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The Low Income Housing Tax Credit Program

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Presentation on theme: "The Low Income Housing Tax Credit Program"— Presentation transcript:

1 The Low Income Housing Tax Credit Program
© 2015 Travois

2 Introduction Travois was established in 1995
Headquartered in Kansas City, Missouri Mission-driven company 30 Full Time Employees Specialize in Affordable Housing & Economic Development in Indigenous Communities © 2015 Travois

3 Travois Experience $1 Billion since 1995 © 2015 Travois

4 Ft. Peck Homes II - MT © 2015 Travois

5 White Earth Homes - MN © 2015 Travois

6 Colville Homes II - WA © 2015 Travois

7 Lac Courte Oreilles II - WI
© 2015 Travois

8 Reduce Waiting Lists © 2015Travois

9 Opportunity to build equity
Yavapai — Tunlii Subdivision 30 units Quinault — 35-single family units © 2015 Travois

10 Non-traditional student needs
Sitting Bull College – Standing Rock Sioux Tribe, Ft. Yates, ND 18 single-family units United Tribes Technical College – Bismarck, ND 24 apartment units Little Priest Tribal College – Winnebago Tribe, Nebraska © 2014 Travois

11 Design Considerations
Ft. Peck Homes II, Montana © 2015 Travois

12 Improve energy efficiency
Shoulder Blade Complex — Northern Cheyenne solar array © 2015 Travois

13 Build Your Community © 2015 Travois

14 The Low Income Housing Tax Credit Program
Developed by Congress in 1986 to finance the development of affordable rental housing for low-income households Administered by the Treasury Department (IRS) Section 42 of the Internal Revenue Code (IRC) defines the LIHTC Program © 2015 Travois

15 How does LIHTC work? IRS program administered by each state
Encourages private investment in affordable housing Competitive process 15-year minimum rental program © 2015 Travois

16 How does LIHTC work? Can provide around 80% of the funding for the development Funding comes from investor equity and does not need to be paid back © 2015 Travois

17 What populations can be served?
Family/Elderly Homeowners/Renters Low Income/Extremely Low Income Disabled and Other Special Needs Workforce/Students ©2015 Travois

18 Tax Credit Terminology
LIHTC – Low Income Housing Tax Credit QAP – Qualified Allocation Plan Carryover – Information the state requires to ensure project is making progress Developer’s Fee – Fee earned by Tribe for working on project. ©2015 Travois

19 LIHTC program requirements
Mandatory income and rent restrictions Federal maximum income – 60% AMI Rents are based on Area Median Income plus utility costs Incomes must be certified at move-in but income increases do not affect eligibility In other words, if incomes increase after the initial certification, the tenant does not have to move out of the unit. ©2015 Travois

20 LIHTC Program Requirements
Mandatory income and rent restrictions Federal maximum income – 60% AMI States offer preferences to lower levels – 30% - 50% AMI Rents are based on Area Median Income plus utility costs Initial 15 year mandatory compliance period 15 year extended use period © 2015 Travois

21 LIHTC program requirements
Compliance periods 15-year mandatory compliance period 15-year extended use period Some states give preferences to longer compliance periods Sec. 42 has provisions for Lease-Purchase Allows tenants to purchase homes after the initial 15-year compliance period The tribe or TDHE determines the sales price and terms of the sale ©2015 Travois

22 How are credits allocated?
The IRS allocates credits to individual states (based on population), who are then responsible for allocating credits to qualified projects. States must develop a QAP (Qualified Allocation Plan) for allocating credits. Eligibility is based on meeting the requirements in both Section 42 and your state’s QAP. ©2015 Travois

23 Ownership Structure Tax Credits Hawaii Limited Partnership
*initial LP as placeholder; Investor does not join partnership until it purchases the LP interest at closing General Partner Developer 0.01% interest Full managerial control Limited Partner Investor* 99.99% interest No managerial control © 2015 Travois

24 How are LIHTCs calculated?
30% Basis Boost for projects located in QCTs or DDAs Qualified Census Tracts (QCTs): tracts where 50% or more of households have income less than 60% of AMI OR tracts with poverty rate of 25% Difficult Development Areas (DDAs): areas designated by HUD as having high construction, land and utility costs relative to area median income * some states award less than 30% boost © 2014 Travois

25 Hawaii’s QCTs © 2014 Travois

26 Hawaii’s DDAs Hawaii County Honolulu County Kalawao County
Kauai County Maui County © 2014 Travois

27 Calculating Investor Equity (cont’d)
© 2014 Travois

28 Calculating Developer’s Contribution
Total Development Cost Less Investor Equity = Upfront Contribution Less Developer’s Fee* Less Acquisition Fee = Net Contribution** *earned three months after occupancy **soft-debt from NAHASDA © 2014 Travois

29 Calculating Developer’s Contribution (cont’d)
© 2014 Travois

30 How do you get LIHTCs? Apply to State Allocating Agency
Hawaiian Housing Finance & Development Corporation Meet Requirements of Qualified Allocation Plan (QAP) Credits awarded based on what’s feasible for project © 2014 Travois

31 How do you get LIHTCs? (cont’d)
Section 42 Preferences: Projects serving the lowest income tenants Projects serving tenants for the longest periods Projects located in QCTs and contribute to a community revitalization plan Section 42 Selection Criteria: Project location Housing needs characteristics Project characteristics Sponsor characteristics Special needs populations Waiting lists Populations of individuals with children Projects intended for tenant ownership IRS gives states latitude to create scoring criteria in their QAP that must give preferences to Section 42(m)(1)(B)(ii) and can be based on Section 42(m)(1)(C) selection criteria. © 2014 Travois

32 How do you get LIHTCs? (cont’d)
Section 42 changes in NAHASDA Reauthorization Bill Adds as a preference projects located in Indian Areas developed by a Tribe/TDHE Adds as a selection criteria projects located in Indian Areas Adds new section requiring states to: to award tribal projects points in an amount not less than 10% of the total points available to applicants, and to not penalize tribal projects based on location to population centers, public transportation systems or publicly available amenities. © 2014 Travois

33 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Applications due January/February Threshold Requirements Market Study within 6 months Site Control (lease/option agreement/fee simple deed, etc) 3rd party Capital Needs Assessment (for acquisition) © 2014 Travois

34 How do you get LIHTCs? HHFDC’s QAP (cont’d)
yellow = preferences green = selection criteria © 2014 Travois

35 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #1 = Ratio of credits requested to low-income units (0-20 pts) lowest ranged from $5,630 – $13,855 mid ranged from $9,723 – $22,798 highest $14,912 – $29,568 © 2014 Travois

36 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #2 = Overall project feasibility (0-20 pts) reasonableness of development costs financing structure and operating expense feasibility readiness to proceed (zoning, utility availability) adequate reserves services/amenities adequate project contingencies development costs – about same on HHL as on non HHL? as compared to cost to construct on reservations zoning – DHHL has zoning authority? © 2014 Travois

37 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #3 – Limiting Developer Fee (0-8 pts) © 2014 Travois

38 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #4 – project receives project-based rental assistance subsidies for first time where tenants would pay 30% of monthly income towards rent (0-8 pts) include HAP? © 2014 Travois

39 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #5 – Local Government Support (0-8 pts) permanent below market loan/lease/sale of property from state or local government agency 2 points if applied for support 5 points if received commitment for support < 10% of TDC 8 points if received commitment for support >10% of TDC loan to partnership & long term land lease © 2014 Travois

40 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #6 – Energy Efficiency & Green Building (0-8 pts) Scoring Criteria #7 – Project Location & Market Demand (0-8 pts) © 2014 Travois

41 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #8 – Developer Experience (0-8 pts) Scoring Criteria #9 - Longer Extended Use Period (0-6 pts) all project awarded credits committed to 61 years © 2014 Travois

42 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #10 – Tenant Populations (0-6 pts) elderly or households with families Scoring Criteria #11 – Special Needs Populations (0-6 pts) must provide free services © 2014 Travois

43 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #12 – Tax Credits requested/total low-income units (0-4 pts) Scoring Criteria #13 – Lower Income Targeting (0-4 pts) © 2014 Travois

44 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Scoring Criteria #14 – Project sponsored by a qualified non-profit (0-3 pts) Scoring Criteria #15 – Low-income public housing waiting list (0-1 pt) Scoring Criteria #16 – Homeownership (0-1 pt) Scoring Criteria #17 – QCT & Community Revitalization Plan (0-1 pt) Scoring Criteria #18 – Historic Nature (0-1 pt) homeownership mutually exclusive with extended use period points? CRP = NHHP © 2014 Travois

45 How do you get LIHTCs? HHFDC’s QAP (cont’d)
Fees Application Fee = $1,500 Good Faith Deposit at allocation = 10% of credits reserved (60% refund) Compliance Monitoring Fee homeownership mutually exclusive with extended use period points? CRP = NHHP © 2014 Travois

46 What happens once you have LIHTCs?
© 2014 Travois

47 What happens once you have LIHTCs?
Solicit Investor Offers & Make Selection Finalize A&E Plans, Put out to Bid, Select Contractor Partnership Closing satisfy investor’s due diligence checklist 2-4 month process many parties involved © 2014 Travois

48 What happens during construction?
© 2014 Travois

49 What happens during construction?
Monthly Work-in-Place Reviews Monthly Draw Requests of Investor’s Equity when eligible Certificates of Occupancy issued as each unit is Placed In Service Credits are earned as buildings are placed in service meeting construction schedule agreed on in LPA is crucial! © 2014 Travois

50 What happens after construction is complete?
© 2014 Travois

51 What happens after construction is complete?
Contractor Close Out Apply for Final Allocation to HHFDC (Forms 8609) Enter into Land Use Restriction Agreement (“LURA”) Earn Developer Fee © 2014 Travois

52 Preserving the LIHTC Allocation: Ongoing Compliance
© 2014 Travois

53 Ongoing Compliance Management company training
$25/unit compliance monitoring fee Initial certification & annual recertifications of qualified tenants LIHTC Annual Report HHFDC audit every three years 8823 issued for noncompliance © 2014 Travois

54 Ongoing Compliance (cont’d)
You are at risk of losing credits if you do one of the following things: Negligence or fraud in determining eligibility Maintenance and management neglect Loss of units due to fire or tenant abuse Failure to meet carryover requirements Risks mitigated by paying attention to project requirements, compliance monitoring and by establishing quality management procedures. Should I give a total of our staff for development? Asset Management? Design & Inspections? Should I mention here the roles of the Tribe? How we do not interfere with their operations… © 2014 Travois

55 What Happens at Year 15 and Beyond?
© 2014 Travois

56 Year 15 and Beyond Investor Exits Partnership Resyndication
Owner Can Request Qualified Contract if right hasn’t been waived HHFDC advertises project at Qualified Contract Price If no prospective buyer in 1 year, 15-year extended use period terminated and converted to market rate over 3 years Conversion to Homeownership HHFDC’s reporting to IRS ends non-profit GP purchases LP’s interest for debt + taxes (shouldn’t be any taxes) so just assume debt for-profit GP = greater of FMV or debt + taxes for the acquisition of the property by a prospective buyer that agrees to purchase the property for the “qualified contract price”1. If the state agency is not able to find a buyer to purchase the building at the “qualified contract price”, the additional use period is terminated. The QC Application shall include the Owner’s proposed QC price. The QC Application shall include a report calculating the QC price prepared by an independent certified public accountant (“QC Report”) © 2014 Travois

57 Opportunity to Learn More…
Travois 15th Annual Indian Country Affordable Housing & Economic Development Conference September 21-23, 2015 Le Meridian Hotel New Orleans, LA © 2015 Travois

58 Safe & affordable homes for families
Tulalip Homes II family – Tulalip, Wash. © 2015 Travois

59 Chief Operating Officer
For more information: Elizabeth Glynn Chief Operating Officer © 2015 Travois

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