The HUD/ Washington Report

Transcription

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2 The HUD/ Washington Report PANELISTS Peter Lawrence Novogradac & Company LLP Priya Jayachandran National Housing Trust Orlando Cabrera Arnall Golden Gregory Patrick Costigan RAD Collaborative/ CF Housing Group

3 HUD/RAD Regulatory Updates FY 2018 Omnibus HUD funding and RAD provisions Agenda Tax Reform: Changes to Impact the LowIncome Housing Tax Credit and Creation of Opportunity Zones LIHTC Legislation FY 2018 Omnibus LIHTC Expansion and Income Averaging

4 What FY 2018 Omnibus Did for RAD Toplines Increased the PH unit cap from 225,000 to 455,000 units largest increase since inception ~92,000 units on waitlist Extended sunset for RAD s 1 st component to 2024 potentially allowing better planning & sequencing RAD 2 nd component authority extended to 120,000 unit Section 202 PRAC inventory > 2800 nonprofit/churchowned properties SOHUD ability to augment rents through Elderly Housing budget line Also in 2 nd component ability to plus up Rent Supp & RAP conversion rents to CMRs in highcost areas LIHTC provisions particularly income averaging helps with 60% to 80% RAD pinch

5 RAD in FY 2018 Omnibus Between the Lines Substantial increase in Public Housing Capital Fund to $2.75 billion or $808 million above the FY17 enacted level, and Modest increase in Public Housing Operating Fund to $4.55 billion or $150 million above the FY17 enacted level Possibility of applying FY 2018 levels to RAD rents of ~ =$30/month/unit to.??? Tiny $11 million increase to HCV Administrative Fees to $1.76 billion for PHAs converting to RAD PBVs, and Tenant Protection Vouchers (TPVs) account reduced to $85 million or $25 million below the FY17 enacted level since HUD failed to allocate FY 2017 pot Implications for new RAD + TPV provision

6 What New Section 18 Demo/Dispo Notice Did for RAD New 75/25 deal: RAD projects with 75% newly constructed or substantially rehabilitated public housing units can dispose of the remaining units up to 25% and replace them with projectbased TPVs as long as project not using 9% LIHTCs Broadens & deepens the reach of RAD conversions using 4% LIHTCs and taxexempt bonds and/or other forms of debt financing Awarded TPVs converted to PBV contracts do not apply to a PHA s HOTMAredefined inventory capas HOTMA exempts previously assisted properties (including public housing properties) from the PBV cap

7 What New Section 18 Demo/Dispo Notice Did for RAD Last 50: PHAs owning and operating fewer than 50 ACC units and if disposition results in a PHA closing out its Section 9 public housing program can receive TPVs for all occupied units Then TPVs to PBVs or not ScatteredSite Headache: Scatteredsite units in noncontiguous buildings with 4 or fewer total units can receive TPVs for all occupied units Then TPVs to PBVs, or not

8 What HOTMA Provisions Did for RAD Any PBV placed on units previously subject to federally required rent restrictions (LIHTC units) or receiving other projectbased assistance provided by HUD (public housing units) don t count toward voucher limit/inventory cap So previously any RAD & now TPVs > PBVs don t count towards 20% voucher inventory cap PHAs can also projectbase another 10% above the 20% voucher inventory cap if housing homeless, veterans, disabled with provided services and units in difficult to use areas 25%/25 Unit project cap no longer applies to elderly or family households eligible for available supportive services similar to RAD

9 PH Conversions 42% of transactions involve significant work from $25K/unit to new construction 40% of transactions involve either 4% LIHTC or 9% LIHTC A major driver of the deeperinvestment transactions, particularly those using 4% LIHTC, is accessing the value of the existing real estate (most significantly, by tapping into acquisition credits). Financing* * Data through December 31, 2017.

10 RAD II Part of original RAD Authorization Uncapped Intended to offer path to extended affordability for legacy HUD programs that had expired, notably RentSupp/RAP ModRehab McKinney Vento SROs More flexible rent setting than RAD I Most often client is private owner vs PHA in RAD I

11 RAD II Status as of YE2017 Rent Supp/RAP Transactions: 25 properties remaining in portfolio 12 properties have contracts that expire in 2018 Will wind down he Rent Supp & RAP programs in the next few years Mod Rehab Transactions: 19 active transactions in the RAD 2 Pipeline Substantial opportunities for Mod Rehab properties

12 Note: amounts in millions FY16 Enacted FY17 Enacted FY18 Enacted President s FY19 Request % Change FY18 FY17 % Change FY19 Req. FY18 Housing Choice Vouchers $19,628 $20,292 $22,015 $20, % 6.7% ProjectBased Section 8 $10,620 $10,816 $11,515 $11, % 3.2% Public Housing Operating Fund $4,500 $4,400 $4,550 $3, % 27.9% HUD Budget Public Housing Capital Fund $1,900 $1,942 $2,750 $0 41.6% 100% Section 202 $433 $502 $678 $ % 11.4% Section 811 $150 $146 $230 $ % 39.0% HOPWA $335 $356 $375 $ % 12.0% CDBG $3,000 $3,000 $3,235 $0 7.8% 100% HOME $950 $950 $1,362 $0 43.4% 100% Homeless Assistance $2,250 $2,383 $2,513 $2, % 5.2% Choice Neighborhood Initiative $125 $138 $150 $ % 191.3% Overall (gross) $46,978 $48,055 $52,748 $41, % 21.8%

13 Private activity bonds retained (over half of affordable housing production) LowIncome Housing Tax Credit MORE THAN HALF

14 Lower Corporate Rate Inflation Factor changed to chained CPI LowIncome Housing Tax Credit Interest Expense Limitation Most LIHTC partnerships expected to elect out and shift to Alternative Depreciation System (ADS) for rental housing 100% Expensing through 2022 for: Site improvements, and Furniture, Fixtures & Equipment Likely negative impact of the Base Erosion and Antiabuse Tax (BEAT)

15 9 Percent Property 4 Percent Tax Exempt Bond Property Price per Credit Price per Credit 35% 21% $0.95 $0.95 $0.82 $1.00 $1.00 $0.87 $1.05 $1.05 $0.90 $1.10 $1.10 $ % 21% $0.95 $0.95 $0.81 $1.00 $1.00 $0.86 $1.05 $1.05 $0.89 $1.10 $1.10 $0.93 Assumes 4.5% 5.0% investor level yield in all scenarios Results may differ based on a change in underlying assumptions. Property not eligible for 30% basis bonus

16 Effect of Tax Reform on LIHTC Equity Pricing Affordable housing community had already lost investment and production in 2017

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19 Investing in Opportunity Act Allows investors with capital gains from sale of assets to defer those gains Similar in concept to Section 1031 LikeKind exchanges Creates new incentive to invest capital gains in lowincome communities Authorizes the designation of opportunity zones Governors (and DC Mayor) responsible for designating these zones Deadline to nominate or request a 30day extension was March 21 Encourages investors to pool resources and risks in Opportunity Funds (O Funds). Investors can temporarily defer capital gains recognition if they reinvest in these zones Incentivizes longterm investment by stepping up basis 10 percent stepup after 5year hold, 15 percent stepup after 7year hold Provides shallower subsidies per investment than the NMTC, but can be used on a greater scale

20 50 percent increase More LIHTCs via Affordable Housing Credit Improvement Act CANTWELL HATCH Incomeaveraging RETIRED Minimum 4 percent rate NEAL TIBERI Curbelo, RFL26

21 50 percent increase More LIHTCs via Affordable Housing Credit Improvement Act CANTWELL HATCH Incomeaveraging RETIRED Minimum 4 percent rate NEAL TIBERI Curbelo, RFL26

22 50 percent increase More LIHTCs via Affordable Housing Credit Improvement Act CANTWELL HATCH Incomeaveraging RETIRED Minimum 4 percent rate NEAL TIBERI Curbelo, RFL26

23 50 percent increase More LIHTCs via Affordable Housing Credit Improvement Act CANTWELL HATCH Incomeaveraging RETIRED Minimum 4 percent rate NEAL TIBERI Curbelo, RFL26

24 More LIHTCs via Affordable Housing Credit Improvement Act Note these assumptions: Assumed that states will increase their taxexempt bond issuance for multifamily by 25% Assumed the absolute amount of soft subsidies going to tax exempt bond properties CANTWELL would remain unchanged To the extent that there is less deferred developer fee, that is offset with more taxable bond financing HATCH RETIRED 50 percent increase Approximately 131,000 more units over 10 years Incomeaveraging Minimum 4 percent rate NEAL TIBERI Curbelo, RFL26

25 More LIHTCs via Affordable Housing Credit Improvement Act RAD Relevant Provisions Give states discretion to provide 30% basis boost for bondfinanced projects Increase DDA designation from 20 to 30% Repeal QCT population cap Relocation costs included in eligible basis 50% basis boost for ELI units Codify increased tenant income guidance

26 Rental Homes Jobs Business Income Federal, State and Local Taxes Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus Current Law Tax Reform Bill Lower Corporate Rate of 21% Chained CPI Amount Lost Percentage Lost PostTax Reform Law FY18 Omnibus 12.5% allocation increase Percentage gained New Law 1,493, ,400 19, ,300 16% 1,261,100 1,687, ,000 22, ,500 16% 1,425,000 $142,005,642,600 $20,196,865,200 $1,892,267,500 $22,089,132,700 16% $119,916,509,900 $54,617,554,900 $7,768,025,100 $727,795,200 $8,495,820,300 16% $46,121,734, , ,100 + $2,700,522,500 + $ 1,038,662,500 2% 2% 2% 2% 1,289,500 1,457,100 $122,617,032,400 $47,160,397,100

27 Rental Homes Jobs Business Income Federal, State and Local Taxes Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus Current Law Tax Reform Bill Lower Corporate Rate of 21% Chained CPI +19% Amount Lost Percentage Lost PostTax Reform Law FY18 Omnibus 12.5% allocation increase Percentage gained New Law 1,493, ,400 19, ,300 16% 1,261,100 1,687, ,000 22, ,500 16% 1,425,000 $142,005,642,600 $20,196,865,200 $1,892,267,500 $22,089,132,700 16% $119,916,509,900 $54,617,554,900 $7,768,025,100 $727,795,200 $8,495,820,300 16% $46,121,734, , ,100 + $2,700,522,500 + $ 1,038,662,500 2% 2% 2% 2% 1,289,500 1,457,100 $122,617,032,400 $47,160,397,100

28 Billions $12 $ $ HERA 2009 $ $2.35 FY18 Omnibus 2018 $ $ $ Percent LIHTC $ $1.75 $ $2.10 Allocations $6 Per capita credit set at $1.25 $4 ACTUAL PROJECTED $2 $0

29 LIHTC Income $ Averaging Development types benefiting from this new option High housing cost areas Rural areas with very low incomes Lowincome community revitalization projects promoting income diversity Preservation projects (e.g., RAD) with some overincome residents

30 Income Averaging Blog Post

31 The HUD/ Washington Report PANELISTS Peter Lawrence Novogradac & Company LLP Priya Jayachandran National Housing Trust Orlando Cabrera Arnall Golden Gregory Patrick Costigan RAD Collaborative/ CF Housing Group