Spectrum 2013 Tax Credit Symposium

Transcription

1 Spectrum 2013 Tax Credit Symposium Advanced Acquisition-Rehab Issues Investor Expectations August 29, 2013 Portland, ME

2 Partnership Structure Syndicators bundle multiple tax credit developments together, creating a pool of tax credit investment fund, which allows the credits to flow to the partnership Two levels of partnerships signed in syndication Lower-tier partnership (project level) Upper-tier partnership (fund level)

3 Partnership Structure: Lower-Tier lower-tier partnership (project level) Developer (non-profit or for-profit) enters into a partnership with the syndicator and the investment fund Can be Limited Partnership ( LP ) or Limited Liability Company ( LLC ) Enables the partnership to utilize the tax credits.

4 Partnership Structure: Lower-Tier Partnership Interest Split (LP /LLC) Equity Fund Limited Partner/Investor Member = 99.98% Developer General Partner/Managing Member = 0.01% WNC (Syndicator) Special Limited Partner = 0.01% General Partner s (developer, non-profit) responsibility: Completion of construction/rehab Day-to-day operation of the property Continuing compliance Delivery of credits Guarantee on construction, operation, tax credits General Partner assumes general liability of the asset

5 Partnership Structure: Upper-Tier. Upper-Tier Partnership (fund level) Multi-investor funds Proprietary, single-investor funds ( private label ) Equity Fund Partnership Split WNC(syndicator) GP/Managing Member = 0.01% Investor Limited Partner/Investor Member = 99.99% As the GP/Managing member, syndicators take on the responsibility of monitoring the lower-tier partnership and managing the fund to deliver the maximum tax credits to the investor Equity Fund is the owner/tax payer of the lower-tier partnership and syndicator monitors the partnership

6 Commitments to the Partnership Partnership Agreement specifies requirements, commitments, expectations and applicable penalties. Critical commitments in the Partnership Agreement: Timeline of completion of construction (PIS) Timeline of projected lease-up 10-year credit delivery Schedule* Amount of first year credits expected Amount of total (10-year) tax credits expected Loss of credits to the fund triggers downward adjustors to GP s contribution

7 Capital Contribution to GP Capital Contribution is the equity payment made to the General Partner in exchange for tax credits. Example of benchmarks for contribution payouts: Admittance to the partnership Construction completion benchmark Multiple payouts during construction (i.e. 25%, 50%, or 75%) 100% completion or Certificate of Occupancy Meeting the Debt Service Coverage Conversion to perm loan Receipt and approval of first year initial tenant files Receipt of the State-issued, completed and signed 8609 Recorded Extended Use Agreement(LURA) Receipt of first year partnership tax return

8 Reduction of Contribution Delayed delivery of first year credits (timing) Delayed construction and/or lease-up Leasing to ineligible tenants Deferring the start of credit period when the credits was promised in the year of PIS. ( not reaching 100% qualified occupancy or not completing the construction on time) Overall reduction of tax credits (price) Based on 10-year credit stream Lower eligible/qualified basis than projected Short on eligible basis Leasing to ineligible tenants not meeting the targeted LI%

9 Identifying the Issues Most common issues on Acquisition-Rehab projects Failing to meet the first year required credit delivery (timing) Communication disconnect between the developer and the managing agent Unrealistic commitment made without management involvement Rehabilitation schedule not aligned with the certification schedule

10 Identifying the Issues Communication General/Managing Partner is responsible for communicating the expectation, and goals to the management side General partner should consult with BOTH management side and the construction side before signing onto the credit delivery schedule to determine realistic timeline and goals Critical must-know during initial qualification Construction timeline for the property Target credit delivery amount and schedule When and how many units/buildings must to be leased/qualified Deadline to achieve 100% qualified occupancy on each building

11 Identifying the Issues Preliminary testing on existing tenants for eligibility If ineligible units are identified early, can target less than 100% lowincome Rolling Rehabs Extensive rehab done in phases by floor or on building-by-building basis, having the entire floor or building vacated during rehab Tenant transfers done to empty out the units during rehab Certification timing in temporary units or permanent units

12 Identifying the Issues Leasing vacant/never-been-qualified units Strong policies on applicant screening (Tenant Selection Criteria) Consistency in enforcement Leasing up on building-by-building basis Initial certification of existing tenants 120-day window for initial certification Removal of over-income tenants Incentives actual loss of tax credits likely far out-weigh the incentive fee Reduction of first year credits can be minimized with early planning

13 Form 8609 Form 8609 Low-Income Housing Credit Allocation and Certification Incorrect elections Incomplete/unsigned forms Line 8b: Multi-building election Line 10: Incorrect Irrevocable elections (a) elect to begin credit period the first year after the building was placed in service (c) elect minimum set-aside requirement

14 Form 8609-A &Tax Return Form 8609-A Attachment to Form 8609s To be filed with each tax return to claim credits Actual credits claimed for the building for the tax year Line c of part I asks that unless we have the 8609 signed and issued by the housing credit agency, we cannot file the 8609-A. IRS currently does NOT permit filing of 8609-A without the Form 8609 issued and signed by the State HFA. Risk: credits may be disallowed

15 Re-syndication What is re-syndication? 2 nd rehab on existing projects New tax credit allocation New credit period, compliance period Recycled BIN s

16 Expired vs. Existing Tax Credit Project Expired Tax Credit Project Pre-90 projects with no EUA Expired compliance period at re-syndication Existing Tax Credit Project Post-89 projects with EUA in place at resyndication Existing tenants initially certified at move in Existing EUA still enforced until new EUA is signed

17 Grandfathered Tenants Who is grandfathered? Existing tenants at an existing tax credit project occupying the units at acquisition Must have been tax credit certified at move-in Must present a copy of an Initial Tax Credit Certification or any qualifying recert Owners/management may prefer to certify for 2 nd allocation Sloppy, illegible, or questionable files Just to start fresh

18 THE WNC COMPANIES Quarterly Meeting - March 2013 Kristin H. Han Director of Compliance khan@wncinc.com