DISABILITY HOUSING NETWORK LOW INCOME HOUSING TAX CREDIT DEVELOPMENT

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Colin Hardy
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1 DISABILITY HOUSING NETWORK LOW INCOME HOUSING TAX CREDIT DEVELOPMENT OCTOBER 24, 2012

2 OHIO CAPITAL CORPORATION FOR HOUSING OCCH s mission is: to cause the construction, rehabilitation, and preservation of affordable housing throughout Ohio OCCH was created in 1989 by the Ohio Housing Finance Agency OCCH is an independent nonprofit corporation with its own Board of Directors Low Income Housing Tax Credits syndicator, Technical Assistance, Asset Management, etc. 2

Administered by state housing finance agencies Bipartisan support for program Effective

3 THE HOUSING TAX CREDIT PROGRAM IRS Program, created in the Tax Reform Act of 1986 Tax incentive to encourage investment in affordable housing Designed to allow for lower rents Administered by state housing finance agencies Bipartisan support for program Effective because it engages market forces and corporate oversight and because it remains flexible and adaptable 3

4 THE HOUSING TAX CREDIT PROGRAM 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 Credits (tax benefits) Benefits flow through the tax credit project to investors 4

THE HOUSING TAX CREDIT PROGRAM IRS provides each state with yearly credit awards based on population Each State creates an Qualified Allocation Plan that determines how they will award

5 THE HOUSING TAX CREDIT PROGRAM IRS provides each state with yearly credit awards based on population Each State creates an Qualified Allocation Plan that determines how they will award credits & administer program Extreme diversity in how States administer program Flexibility to meet State s priorities and needs Credits are a scarce resource and extremely competitive to obtain 5

6 HOUSING CREDIT PROGRAM Tax Credit Authority Tax Credit Allocation Tax Credits Investors Cash Equity Investment $$$$$$$$$$ 6

7 QAP evolves to meet current Ohio Housing Finance Agency Annual Plan goals Current plan emphasizes: Community Outreach, Involvement and Support Local Development Plans and Selection Process New Markets, Innovative Housing Leveraging federal, state or local resources; Non-OHFA resources Market Need for Rehab 2013 QAP Application is point based 7

8 PROGRAM REQUIREMENTS In exchange for credits, projects have: Rent Restrictions Units must be below rents affordable to people at 60% of area median income OHFA prefers deeper targeting Income Restrictions Units must be rented to people earning less than 60% of area median income Additional Compliance Requirements 8

9 SOURCES OF FINANCING Tax Credit Equity Paid by investors in exchange for tax benefits Permanent Debt Hard Loan Borrowed from commercial banks based upon cash flow available for debt service Some projects do not have sufficient cash flow to repay a loan Gap Financing Grants and other capital subsidies to make up the difference between projects costs and other sources These grant dollars often enter the project as soft loans repaid from available cash flow, if any 9

10 SAMPLE BREAKDOWN OF SOURCES Amount and Percentage by Source Gap 28% Equity 64% Debt 8% 10

SOURCES OF GAP FINANCING Sources of capital subsidies HOME

Home Loan Bank AHP Sponsor Money Public Housing capital

Based Assistance Section 8 Vouchers: project based Public

11 SOURCES OF GAP FINANCING Sources of capital subsidies HOME CDBG Housing Trust Fund OHFA Development Loans Federal Home Loan Bank AHP Sponsor Money Public Housing capital programs Sources of operating subsidies Section 8 Project Based Assistance Section 8 Vouchers: project based Public Housing Operating Subsidies Rural Development Rental Assistance 11

12 DEVELOPMENT TEAM Core of the Team Owner / Sponsor Developer Architect Contractor Property Manager Service Coordinator 12

13 DEVELOPMENT TEAM Owner / Sponsor Non-profit or For-profit Responsible for development (selecting or being developer) May make construction and financing guarantees Developer Coordinate development process Hire third party consultants Analyze feasibility of project Secures funding May make construction and financing guarantees 13

14 PROJECT DEVELOPMENT TEAM Architect Work with developer and owner to develop design Analyze feasibility of site / Conduct Capital Needs Assessment Provide preliminary cost estimates Work with contractor during construction Contractor Work with developer, owner and architect to construct project as designed Manage subcontractors, if any May make construction completion guarantees 14

15 DEVELOPMENT TEAM Property Manager Responsible for day-to-day management Contribute to operating budget development Contribute to architectural design process Work with tenants during relocation / operations Service Coordinator Work with developer, owner and property manager to meet resident needs Provide services Contribute to design of service budget Contribute to architectural design process 15

16 DEVELOPMENT TEAM Funder(s) Tenant Representative Attorney Accountant Relocation Specialist Lender(s) Engineers Environmental Professional Market Study Analyst Surveyor Title Company Historic Consultant 16

17 WHAT MAKES A GOOD PROJECT Good Location Sustainable Design Proper Financing Realistic operating costs Not over leveraged Experienced Developer Capable Contractor Effective Property Manager Cooperative Investor/Syndicator 17

18 THE CYCLE OF THE PROJECT Market Trend Tracking Development Symposium Operating Expense Tracking Partner Capacity Tracking Initial Project Concept Application Processing Launch Review Lead Action Plan Team Performance Monitoring Operational Development Partnership Closing Internal Investment Committee Technical Review Board Approval Weekly Lease-Up Tracking Qualified Occupancy Lease-up Construction Relocation Planning Partner Orientation Meeting Review Of All Initial Tenant Files Track Execution of Relocation Plan Construction Completion Review of Construction Progress 18

DEVELOPMENT PROCESS Year 1 Years 2/3 Years 4/5 Years 5-20 Find Site Assemble Development Team Examine Feasibility Market Study Sources and Uses Obtain Conditional Financing

19 DEVELOPMENT PROCESS Year 1 Years 2/3 Years 4/5 Years 5-20 Find Site Assemble Development Team Examine Feasibility Market Study Sources and Uses Obtain Conditional Financing Commitments Apply for (and hopefully receive) Credits Make Carryover Close on Partnership and Financing Construction Lease-up Stabilization Disposition (16 years after completion) 19

20 OWNERSHIP STRUCTURE A Limited Partnership ( LP ) or Limited Liability Corporation ( LLC ) is established: General Partner / Managing Member: 0.01% Owner Manages Affairs of the Partnership Limited Partner / Investor Member: 99.99% Owner for 15 Years Invests in Exchange for Tax Benefits Limited role in day-to-day activities After 15 Years, the Limited Partner exits and General Partner owns long-term asset 20

Fund for Housing Limited Partnership (Limited Partner) Nonprofit

21 LEGAL/ORGANIZATIONAL STRUCTURE OF THE PROJECT Ohio Capital Corporation for Housing (nonprofit) Corporate Investors (for-profit) Ohio Equity Fund for Housing Limited Partnership (Limited Partner) Nonprofit Sponsor Developer General Partner General Partner Project Limited Partnership 21

22 GENERAL PARTNER RISKS Operating Deficit Guarantees Reputation Risk Construction risk Credit Adjustor Public opposition/nimby Tenant problems, marketing 22

23 GENERAL PARTNER BENEFITS New housing - tangible results Furthering Mission Serving selected target populations Earn development fees Potential for management fees Potential cash flow Potential residual/purchase project in 15 years Publicity 23

24 Beth Long Development Analyst Ohio Capital Corporation for Housing

AFFORDABLE HOUSING 101. Jimmy McCune - OCCH Tim Swiney Wallick Communities Roy Lowenstein Lowenstein Development

AFFORDABLE HOUSING 101. Jimmy McCune - OCCH Tim Swiney Wallick Communities Roy Lowenstein Lowenstein Development AFFORDABLE HOUSING 101 Jimmy McCune - OCCH Tim Swiney Wallick Communities Roy Lowenstein Lowenstein Development Affordability in Housing Defined Generally refers to housing affordable to those who earn