Mark Shelburne Novogradac & Company LLP

Transcription

1 Mark Shelburne Novogradac & Company LLP /events

2 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

3 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

4 Low-income household

5 Affordable Housing 700 Debt Developer/ owner 400 Total development costs

6 10 years Section 42 Low Income Housing Ta Credit TAX CREDITS Ta liability Partnership LLC S-Corp Investor Debt Bonds Equity Debt Ta liability Developer/ owner Income Limits Rent Limits Suitable for Occupancy Equity Total development costs Low-interest debt Bonds

7 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

8 TAX CREDITS 10 years Section 42 Low Income Housing Ta Credit Ta liability Partnership LLC S-Corp Investor Debt Equity Debt Ta liability Developer/ owner Total development costs Income Limits Rent Limits Suitable for Occupancy

9 Section 42 Eligible costs: Building & paving Construction loan interest Developer fee Sitework & landscaping* 10.8 mil Ineligible costs: 800k Land Reserves P ship org. costs Commercial property Off-site improvements* Eligible Basis = 10mil Total development costs *These items can be in either A B 2. QCT = 1. DDA See IRC 42(d)(5)(B) Eligible Basis 30% 6 mil 4 mil 1. Projects located in Difficult Development Areas (DDAs), which are areas that have high construction, land, and utility costs relative to area median gross income. IRC 42(d)(5)(B)(iii) 2. Projects located in Qualified Census Tracts (QCTs), which are census tracts in which 50 percent or more of the household have an income which is less than 60 percent of the area median income for such year or which has a poverty rate of at least 25 percent. IRC 42(d)(5)(B)(ii)

10 Section 42 Eligible costs: Building & paving Construction loan interest Developer fee Sitework & landscaping* 10.8 mil Ineligible costs: 800k Land Reserves P ship org. costs Commercial property Off-site improvements* Eligible Basis = 10mil Total development costs *These items can be in either A B 2. QCT = Eligible Basis 30% 6 mil 4 mil 1. DDA See IRC 42(d)(5)(B)

11 Section 42 Eligible costs: Building & paving Construction loan interest Developer fee Sitework & landscaping* 10.8 mil Ineligible costs: 800k Land Reserves P ship org. costs Commercial property Off-site improvements* Eligible Basis = 10mil State allocating agency Total development costs *These items can be in either A B QCT = Eligible Basis 30% DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction 6 mil 130% 7.8mil 4mil 130% 5.2mil 3. 9% projects not already in a DDA or QCT that the state allocating agency chooses to award up to a 30% basis boost so that the project may be financially feasible. Housing and Economic Recovery Act of 2008 (HERA) 1. DDA See IRC 42(d)(5)(B)

12 10.8 mil Ineligible costs: Eligible costs: BUILDING X Land Building & paving Reserves Scenario Construction No. 1 loan Scenario P ship No. 2org. costs Section 42 interest Developer fee Sitework & landscaping* Commercial property Off-site improvements* Eligible Basis = 10mil 800k Total development costs *These items can be in either A B Unit Fraction: Floor-Space Fraction: Lesser 50% 35% Low-income units Unit Eligible Fraction: Basis 30% 50% Floor-Space DDA/QCT Fraction: basis boost 65% Eligible basis (adjusted) Applicable fraction Lesser Market-rate units 6 mil 130% 7.8mil 4mil 130% 5.2mil See IRC 42(d)(5)(B)

13 Section 42 Eligible costs: Building & paving Construction loan interest Developer fee Sitework & landscaping* 10.8 mil Ineligible costs: 800k Land Reserves P ship org. costs Commercial property Off-site improvements* 25% Marketrate units Eligible Basis = 10mil Total development costs *These items can be in either A B Eligible Basis 30% DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis 6 mil 130% 7.8mil 75% 5.85mil 4mil 130% 5.2mil 100% 5.2mil See IRC 42(d)(5)(B)

14 Section 42 Eligible costs: Building & paving Construction loan interest Developer fee Sitework & landscaping* Applicable fraction Qualified basis 10.8 Ta mil credit percentage 75% 5.85mil Ineligible costs: 800k Land Reserves P ship org. costs Commercial property Off-site improvements* Eligible Basis = 10mil 100% 5.2mil Total development costs *These items can be in either A B Eligible Basis 30% DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage 6 mil 130% 7.8mil 75% 5.85mil 4mil 130% 5.2mil 100% 5.2mil See IRC 42(d)(5)(B)

15 9% Applicable fraction 75% 100% 10.8 Qualified mil basis 5.85mil 5.2mil Ta credit Ineligible percentage costs: 800k Land Reserves P ship org. costs Commercial property Off-site improvements Eligible Basis = 10mil 4% Total development costs Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage A 6 mil 130% 7.8mil 75% 5.85mil B 4mil 130% 5.2mil 100% 5.2mil See IRC 42(b)

16 9% 10.8 mil Ineligible costs: Land Reserves P ship org. costs Commercial property Off-site improvements Eligible Basis = 10mil 800k 4% Total development costs Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage A 6 mil 130% 7.8mil 75% 5.85mil B 4mil 130% 5.2mil 100% 5.2mil See IRC 42(b)

17 70% present value credit 9% 9.50% 9.00% 8.50% 10.8 mil Low-Income Ineligible costs: Housing Ta Credit: 800k 70% PV Land (9%) Ta Credit Percentage Reserves P ship org. costs Commercial property Off-site improvements July 11 Eligible Basis = 10mil 7.68% 8.00% Total development 30% present value credit costs 4% 7.50% A B PV of total credits = 70% QB See IRC 42(b) 7.00% Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits 6 mil 130% 7.8mil 75% 5.85mil 1mil 7.68%* 76.8k k 700k 70% PV (Including HERA 9% Floor) Actual 70% PV 4mil 130% 5.2mil 100% 5.2mil 10

18 10.8 mil Low-Income Ineligible costs: Housing Ta Credit: 800k 70% PV Land (9%) Ta Credit Percentage 9.50% Reserves P ship org. costs Oct PIS 11 Commercial property 7.48% 9.00% 70% present value credit 9% Off-site improvements July 11 9% 8.50% Eligible Basis = 10mil 7.68% Allocation 8.00% Total development A 30% present value credit costs B 4% 7.50% PV of total credits = 70% QB See IRC 42(b) 7.00% Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits 6 mil 130% 4mil 130% 7.8mil 5.2mil 75% 100% 5.85mil 7.68%* 5.2mil 7.48%* 449k k mil 3.89mil 4.1mil 8.38mil 70% PV (Including HERA 9% Floor) Actual 70% PV

19 70% present value credit 9% 8.00% Total development 30% present value credit costs 4% 9.50% 9.00% 8.50% 7.50% 10.8 mil Low-Income Ineligible costs: Housing Ta Credit: 800k 70% PV Land (9%) Ta Credit Percentage Reserves P ship org. costs Commercial property 9% Off-site improvements Eligible Basis = 10mil A Allocation PIS B See IRC 42(b) 7.00% Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits 6 mil 130% 4mil 130% 7.8mil 5.2mil 75% 100% 5.85mil 5.2mil 9% 527k 10 9% 468k mil 4.68mil 9.95mil 70% PV (Including HERA 9% Floor) Actual 70% PV

20 70% present value credit 9% 8.00% Total development 30% present value credit costs 4% 9.50% 9.00% 8.50% 7.50% 10.8 mil Low-Income Ineligible costs: Housing Ta Credit: 800k 70% PV Land (9%) Ta Credit Percentage Reserves P ship org. costs Commercial property 9% Off-site improvements Eligible Basis = 10mil A Allocation PIS B See IRC 42(b) 7.00% Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits 6 mil 130% 4mil 130% 7.8mil 5.2mil 75% 100% 5.85mil 5.2mil 9% 527k 10 9% 468k mil 4.68mil 9.95mil 70% PV (Including HERA 9% Floor) Actual 70% PV

21 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

22 LP GP 9% Syndicator Ta liability Investor 4% GP Developer Fee Fund LP Upper Tier Developer/ Owner Lower Tier

23 LP GP 9% Asset management 4% GP Syndicator Developer Fee Ta liability Fund Investor LP Credits Losses Developer/ Owner Credits Losses

24 9% 1. Overall demands for credits in the market 2. Timing of capital contributions Syndicator Ta liability Investor 9.95mil 4% ? Fund Developer/ Owner 9.95mil

25 9% 1. Overall demands for credits in the market 2. Timing of capital contributions Syndicator Ta liability Investor 3.58mil 4% 0.85 Fund Developer/ Owner 3.58mil

26 9% Syndicator Ta liability Investor 9.95mil 4% Fund Developer/ Owner 9.95mil

27 9% 4%

28 10.8 Mil 8.46M Equity: 78% 9% Total project costs 4% mil A B Eligible Basis DDA/QCT basis boost Eligible basis (adjusted) Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits 6 mil 130% 7.8mil 75% 4mil 130% 5.2mil 100% 5.2mil 9% 468k mil 9% 527k mil 4.68mil 9.95mil

29 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

30 Applicable fraction Qualified basis Ta credit percentage 75% 5.85mil 100% 5.2mil LIHTCs Section 42 North Carolina pop.: 2015 Appro. 9.9 mil 2.30 Appro mil State allocating agency See IRC 42(h)(3)

31 Applicable fraction Qualified basis Ta credit percentage 75% 5.85mil 100% 5.2mil Section mil 10 = 227mil LIHTCs State allocating agency See IRC 42(h)(3)

32 Applicable fraction Qualified basis Ta credit percentage 75% 5.85mil 100% 5.2mil Section 42 16mil 10 = 160mil LIHTCs State allocating agency See IRC 42(h)(3)

33 Applicable fraction Qualified basis Ta credit percentage 75% 5.85mil 100% 5.2mil Section mil 10 = 266mil LIHTCs State allocating agency See IRC 42(h)(3)

34 Applicable fraction Qualified basis Ta credit percentage 75% 5.85mil 100% 5.2mil Section mil 10 = 885mil LIHTCs State allocating agency See IRC 42(h)(3)

35 Applicable fraction Qualified basis Ta credit percentage 75% 5.85mil 100% 5.2mil 9% deals ( competitive/per-capita credits ) Section 42? 16mil LIHTCs 10 = 160mil QB 7.35% to 9.27% = Developer/ owner State allocating agency LIHTCs QB 3.15% to 3.97% = 4% deals Private activity ta-eempt bonds

36 Section 42 Developer/ owner State allocating agency

37 Timeline of Events Formation of Partnership Line up attorneys, architect, contractor, accountants, lenders, etc. Preparation of forecast

38 Agencies must review a market study Section 42 Serves as a threshold requirement, and in some states, results in points

39 Section 42 LIHTCs 9%? Developer/ owner? State allocating agency Private activity ta-eempt bonds LIHTCs 4%

40 Timeline of Events Formation of Partnership Line up attorneys, architect, contractor, accountants, lenders, etc. Preparation of forecast Bonds (4%) No bonds (9%) LIHTCs Apply for ta credits

41 Comparing 9% Ta Credits to Bonds with 4% Credits Which is higher? Category Competition for Allocation/Reservation 9% Ta Credits Very high Bonds with 4% Credits Low Financing Fees Low High to very high Interest Rates About the same About the same Financing Leverage Low to very low High Amenity Cost Higher (due to competitive application requirements) Lower

42 Section 42 Loan documents Architectural agreements Permits Final Cost Certification Final Cost Placed-in- Service Package Certificate Certificate of Occupancy of Occupancy Ta liability Certification Investor State allocating agency Developer/ Owner Property Manager Low-income households

43 Timeline of Events Bonds (4%) No bonds (9%) LIHTCs Apply for bonds (Ta credit app follows, includes 1 st 50% test) Bond allocation (Then bond issuance, etc.) Formation of Partnership Apply for ta credits Receive reservation of credits Line up attorneys, architect, contractor, accountants, lenders, etc. Pass a 10% Test Preparation of forecast Finish construction Bonds (4%) No bonds (9%) LIHTCs Apply for bonds (Ta credit app follows, includes 1 st 50% test) Bond allocation (Then bond issuance, etc.) Apply for ta credits Receive reservation of credits Pass a 10% Test Finish construction

44 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

45 Four Types of LIHTC Properties Construction Method Construction Method New Construction Acq/Rehab Form 8609 Form 8609 Financing Method Financing Method Non-volumecap-bond debt Bonds 9% new construction 4% new construction 9% acq/rehab 4% acq/rehab 9% 4% Federally Subsidized

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47 How the Internal Revenue Code Views 3 Types of Buildings Building Type 30% Boost to Eligible Basis Ta Credit Percentage New or Rehab - not federally subsidized Available if in DDA or QCT; or can be awarded by state allocating agency Resulting from the Ta Increase Prevention Act of 2014, for properties with an allocation prior to 1/1/15, new and rehab buildings are able to use a flat 9% amount; for properties receiving an allocation after 12/31/14, they would use the 70% PV amount for the month the building is placed in service or could choose to lock the 70% PV amount for the month at which carryover occurs New or Rehab - federally subsidized Eisting (or Acquisition ) Available if in DDA or QCT Boost is unavailable to acquisition buildings 30% PV amount for month the new or rehab building is placed in service; or awardee can choose to lock the 30% PV amount earlier to within 5 days after the month the bonds close 30% PV amount for month the acquisition is placed in service (even if it s a non-federally subsidized property) The Internal Revenue Code treats costs of acquiring an eisting building and costs to rehabilitate that building as separate buildings for purposes of the ta credit calculation. The Rehabilitation building is treated like a newly constructed building. The Acquisition building differs specifically regarding the 30% boost to eligible basis and ta credit percentage

48 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

49 What do you need to do to stay in compliance? Follow the I.R.S. rules This acronym actually stands for: Income, Rent, and Suitability For the first two use:

50 OUTLINE Affordable Housing Overview How Ta Credits Are Calculated Typical Ownership Structure Development Timeline Acq/Rehab Deals Program Rules and Avoiding Recapture Big Finish!

51 Tiberi LIHTC Novogradac

52 LIHTC Senate Novogradac

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56 Brad Elphick Novogradac & Company LLP /events

57 Mark Shelburne Novogradac & Company LLP /events