August 2016 — Multifamily Properties Quarterly —
Page 21
owners’ equity.
Are other funds or incentives avail-
able?
Another source of funds when
applying for LIHTC projects is the
basis boost. The basis boost increas-
es the eligible tax-credit basis by 30
percent if a project is in a qualified
census tract, a difficult-to-develop
area or a state-designated difficult-
development area. They do not
apply to tax-exempt financed proj-
ects.
The basis boost is an additional
funding source that can help a
developer overcome financial
impediments to project finance. For
example, where construction costs
may be higher, such as a market
like San Francisco or New York City,
could be a difficult-to-develop area.
It also can be used for locations
where affordable housing opportu-
nities are limited (qualified census
tract) and there is an underserved
suburban market in a good school
district versus poorer neighbor-
hoods and, thus, additional funding
incentivizes the developer to build a
LIHTC project in the area.
The following are a variety of
sources of capital for affordable
housing projects 9 percent LIHTC
and 4 percent tax-exempt municipal
bonds:
• State department of housing –
funding
• Financial institution or insurance
company (syndicator) – equity
• City/county affordable housing
funds
• Public agency housing funds
• HUD low-interest loans
• Local housing authority
• Housing choice vouchers
• Community development block
grants
• Regional employers (i.e., resorts
and factories)
• Financial institution or insurance
company – debt
What are the financial risks?
Tax-
credit projects do come with some
financial risks. The first is the
upfront costs to put together the
application for submittal to the
state. There are also costs associ-
ated with architecture, engineer-
ing feasibility, market studies, legal
counsel as well as tax and financial
consultants.
These costs can be recovered if
the applicant is successful in win-
ning a 9 percent award. However,
in a 4 percent application, while
the applicant can recover these
costs, the downside is that develop-
ers are required to piece together
other funding in order to achieve
the same 70-percent-plus funding
described in a 9 percent deal. Both
of these options require an experi-
enced design, tax and legal team.
Aren’t affordable housing proposals
fraught with neighborhood objections?
Affordable housing shouldn’t be
considered a negative land use or
only for poor people. LIHTC devel-
opments provide a much-needed
resource to our nation’s housing
stock and a diverse population. The
9 percent LIHTC project, while very
competitive, requires high-quality
design, amenities and LEED compli-
ance.
In order to receive tax credits, the
applicants are required to develop
quality projects. If either a 9 per-
cent or 4 percent tax-credit project
is properly designed, the economic
status of the residents is undetect-
able between “affordable housing”
and “market-rate housing.” In fact,
often, they are blended because of
various inclusionary housing provi-
sions embedded within local zoning
codes throughout the nation. Addi-
tionally, blending affordable and
market-rate housing diversifies the
unit mix and tenant makeup, which
improves profitability while main-
taining compliance with complex
tax requirements. For these reasons,
at least 10 percent of the units in
an affordable housing development
should be market rate to avoid com-
pliance issues if tenants understate
earnings for AMI compliance.
The parties in a tax-credit syndi-
cation work together with the State
Housing Finance Agency, acting as
the compliance entity that approves
the eligibility of the tax-credit appli-
cation as well as ongoing review of
a developments annual compliance
with property management, tax
reporting, adhering to tenant AMI
rules and associated Department of
Housing and Urban Development
rules.
The typical cast of actors in a
LIHTC deal often are much like a
Affordable Housing
LAI Design Group
The same process applies in developing a 4 percent low-income housing tax credit deal. The remaining 40 to 50 percent of funds come
from the Community Development Block Grant program, local housing authorities and other sources with debt making up the remain-
ing 20 to 30 percent balance of funds needed to finance the development.
