Missouri State Independent Living Council presents a Free Webinar

Developing Affordable / Accessible Community Based Housing Craig Henning Brent Darnell Brent Darnell is the Community Housing Development Coordinator at Disability Resource Association. He enjoys creatively adapting homes to people rather than adapting people to a space. Craig Henning is the Executive Director at Disability Resource Association. He’s been involved in the development of three affordable/accessible senior housing complexes and continues to work with contractors in Universal Design. Presenter Information

Developing Affordable / Accessible Community Based Housing Disability Resource Association became a free standing 501-c- 3 in 1998 after spending two years as a Paraquad satellite. DRA is unique as the catchment area consists of one county.

Developing Affordable / Accessible Community Based Housing From the beginning approximately 10%-15% of individuals seeking service required assistance with Housing. Unfortunately, over the span of 5-6 years DRA along with other referral sources assisted enough individuals to consume all the available HUD Vouchers and all of the HUD subsidized homes and apartments.

Developing Affordable / Accessible Community Based Housing Even at the request of HUD, the local Action Agency declined to take on any additional project, therefore leaving Jefferson County few if any prospects for increasing affordable housing. In 2008, HUD extended an invitation to DRA to apply for Community Housing Development Organization (CHDO) certification for the county.

Developing Affordable / Accessible Community Based Housing Once becoming a CHDO it was possible to increase affordable housing opportunities through: – Affordable Housing apartment complexes – Single family homes for low income individuals / families

A Community Housing Development Organization (CHDO) is a private nonprofit, community-based, service organization that has, or intends to obtain, staff with the capacity to develop affordable housing for the community it serves CHDOs were created by the Department of Housing and Urban Development (HUD) Developing Affordable / Accessible Community Based Housing What is a CHDO?

HUDs mission is to create strong, sustainable, inclusive communities and quality affordable homes for all HUD has funds dedicated to their mission which are called HOME funds – HOME (no acronym!) = Home investment Partnership Program Developing Affordable / Accessible Community Based Housing HUD – HOME

The HOME Investment Partnerships Program (HOME) provides formula grants to States and localities that communities use - often in partnership with local nonprofit groups - to fund a wide range of activities including building, buying, and/or rehabilitating affordable housing for rent or homeownership or providing direct rental assistance to low-income people HOME is the largest Federal block grant to state and local governments designed exclusively to create affordable housing for low-income households Developing Affordable / Accessible Community Based Housing HOME funds

Developing Affordable / Accessible Community Based Housing PJs Participating Jurisdictions (PJs) are the local administrators of HUD HOME funds – HOME funds are awarded annually as formula grants to PJs – PJs are designed to tailor the HUD funds to suit their local communities – CHDOs work under PJs to develop housing

Developing Affordable / Accessible Community Based Housing Benefits of Working with CHDOs When a PJ works with CHDOs it increases the availability of affordable housing in the jurisdiction In addition, it: Builds partnerships with organizations that have demonstrated long-term commitment to public service Improves its overall capacity to develop affordable housing by strengthening partners’ capacity Can develop the capacity of new partners in order to increase the pool of providers Creates a systematic process for involving community members in making decisions about affordable housing investments

Developing Affordable / Accessible Community Based Housing Set-Aside Funds Under HOME Program rules, at least 15 percent of a PJ’s annual HOME allocation must be set aside for CHDO activities in eligible housing These funds are called set-aside funds

Developing Affordable / Accessible Community Based Housing Eligible Housing Set-aside funds must be invested in housing that is owned, sponsored, or developed by the CHDO. Owner – The CHDO may be an owner with more than one individual, corporations, partnerships, or other legal entities Sponsor – The CHDO develops or owns a property and agrees to convey ownership to another nonprofit organization Developer – The CHDO either owns a property and develops a project, or has a contractual obligation to a property owner to develop a project

Developing Affordable / Accessible Community Based Housing Eligible Set-Aside Activities Acquisition, rehabilitation or new construction of rental housing Acquisition, rehabilitation or new construction of homebuyer properties Direct financial assistance to purchasers of HOME-assisted housing sponsored or developed by a CHDO with HOME funds

Developing Affordable / Accessible Community Based Housing Forming Partnerships Partnerships between nonprofit service agencies and private housing developers are good for both parties, and for the communities they serve – Nonprofits bring expertise and knowledge of the people to be served – Developers have capacity and experience building housing units – One example of how partnerships can work is in the area of Low Income Housing Tax Credits (LIHTC)

Developing Affordable / Accessible Community Based Housing LIHTC The Low Income Housing Tax Credit (LIHTC) program is currently the country's most extensive affordable housing program The program was added to Section 42 of the Internal Revenue Code in 1986 in order to provide private owners with an incentive to create and maintain affordable housing

Developing Affordable / Accessible Community Based Housing Tax Credits The LIHTC program works through a subsidy mechanism – The Internal Revenue Service (IRS) allocates funds on a per capita basis to each state

Developing Affordable / Accessible Community Based Housing State Agency Within general guidelines set by the Internal Revenue Service (IRS), state housing agencies administer the LIHTC program – (MHDC – Missouri Housing Development Commission in Missouri) State agencies review tax credit applications submitted by developers and allocate the credits The process is competitive and uses criteria defined in the state’s Qualified Allocation Plan (QAP)

Developing Affordable / Accessible Community Based Housing QAP Each year, MHDC (In Missouri) prepares a Qualified Allocation Plan (QAP) which sets forth the process MHDC will use to administer both the federal and state LIHTC A Notice of Funding Availability (NOFA) will describe the types and amounts of funding available and the due date for applications Once approved, the NOFA will be posted to the MHDC website

Developing Affordable / Accessible Community Based Housing Developer’s Guide MHDC creates a “Developer’s Guide” every year to detail the procedures of the MHDC rental production programs The Developer’s Guide is a supplement to the QAP

Developing Affordable / Accessible Community Based Housing How Tax Credits Work Investors buy income tax credits in qualified properties that have received state allocation This creates cash equity for owners that reduces project development debt burden In exchange, the owner agrees to rent a specific number of units to qualified tenants at specified rents, usually below-market

Developing Affordable / Accessible Community Based Housing

Ownership A developer (a corporation, nonprofit, or individual) will usually enter into a limited partnership with investors (generally a corporation or individual) so that it can sell the tax credits to the investors in exchange for cash The investors, usually the limited partners, benefit from the tax credits while the developer, usually the general partner, benefits from the cash infusion it receives from selling the credits to the investors

Developing Affordable / Accessible Community Based Housing Compliance Once the project is built, states must ensure that it meets the LIHTC eligibility requirements The LIHTC property must comply throughout a 15-year period State housing agencies are responsible for monitoring LIHTC property owners by requiring them to certify on an annual basis that they are renting units to qualified low-income tenants

Developing Affordable / Accessible Community Based Housing Developers – Investors – Syndicators Developer – May claim the tax credits themselves – However, most developers choose to find tax credit investors, who provide cash that is channeled into the development Investor – Invests directly into a partnership and receives tax credits Syndicator – Acts as a broker between the developer and investor – To benefit from economies of scale, syndicators pool several projects into one LIHTC equity fund. Then, syndicators market the tax credits to investors who essentially invest in a piece of the syndicator’s fund This spreads the risk across the various projects benefiting from the fund

Developing Affordable / Accessible Community Based Housing Syndication

Developing Affordable / Accessible Community Based Housing Role of Investor Partner Provide equity financing through sale of credits Monitor project during construction – approves distributions to developer for construction costs May assist with initial lease up (tenant income certifications) Ensure compliance

Developing Affordable / Accessible Community Based Housing Why Do Investors Invest 10 full years of tax credits 15 full years of depreciation and other passive deductions Periodic write-down of paid in capital CRA investment credit, if applicable Marketing and PR opportunities Stabilizing and investing in your local communities Stable proven track record of performing asset class Accurately forecasted tax benefits Quarterly reporting and asset management update

Developing Affordable / Accessible Community Based Housing Why Do Investors Invest Tax planning strategy – Keep your tax dollars in your state instead of federal You know where they are going and how they are being used You have a say in those dollars usage You generate a decent return versus a 0% (or cost) with sending to federal government – Spread the credits over 10 years The Warren Buffet Rule – What over program can you do something for society and have society give you something in return

Developing Affordable / Accessible Community Based Housing Why Do Investors Invest Tax planning strategy – Keep your tax dollars in your state instead of federal You know where they are going and how they are being used You have a say in those dollars usage You generate a decent return versus a 0% (or cost) with sending to federal government – Spread the credits over 10 years The Warren Buffet Rule – What over program can you do something for society and have society give you something in return

Developing Affordable / Accessible Community Based Housing The CHDO designation allows DRA to access a variety of funds to increase the amount of affordable housing in a multitude of ways. – HOME Funds (CDBG) St. Louis HOME Consortium – Low Income Housing Tax Credit – National Community Stabilization Trust CHDO designation also allows the organization to access developer’s fee, profit sharing and various types of service contract to assist tenants in a multitude of ways.

Developing Affordable / Accessible Community Based Housing To become a CHDO DRA amended our bylaws and Articles of Incorporation by adding several articles demonstrating organizational support for affordable housing. As a CHDO, there are additional rules regarding board representation. Fortunately CIL boards most likely meet all of these standards.

Developing Affordable / Accessible Community Based Housing Housing requiring the occupants to pay no more than 30% of their gross income for rent and utilities. In essence, the developer / CHDO must secure alternative funding to drive down the cost of building or rehabbing a property. These funds offset the cost of the development and drive down the rent Example: If a unit costs $80,000 to build and finish and the CHDO applies $20,000 in HOME funds than the rent should be 25% less than if the unit was not subsidized. What is Affordable Housing?

Developing Affordable / Accessible Community Based Housing In Missouri, HOME Funds and Missouri Housing Development Corp tax credits form the primary sources of funds available to subsidize Affordable Housing developments.

Developing Affordable / Accessible Community Based Housing Developer’s Fee Service Contract Annual Profit Sharing End Sale Interest in Property CHDO Funding within Partnership:

Developing Affordable / Accessible Community Based Housing The recommended day to day management of tax credit projects is to hire a property management firm that specializes in tax credit properties These property managers have training and expertise in the required compliance reporting and day to day operations This arrangement also allows the non-profit and developer to focus on their respective missions, and results in better community relations Property Management

Developing Affordable / Accessible Community Based Housing Questions: ? ? ? ? ?

Developing Affordable / Accessible Community Based Housing Thank You!