29, 2012Harbor View HotelEdgartown, Martha’s Vineyard,Mass.

National Housing

& Rehabilitation

Association

2012 Spring Developers Forum

May 21-22, 2012The Ritz-CarltonMarina del ReyMarina del Rey,Calif.

National Housing & RehabilitationAssociation

2012 Summer New Markets TaxCredit Symposium

July 25, 2012Harbor View HotelEdgartown, Martha’s Vineyard,Mass.

National Housing

& Rehabilitation

Association

2012 FallDevelopers ForumOctober 29-30, 2012The Langham HotelBoston, Mass.

National Housing

& Rehabilitation

Association

2012 WinterNew Markets TaxCredit SymposiumFebruary 22, 2012The BreakersPalm Beach, Fla.

tax creditadvisor - nh&raservices.housingonline.com › nhra_images › tca february...

Documents