tax credit pilot case studies midwest lender’s conference – june 2013
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Tax Credit Pilot Case StudiesMidwest Lender’s Conference – June 2013
Auburn Manor Acquisition and rehab of 100% Section 8 Project
Tax exempt bonds with 4% tax credits; 223 (f) loan, GNMA swap program
Project had been rehabbed prior to tax exempt bond financing; prior rehab counts for tax credits but not for meeting the bond requirements
3 tests for tax exempt bond financing (transaction must meet all three): 50% test: total tax exempt bonds issued must equal 50% or more of total
transaction costs
95% test: 95% of bonds must be used for good costs: acquisition and rehab
15% test: rehab must equal at least 15% of acquisition cost less land that is financed with tax exempt bonds . Rehab must be incurred within 2 years after closing and no earlier than 60 days prior to the tax exempt bond inducement
Example: Total project cost = $9 million; minimum $4.5 million of tax exempt bonds must be issued
95% test: $4,275,000 must be spent on good costs
Acquisition cost = $6 million, value of land is $275,000
15% test: acquisition cost financed with bonds = $4,275,000 less land = $4 million; minimum rehab is 15% of $4 million or $600,000
Valley at Cobb Park Refinance of newly rehabbed 168 unit tax credit project under
the waiver of the 3 year rule
Existing project that was gut rehabbed and was 50% occupied at completion; 100% of the units restricted to 60% AMI
Occupancy requirements for waiver: Sustaining Occupancy for 3 months prior to endorsement; 85% physical occupancy 3 months prior to endorsement. Sustaining occupancy for project calculated to be 83%. Project has a waiting list of over 400;
Completion estimated to be June 30; 100% occupancy estimated by August 15. Sustaining occupancy and 85% test estimated early August. 3 month tests require closing not before November 1.
Submission July 15, Firm Commitment September 15, closing November 1
Underwriting Issues Both projects incorporated green initiatives such as insulation,
windows, HVAC systems, water saving appliances and fixtures. Historical utility costs were therefore not relevant; there are firms specializing in estimating utility costs going forward based on the specific type of renovation involved
HUD requires the valuation NOI be based on market rents and expenses, therefore two NOIs have to be concluded by the appraiser and lender. Typical differences include: Higher market rents and tenant charges for market rate properties
Higher advertising expense for market rate properties
Higher payroll, administrative and management expenses for LIHTC properties
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