Capitol Connection: The Big 6 Recognize the LIHTC
On September 27, the White House and top GOP leaders released their tax reform outline entitled "Unified Framework for Fixing Our Broken Tax Code." We are very pleased that the framework includes the Low Income Housing Tax Credit (LIHTC) as one of two credits (R&D) maintained in the tax code. Through the incredible advocacy work of CISHA, a coalition of state independent affordable housing associations that CohnReznick pioneered in 2014, and with the support of the Action Campaign (rental housing action.org), we are not in legislative limbo at this time.
HUD Update: Residual Receipts and Hurricane Filing Extensions
Recording Excess Residual Receipts on PRACs
With passage of the federal government’s spending authority through December 8, 2017 this date now becomes the operative date for determining whether a liability should be recorded for excess residual receipts related to Section 202 or Section 811 Project Rental Assistance Contracts (PRACs). For example, for nonprofit entities if the annual PRAC renewal date falls on December 1, 2017 any excess residual receipts above the $250 per unit allowed floor should be reflected as a liability on the statement of financial position. Excess residual receipts include any amount that is required to be deposited based upon the surplus cash calculation for June 30, 2017 and September 30, 2017 audit year-ends. On the other hand, if the annual PRAC renewal date occurs after December 8, 2017, no liability should be reflected. Instead, since it is HUD’s intention to continue collecting excess residual receipts after December 8, 2017 through September 30, 2018, once an annual appropriations act is passed, disclosure of this along with the projected amount due should be made in a contingency note disclosure in the financial statements.
Filing Extensions for Projects Which Suffered Hurricane Damage
We have been informed by HUD REAC that extensions to file June 30, 2017 annual financial statements will be considered by HUD and that they will view them with leniency as was the case with Hurricane Katrina. Although no announcement of this fact appears on the HUD REAC website we have learned this through a discussion with an official at HUD REAC. Consequently, it is imperative for those projects affected to apply for extensions through FASSUB – the HUD electronic filing submission system.
Housing Tax Credit Monitor: September 2017
From the September 2017 “Housing Tax Credit Monitor,” strategies to fill funding gaps along with the housing credit pricing update. California had proposed earlier this year splitting a project to leverage both 4% and 9% structures. While complicated, other states are employing similar approaches to solving funding gaps. When it comes to the pricing update of housing credits, the median price was $0.93 in the last 60 days across 166 deals. This is $0.01 less than the credit price report update in July 2017 and $0.10 less than the same survey period reported in 2016. On an equity-weighted basis, participants from our survey (July-August 2017) reported a $0.92 net equity price and a 5.28% upper tier IRR among surveyed national multi-investor funds. For more information including specifics on current multi-investor funds, please see the latest report.
In Case You Missed It
News stories and headlines from the previous month
The low-income housing tax credit (LIHTC) is one of only two credits to be explicitly retained in a tax reform outline prepared by the Republican leadership. The other is the research and development tax credit. The nine-page Unified Framework For Fixing Our Broken Tax Code envisions repealing other business credits, including New Markets, historic, and renewable energy tax credits. “The committees may decide to retain some other business credits to the extent budgetary limitations allow,” says the document, referring to the House Committee on Ways and Means and the Senate Committee on Finance. The outline also proposes to reduce the corporate tax rate to 20%, which could devalue the LIHTC for investors. The proposal is seen as a starting point for negotiations, and some observers believe a higher rate may emerge as congressional leaders dig into the hefty job of revising the tax code.
The Internal Revenue Service has provided temporary relief from certain requirements of the Internal Revenue Code to allow owners and operators of low-income housing projects located anywhere in the United States and its possessions to provide temporary emergency housing to individuals who are displaced by a major disaster from their principal residences, regardless of income. This special relief detailed in Revenue Procedure 2014-49 and Revenue Procedure 2014-50 authorizes owners and operators, in conjunction with agencies and issuers, to disregard the income limits, transience rules and certain other restrictions that normally apply to low-income housing units when providing temporary emergency housing to displaced individuals. As a result, owners and operators can offer temporary emergency housing to displaced individuals who lived in a county or other local jurisdiction designated for individual assistance by the Federal Emergency Management Agency (FEMA). Currently, this includes parts of Texas, Florida, Georgia, Puerto Rico and the U.S. Virgin Islands, though FEMA may add other locations in the future. Upon approval, emergency housing can be provided for up to a year after the close of the month in which the major disaster was declared by the President.
Beacon Communities has acquired National Development Corp. (NDC), a company with a portfolio valued at over $250 million. The acquisition of Pittsburgh-based NDC, which was founded in 1969, includes 59 properties built in the 1970s and 80s, the majority of which are affordable. Boston-based Beacon purchased the business from its founding partners. The move adds 5,300 units to Beacon’s portfolio, bringing the total units owned to approximately 17,500. The transaction expands the firm’s presence into 14 states, adding Florida, Kentucky, Louisiana, Ohio, West Virginia, and the District of Columbia.
In a recent op-ed published in The Wall Street Journal (“Kill the Loopholes, Including the One for Low-Income Housing”), authors Chris Edwards and Vanessa Brown Calder argue that the low-income housing tax credit, the most successful tool we have to create affordable housing, should be eliminated. This idea would have detrimental impacts for millions of people nationwide. As the leaders of the country’s largest affordable housing nonprofits, we know that the housing credit is a critical incentive for private investment in housing that is affordable. Over the last 30 years, virtually all affordable rental housing in this country has been built or rehabilitated with housing credit support. The housing credit should be expanded, not “killed.” Currently more than one in four renters pays more than half of their income on housing costs, and waiting lists for affordable housing are already years long—many aren’t even open to new applicants, the backlog is so enormous. Without building more affordable housing with the housing credit, these problems will only grow worse. Moreover, Matthew Desmond, in his Pulitzer Prize-winning book Evicted, demonstrates that housing stability is the gateway to breaking the cycle of poverty.
Mixed-income development has long been seen as an important tactic to strengthen neighborhoods and improve prospects for low-income families, but more investors are warming up to the notion that affordable housing can also be a relatively low-risk venture that offers a stable rate of return. “All of a sudden, hedge funds have woken up to the idea that affordable housing can be a really good, steady kind of investment,” Victoria S. Davis, president of Washington, D.C., development firm Urban Atlantic, said during a panel discussion at the ULI Housing Opportunity 2017 conference in New Orleans. “I think that investors are drawn very significantly to mixed-income housing.” Panel moderator Adam Ducker, managing director and director of urban real estate for RCLCO, a real estate advisory firm based in Washington, D.C., said his company has seen that institutional investors are now more receptive to backing mixed-income developments. “They may sort of scratch their head and worry, but it’s not the same roadblock it was even two or three years ago,” he said. That doesn’t mean there are not lingering challenges in financing these types of projects, which many developers and housing advocates agree can generate broad and enduring positive impacts for communities.
Affordable housing is multifamily’s problem child, largely pushed aside by the bigger paydays of the luxury market, bureaucratic oversight and dwindling funds for construction. Relief from this chaotic condition lies largely in the hands of lawmakers, leaving it to the creativity of practitioners, the developers and the financial sources to fill the gaping holes in the system. “The country is experiencing an unprecedented rise in renting,” says Al Beaumariage, KeyBank’s SVP and program manager for affordable housing. Since the current upswing began in about 2010, “the number of renter households has increased on average by 800,000 annually. So today, nearly 39 million people in the US, or one in eight, are calling apartments home.” Still, he adds, a mere 300,000 apartments are coming out of the ground annually, only 40,000 of which are affordable. This production, or lack thereof, doesn’t complete the dire picture. The National Apartment Association says that in 2015 dollars, the median income of an apartment household has fallen by $3,000 since 1985, he says. “Since 2001, renters’ real median income has fallen 9%, so nearly a third, or 31% of renters, earn less than $20,000 per annum. That too is fueling the affordable housing crisis.”
Draper Hall is the overall winner in Affordable Housing Finance’s annual Readers’ Choice Awards for the nation’s top developments. Magazine and newsletter subscribers also chose it as the best seniors project. In addition to providing key housing and services, SKA Marin is transforming a site, originally home to a nurses’ dormitory and a training facility operated by the New York City Health and Hospitals Corp., that had sat vacant since flooding during Superstorm Sandy in 2012. The development includes the gut rehab of the existing building and a 14-story new-construction addition to create the apartments and an elevator lobby. The two-story podium is being transformed into a multipurpose community room with views of the East River as well as space for the adult day program. Part of the podium has been demolished to create additional outdoor space for the seniors.