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HUD Secretary-Designate Testifies
On Jan. 12, the Senate Banking, Housing and Urban Development Committee held a nomination hearing for Department of Housing and Urban Development (HUD) Secretary-designate, Dr. Ben Carson. Overall, the hearing largely focused on Carson’s past comments about poverty, housing assistance, fair housing law, veteran homelessness and the LGBT community. To read Carson’s written testimony, click on the Web Link provided below.
Industry Trends
"Post-Election Impacts on 4 Percent LIHTC and Tax-Exempt Debt Financing"
Tax Issues and Tax Reform
"Presidential Election, Impending Tax Reform Create Uncertainty Among LIHTC Participants"
HUD-Related Activity
"Carson Pushes for Public–Private Partnerships"
State and Local Activities
"New York Secures the Most Affordable Housing Units in 27 Years"
"HUD: City's Subsidized Housing Procedures Promote Segregation, Violate Civil Rights Act"
Management and Compliance
"Ways to Measure Property Performance"
"The Current: Things to Know When Combining Renewable Energy and Low-Income Housing Tax Credits"
Association News
Expiring PAC Renewal under Section 202
Section 8 Housing Assistance Payments Program: Annual Adjustment Factors
Capital Needs Assessment e-Tool Available
Broadband Rule in Effect
Resources for Homeless Preference
NAHMA Releases 2016 Affordable 100 List
Become a Specialist in Housing Credit Management® (SHCM®) Company!
Upcoming Events
Industry Trends
Post-Election Impacts on 4 Percent LIHTC and Tax-Exempt Debt Financing
Affordable Housing Finance (01/13/17) Norris, Wade
Syndicators are largely remodeling their deals based on an assumed 20 percent to 28 percent corporate tax rate. The decrease in 4 percent LIHTC pricing thus far appears to fall in the range of 7 to 8 cents up to 15 to 18 cents, depending on the deal, with the sweet spot at 10 to 12 cents on average. Meanwhile, by some estimates, apartment rents have climbed by more than 20 percent in the U.S. since the recent bottom in 2009, and the shortage of affordable rental housing in the United States today is greater than any time in the recent past. Almost no markets seem to be substantially over-built, and there is no oversupply of affordable rental housing in any major market. According to the 2016 Harvard Joint Centers study, the number of American families who are severely rent burdened—paying over 50 percent of their income for housing— grew by 23 percent to 11.4 million from 2008 to 2014. However, volatility and uncertainty will likely be higher in the immediate future, and the industry will face challenges on the financing side of these deals. A strategy of renegotiating and closing deals which are still viable, or with reasonable concessions can be made viable in the current environment, would appear to be a more productive strategy than a "let's wait and see if it gets better" approach.
Tax Issues and Tax Reform
Presidential Election, Impending Tax Reform Create Uncertainty Among LIHTC Participants
Novogradac (01/04/2017) Vol. 08, No. 1 O'Meara, Mark
As President-elect Donald Trump takes office on Jan. 20, the low-income housing tax credit (LIHTC) industry is waiting to see what tax reform may look like. Todd Crow, executive vice president, manager of tax credit capital at PNC Bank, says the uncertainty surrounding tax reform has been somewhat disruptive to the market since the election. Industry experts expect the corporate tax rate to potentially lower from 35 percent to 15 percent over a period of time. "To offset the effects of lower rates, the price paid for tax credits must be reduced," explains Crow. "The lower the marginal tax rate, the greater the impact to tax credit pricing. Many LIHTC developments will require new funding sources to offset the reduction in equity proceeds." Christine Cormier, senior vice president of investor relations at WNC & Associates, is concerned that if the corporate tax rate drops too low, "then alternative investments may start to look more favorable, which would pull money away from the market." Vihar Sheth, director, business development at U.S. Bancorp Community Development Corporation, asserts, "Pricing is still very aggressive." He notes that although U.S. Bank invests in more 9 percent LIHTC developments, for instance, the growth is happening in the 4 percent sector. While yields are low, Sheth has not seen investors losing interest in the LIHTC program. "People keep saying they have a floor of when they will leave from a yield standpoint, but no one leaves and we keep breaking through these floors," he says.
HUD-Related Activity
Carson Pushes for Public–Private Partnerships
Affordable Housing Finance (01/12/17) Kimura, Donna
Retired neurosurgeon Ben Carson called for a "holistic" approach to addressing the nation’s affordable housing problem when he appeared before the Senate Committee on Banking, Housing and Urban Affairs on Jan. 12 as part of the confirmation process to head the Department of Housing and Urban Development (HUD). He emphasized a need for more public-private partnerships as well as potentially bringing more clinics to neighborhoods. During the session, Carson tried to allay concerns that he opposes fair housing efforts and would take a hard line on moving people off long-standing assistance programs. Sen. Sherrod Brown (D-Ohio) asked Carson to explain comments he made in a controversial 2015 Washington Times article that critiqued HUD’s then-new fair housing rules, which Carson described as a "government-engineered attempt to legislate racial equality." Carson replied that his position has been distorted. "We have local HUD officials and we have people who can assess what the problems are in their area and working with local officials can come up with much better solutions than one-size-fits-all, cookie-cutter programs from people in Washington, D.C.," Carson said in response. Other critics also expressed concerns that Carson does not support many of the agency's core programs. Carson said he supports some type of "backstop" like Fannie Mae and Freddie Mac but is in favor of introducing more private entities into the market.
State and Local Activities
New York Secures the Most Affordable Housing Units in 27 Years
New York Times (01/12/17) Bagli, Charles
New York City Mayor Bill de Blasio announced on January 12 that the city built or preserved 21,963 units of housing in 2016 for poor and working-class residents, the most since 1989. The total includes 6,844 apartments in newly constructed buildings, according to data provided by city housing officials. These apartments are earmarked for families and individuals who meet income requirements, with about 35 percent of the units set aside for three-person households making no more than $40,800. de Blasio made affordable housing a centerpiece of his administration, pledging to build or preserve 200,000 units over the next decade. Over the past three years, the capital funding for the city’s housing agency has doubled, rising to $798 million this year, from $400 million in 2014. Affordable housing remains a challenge, given the city’s increasing population, the demand for housing at all income levels, and a wave of luxury development that has washed over nearly every neighborhood in the city. The de Blasio administration has increasingly sought to earmark more affordable apartments for New Yorkers with what are called very low and extremely low incomes. About one-fifth of the apartments — far above the 8 percent goal set in the city’s housing plan — built or preserved in 2016 were for those earning less than $25,000.
HUD: City's Subsidized Housing Procedures Promote Segregation, Violate Civil Rights Act
Houston Chronicle (01/13/17) Elliott, Rebecca
The U.S. Department of Housing and Urban Development (HUD) is criticizing Houston Mayor Sylvester Turner's recent rejection of a subsidized housing project called Fountain View near the Galleria. The HUD said the city violates the federal Civil Rights Act by paying too much attention to "racially motivated opposition" from neighborhood residents. HUD's findings, detailed in a 14-page letter, also faults the city for "blocking and deterring affordable housing proposals in integrated neighborhoods," and calls for Houston officials to implement a series of corrective actions. These include providing the remaining construction costs for the Houston Housing Authority's proposed 2640 Fountain View complex, which Turner blocked in August, or financing an alternative in a so-called "high-opportunity" census tract. HUD also instructed the city to develop a formal policy to ensure the placement of tax credit housing does not maintain segregation, establish a local fair housing commission to diminish segregation, and help housing voucher recipients find homes in low-poverty neighborhoods. "The city's refusal to issue a resolution of no objection for Fountain View was motivated either in whole or in part by the race, color, or national origin of the likely tenants," Garry Sweeney, director of HUD's Fort Worth's regional office of fair housing and equal opportunity, wrote in a letter to Turner. "More generally, the department finds that the city's procedures for approving low-income housing tax credit applications are influenced by racially motivated opposition to affordable housing and perpetuate segregation."
Management and Compliance
Ways to Measure Property Performance
Affordable Housing Finance (01/05/17) Kimura, Donna
Economic vacancy is the most useful measure of property performance. Economic vacancy measures rent earned net of concessions and bad debt as a percentage of the rent being charged. The gold standard for managing actual performance is a realistic but aspirational budget, according to Jenny Netzer, CEO of TCAM, a firm that provides asset management and advisory services to affordable housing owners and funders. The best operators establish annual operating budgets based on historical performance, research, and specific capital, leasing, and maintenance plans for the property. Stakeholders increasingly want to know every year what will actually be available for distribution once all required debt has been paid off, cash has been set aside for short-term payables, all reserves have been funded, and all releases of reserves have been taken into consideration. Operating costs per unit is another performance metric, and Jeff Dowd, partner at CohnReznick, says the industry is benefiting from access to solid data. There is also the standard cash-flow metric, which is defined as total net operating income net of operating expenses, required replacement reserve contributions, and mandatory debt services on the so-called hard debt.
The Current: Things to Know When Combining Renewable Energy and Low-Income Housing Tax Credits
Novogradac Journal of Tax Credits (01/17) Vol. 08, No. 1 Milder, Forrest D.
For a renewable facility to also generate a low-income housing tax credit (LIHTC), the renewable component must be part of the housing development's basis when the LIHTC is computed, which is at the end of the first year the LIHTC is claimed. Renewable energy tax credits (RETC) are allocated in accordance with the entity's income, meaning that the RETC investor must be allocated 99 percent of the company's income to get 99 percent of the RETCs. LIHTCs, in contrast, are allocated in accordance with depreciation deductions, which means that the LIHTC investor is generally allocated 99 percent (or more) of the partnership's losses to get 99 percent (or more) of the LIHTCs. If an LIHTC deal also has RETCs, tax advisers usually require the management fee to be a fixed amount or a percentage of gross revenue, and not available cash. Unlike the RETC, which is all taken when a facility is placed in service, the LIHTC is taken over 10 years, and the recapture period runs for 15 years. That means a far longer relationship between investor and developer than the minimum five-year period that is associated with most RETC transactions. Moreover, a qualified allocation plan (QAP) must give better scores for housing developments that have renewables. While the same expenditure can qualify for both the LIHTC and the RETC, however, the state agency may choose to award fewer LIHTCs than requested.
Association News
Expiring PAC Renewal under Section 202
The Department of Housing and Urban Development (HUD) issued a memo containing instructions for renewing Project Assistance Contract (PAC) under Section 202 for FY 2017. The instructions provide guidance to field offices processing renewals for PACs expiring between Oct. 1, 2016-April 28, 2017.
Offices can continue to process renewal contracts expiring after April 28, but these contracts may not be signed until congressional action covering the time frame of renewal. PAC renewal requests should be submitted to field offices no later than 120 days prior to the expiration of the contract and shall not exceed a renewal term of one year.
Owners must submit an operating budget for all projects with an expiring PAC. If an increase in project assistance is requested, a detailed report on project needs and reasons for the increase must be provided, including the necessary increases to the Reserve for Replacement Account.
To read the memo click on the Web Link provided below.
Section 8 Housing Assistance Payments Program: Annual Adjustment Factors
HUD announced the fiscal year 2017 Annual Adjustment Factors for assistance contract rents, which are required to be adjusted annually. The factors are based on a formula using residential rent and utility cost changes and are applied at the anniversary of the Housing Assistance Payment contracts for which rents are to be adjusted. A separate notice identifying the inflation factors for FY 2017 tenant-based rental assistance funding has not yet been released. To view the notice, visit NAHMA’s website. To view the FY 2017 AAFs, click on the Web Link.
Capital Needs Assessment e-Tool Available
HUD introduced the Capital Needs Assessment (CNA) e-tool, which became available for voluntary use beginning Jan. 15. Starting July 1, use of the CNA e-Tool will become mandatory for each capital needs assessment prepared for a HUD multifamily property. During this six-month phase-in period, participants will receive training and other assistance to gain proficiency with using the CNA e-tool. Trainings and instructions for the CNA e-tool are available by clicking on the Web Link provided below.
Broadband Rule in Effect
In December, HUD released its final rule on Narrowing the Digital Divide through Installation of Broadband Infrastructure in HUD-Funded New Construction and Substantial Rehabilitation of MF Rental Housing, which became effective on Jan. 19. In this final rule, HUD requires installation of broadband infrastructure at the time of new construction or substantial rehabilitation of multifamily rental housing that is funded or supported by HUD, while allowing for limited exemptions to the installation requirements. Read the rule by clicking on the Web Link.
Resources for Homeless Preference
HUD added several online resources in late December for owners and agents to use regarding the homeless admissions preference. Among the resources are a short video, Owners and Agents Share their Experience, and two webinars: An Overview for Property Owners and Agents, and An Overview for Continuums of Care and Service Providers. For access to HUD’s resources on homeless preference, click the Web Link provided below.
NAHMA Releases 2016 Affordable 100 List
The National Affordable Housing Management Association (NAHMA) announces its 2016 Affordable 100—a list of the 100 largest affordable multifamily property management companies ranked by affordable unit counts—is available on its website, click Web Link below, as well as in the June issues of Affordable Housing Finance magazine and Units magazine. The NAHMA website version expands the list to the top 120 largest multifamily property management companies. In addition, the online version presents two specialty lists: the 25 largest housing credit (LIHTC) property management companies and the 25 largest Rural Development program property management companies.
Become a Specialist in Housing Credit Management® (SHCM®) Company!
The three national associations sponsoring the Specialist in Housing Credit Management® (SHCM®) certification program invite your company to become a Specialist in Housing Credit Management® Company, a corporate designation created specifically to honor management companies that successfully maintain a significant portion of their properties and staff to the high standards of the SHCM certification program.
The SHCM program, developed especially for management companies involved with properties developed and operated under the Low-Income Tax Credit (LIHTC) program, is sponsored by the National Affordable Housing Management Association (NAHMA), the National Apartment Association Education Institute (NAAEI), and LeadingAge.
Earning the SHCM Company designation publicly demonstrates that a company is among the finest managers of LIHTC housing in the industry.
For more details on how to become a SHCM Company, click on the Web Link below.
Upcoming Events
NAA Student Housing Conference & Exposition
February 14-15, 2017
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NAHMA Federal Affairs Issues (Winter) Meeting
March 5-7, 2017
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NAA Education Conference & Exposition
June 21-24, 2017
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NAHMA Regulatory Issues (Fall) Meeting
October 22-24, 2017
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