The Benefits of Tax Credits and How They Work July 6, 2016 Midwest Lenders LIHTC Workshop

2 Ohio Capital Corporation for Housing OCCH was created in 1989 by the Ohio Housing Finance Agency OCCH is an independent nonprofit corporation with its own Board of Directors OCCH’s mission is: “to cause the construction, rehabilitation, and preservation of affordable housing throughout Ohio”

Ohio Capital Corporation for Housing 3

4 Organizational Focus Establish equity funds of corporations doing business in Ohio Provide technical assistance to nonprofit and for-profit developers in structuring and financing affordable housing tax credit transactions as well as property/asset management training Manage assets of the equity funds for the 15- year life of the partnerships Other Value-added Programs

5 Organizational Focus Other Value-added Programs Ohio Affordable Housing Loan Fund Resident Development Fund OCCH Training Academy OCIC Foundation Other grants for selected partners Ohio Housing Conference HUD HOME/CHDO technical assistance

6 Tax Credit 101 What Are Low Income Housing Tax Credits (LIHTC) & How Are They Used?

7 Federal Housing Programs Federal housing programs have traditionally taken the form of Direct Cash Subsidies ●Interest/Credit Subsidies ●Project-Based Rental Income Subsidies ●Capital Subsidies ●Rental Housing Certificates and Vouchers

8 Low-Income Housing Tax Credit Program LIHTC Indirect Subsidy Program "The program provides a series of tax credits for projects which provide housing for families at or below 60% of the Area Median Income." The Credit attracts private investors who invest capital in exchange for the Credit.

9 What is a Tax Credit? Tax Credit - dollar for dollar reduction in tax liability Tax Deduction - offset to pre-tax income LIHTC projects make use of both types of benefits Private investors provide equity in exchange for the Credit Benefits flow through the partnership to investors 15-Year Investment Horizon 30-Year Compliance Period

10 Lender Grants from State, City, Non-profit sponsor HOME money AHP INVESTOR Ohio Equity Fund - Managed by OCCH IRS, US Dept Treasury Ohio Housing Finance Agency 1st Mortgage Operating Returns pay off 1st Mortgage TAX CREDITS EQUITY INVESTMENT How Does the Program Work?

11 Definitions Terms commonly used when discussing Low Income Housing Tax Credits: ●Eligible Basis ●9% and 4% Credit ●Acquisition Credit

12 Definitions – Eligible Basis Costs to develop the low-income units become the building’s eligible basis Ineligible Costs: ●Commercial Building Costs ●Land ●Permanent Financing Fees, ●Reserves ●Off-Site Improvements ●Syndication Expense ●Any Expense that cannot be depreciated with the building ●Application Fees, Reservation Fees and Compliance Fees ●In-kind contributions to the project

13 Types of Tax Credits 9% New construction/Rehab credit ●Most common credit 4% New construction/Rehab with federal funds or proceeds from tax exempt bonds ●a “Bond Deal” 4% Acquisition Credit ●Used when purchasing an existing building

14 The 9% Credit Percentage applied to eligible basis to determine amount of credit Set monthly by the U.S. Department of the Treasury ●9% Rate has now been Locked Provides a 10 year credit stream Also commonly known as the 70% credit ●The 10 year credit stream has a present value of 70% of the qualified construction and rehabilitation expenditures. Extremely Competitive ●Most States Oversubscribed

15 Tax Credits Help Finance the Property Typical 9% tax credit project

16 The 4% Credit The 4% Credit is Similar to 9% Credit BUT ●Percentage applied to eligible basis is lower ●Commonly known as the 30% credit ●The 10 year credit stream has a present value of 30% of the qualified construction and rehabilitation expenditures. ●Projects do not have to compete for credits ●Eligible to projects that finance over 50% of the development costs with tax-exempt bonds ●Rate still floats

17 Tax Credits Help Finance the Property Typical 4% tax credit project

18 The Acquisition Credit The Purchase of an existing building may qualify for an additional 4% credit if: ●The Project involves either the 4% or 9% rehabilitation credit ●The rehabilitation must be “Substantial” ●Meets the requirements of the “10 year rule” ●The property must not have changed ownership in the previous 10 years. ●Rate floats

19 LIHTC Program Requirements Income/Occupancy Restrictions Rent Restrictions 15 Year Compliance Period ●Plus 15 Year Extended Use Period

20 Income Restrictions Minimum Requirements: At least 40% of the property must be set aside for families earning below 60% of Area Median Income, or At least 20% of the property must be set-aside for families earning below 50% of the Area Median Income Franklin County: Family of Four Household (2007) 50% AMI = $32,100 60% AMI = $38, % AMI = $64,200 Franklin County: One Person Household (2007) 50% AMI = $22,550 60% AMI = $27, % AMI = $45,100

21 Rent Restrictions Rents are restricted by income group, bedroom size and Area Median Income Franklin County – Maximum Rents 1 Bdrm2 Bdrm 50% Area Median Income $603$725 60% Area Median Income$723$870 Fair Market Rent$533$674 (Rents include utility costs and all other costs that are required by owner)

22 Compliance Period Although the tax credit is claimed over a ten year period, the project must comply with the occupancy and rent restrictions for fifteen (15) years. In addition, under the 1989 amendment to the program, the project must extend the low-income use for an additional fifteen (15) years.

23 Syndicating The Tax Credits Establish Limited Liability Corporations or Limited Partnerships with an investor ●Limited Partnership / Operating Agreement: Sets Forth Roles, Responsibilities and Compensation of Partners ●0.1% General Partner/Managing Member: Manages Affairs of the Partnership ●99.9% Limited Partner/Investor Member: Invests in Exchange for Tax Benefits

24 Benefits (the Credits) flow through the partnership to the investor 15 Year Investment Horizon – i.e. the investor has an economic interest in the property for 15 years. Syndicating The Tax Credits

25 Syndicating The Tax Credits Total Tax Credits $1,000,000 ($100,000 / year for 10 years) Net Amount to Project$900,000 "$1.00 of credit brings 90¢ net to the project" Total Tax Credits $1,000,000 ($100,000 / year for 10 years) Net Amount to Project$900,000 "$1.00 of credit brings 90¢ net to the project"

26 LIHTC Tax Credit Topics Bridge Loans Subordinate Mortgages Pay In Schedule Developer Fees & DDF M2M & Allonges Section 8 Contracts

27 What types of projects can be done? Family, Elderly, SRO New Construction or Rehabilitation Preservation of existing Section 8 or RD projects Multifamily or Single family lease- purchase Single or scattered site Mixed use / mixed income

28 Single Family Homes EANDC Homes Located in Akron, Ohio 32 Single Family lease purchase homes 10 three bedroom homes and 22 four bedroom homes

29 Single Family Homes Kingsford Homes Located in Columbus, Ohio 33 single family homes All homes are 4 bedrooms

30 Elderly Housing Columbus Elderly Located in Columbus, Ohio 50 elderly units All 2 bedroom units

31 Elderly Housing Devon House Located in Tiffin, Ohio 40 elderly units Comprised of 1-,2-and 3- bedroom units

32 Supportive Housing YMCA of Central Ohio Located in Columbus, Ohio 400 SRO units Project houses very low-income men who are at risk of homelessness

33 Supportive Housing Briggsdale Apartments Located in Columbus, Ohio 35 efficiency units Project serves homeless individuals

34 Historic Rehabilitation YWCA Residential Located in Columbus, Ohio 102 efficiency units Project serves homeless women

35 Historic Rehabilitation Park Avenue Apartments Located in Ironton, Ohio Elderly Housing

36 Preservation Network Restorations II Located in Columbus, Ohio Project Based Section 8 housing for families

37 Doug Klingensmith Vice President, Development Ohio Capital Corporation for Housing 88 East Broad Street, Suite 1800 Columbus Ohio p f