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IRS Issues COVID-19 LIHTC Relief Notice
The IRS issued Notice 2020-53, which provides COVID-19-related relief and revenue procedures for issuers, owners, operators and tenants of residential rental properties financed with Low-Income Housing Tax Credits. The notice allows certain time-sensitive actions, such as the 10% test for carryover allocations, the 24-month minimum rehabilitation expenditure period and reasonable period of casualty loss restoration or replacement, that were due from April 1-Dec. 30, 2020, to have a new deadline of Dec. 31, 2020. Additionally, the notice states that owners of properties are not required to perform certain income rectifications or adjust the eligible basis of a building due to temporary closure of common areas or amenities due to the pandemic and state agencies are not required to conduct compliance monitoring of those properties. To view the notice, click the Web Link provide below.
Industry Trends
"Diversify Into Affordable Housing Investing With LIHTC and HAP Deals"
"LIHTC Deals Face Increased Scrutiny Amid COVID-19"
"The LIHTC Market Weathers COVID-19 Pressures"
Congress
"Senators Introduce Tax Credit to Revitalize Distressed Homes"
IRS-Related Activities
"IRS Offers Relief on Low-Income Housing Tax Credits in Response to Coronavirus"
HUD-Related Activity
"RAD Road to Recovery—HUD Program, Tax Credit Offer Stable Investments"
Management and Compliance
"Thoughtful Design Can Create High-Quality Affordable Multifamily Housing"
Green Building
"Resilience in the Face of a Pandemic: Green Affordable Housing Matters More Than Ever"
Association News
NAAEI Announces Tax Credit Property Management Online Training
NAA Offers Free Diversity and Inclusion Resources
2020 Q2 Apartment Jobs Snapshot
Time to Start Preparing COQ Awards Applications
NAHMA Releases 2020 Affordable 100 List
Become a Specialist in Housing Credit Management® (SHCM®) Company!
Upcoming Events
Industry Trends
Diversify Into Affordable Housing Investing With LIHTC and HAP Deals
Forbes (06/08/20) Shoemaker, Kyle
Mutlifamily market-rate investors should consider Low-Income Housing Tax Credit (LIHTC) deals, especially as the COVID-19 crisis spurs demand for affordable housing. Although LIHTC deals involve multiple levels of capital financing linked to several government bodies, it is important for multifamily owners to be familiar with these transactions. Under the LIHTC program, tax credits are allocated to state housing finance agencies that are divided among pools of potential projects. Most states allocate competitive tax credits toward new construction. Pricing and other deal terms for noncompetitive credits are much stronger when a property has a project-based Section 8 Housing Assistance Payments (HAP) Contract. HAP contracts stay with the property as long as there is a tenant who qualifies, and the rent will primarily be paid through the contract. Typically, this is a direct contract with the Department of Housing and Urban Development, although housing authorities can issue them. There is a limited supply of these contracts and high demand from a niche group of investors, who in recent years are becoming more selective and making it harder to sell smaller properties under 100 units in tertiary markets. This could provide buying opportunities for investors willing to enter the affordable housing market.
LIHTC Deals Face Increased Scrutiny Amid COVID-19
Affordable Housing Finance (06/15/20) Kimura, Donna
Low-income housing tax credit (LIHTC) investors are being cautious as they examine possible risks related to the COVID-19 crisis. Market insiders note that deals that were agreed upon in late 2019 or early 2020 have largely been closing under their original terms. However, there has also been a slowdown in obtaining building permits and other approvals because city and county offices have been closed and employees have been working remotely. Dan Kierce, president of the Texas Affiliation of Affordable Housing Providers, says investors will need to exercise due diligence, such as by asking, "How is the general contractor going to keep everybody safe? Will there be any issues getting materials?" He notes that investors are spending more time evaluating the project sponsor in terms of "real estate-owned schedules and how those stand, how their portfolios are doing, and around their liquidity." In addition, people are examining what happens if a project is delayed by several months, such as whether there is sufficient cushioning in the budget or a cash developer fee to sustain the project. Jennifer Seamons, senior vice president and national equity sales manager at KeyBank Community Development Lending and Investment, says developers and others should not be overly aggressive in their assumptions; should go back to industry standards in terms of vacancy assumptions, reserves, and guarantee requirements; and focus on having deals with at least six months of operating reserves.
The LIHTC Market Weathers COVID-19 Pressures
National Real Estate Investor (06/01/20) Mattson-Teig, Beth
The ongoing COVID-19 economic crisis is prompting investors to reevaluate strategies and market risk. However, data indicates that rent collections have been averaging about 90 percent across the multifamily sector in April and May, enabling investors to be more confident about buying both Low-Income Housing Tax Credits (LIHTCs) and LIHTC-backed assets. A CohnReznick survey revealed that last year, approximately $18.3 billion of investor equity was closed in housing tax credit funds/investments. That volume reflects a 10.5 percent increase of $1.7 billion over the 2018 volume. Tom Pereira, director of structured finance at Boston Capital, says amid the COVID-19 economic crisis, "We have certainly seen investor demand that has fallen off a bit. That being said, deals are still getting done." CohnReznick says the median national price for tax credits in 2019 was $0.92, and the firm's latest survey as reported in its May 2020 Monitor is still showing prices that are averaging $0.915 for deals completed in March and April. However, some industry participants are seeing a slight drop in tax credit prices of three cents to four cents for both 4 percent tax credit and 9 percent tax credit deals. Investor activity is currently varied, with some investors actively bidding on deals while others wait to see how everything turns out in terms of the downturn, impact on ability for properties to collect rent, investment portfolios, and tax credit needs, says Pereira. He believes the appropriate deal right now for investors is 9 percent new construction deals that have some degree of government subsidy, such as Section 8. "Rent collections is what everybody is focusing on right now. So, the subsidy certainly alleviates a big part of that concern," Pereira asserts.
Congress
Senators Introduce Tax Credit to Revitalize Distressed Homes
Affordable Housing Finance (07/01/20) Kimura, Donna
The Neighborhood Homes Investment Act (NHIA), proposed by Sens. Ben Cardin (D-Md.) and Rob Portman (R-Ohio), calls for forming a new tax credit to encourage the revitalization of distressed single-family homes. The legislation is based on the Low-Income Housing Tax Credit (LIHTC) and New Markets Tax Credit, which have long been used for affordable multifamily rental housing and economic development projects. Benson "Buzz" Roberts, president and CEO of the National Association of Affordable Housing Lenders, notes, "Every state has neighborhoods like this where the numbers just don’t work." Backers of the bill (S. 4073) estimate the new credit would encourage private investment in approximately 500,000 homes that currently cannot be developed or rehabilitated because the costs exceed the value of the home. A companion bill (H.R. 3316) was introduced last year in the House. The NHIA would target neighborhoods in areas with poverty rates 130% or greater than the metro or state rate, incomes 80 percent or less than area median income, and home values below the metro or state median value. About 22 percent of metro areas nationwide and 25 percent of non-metro areas would qualify for NHIA investments. Roberts expects many of the same investors, financial partners, and developers active in the LIHTC market would utilize the new credit. He also thinks there is room in the market and enough investor appetite for another credit. The legislation is supported by Roberts' association as well as many other industry organizations.
IRS-Related Activities
IRS Offers Relief on Low-Income Housing Tax Credits in Response to Coronavirus
Accounting Today (07/02/20) Cohn, Michael
The Internal Revenue Service (IRS) is giving businesses more time during the COVID-19 pandemic to perform certain actions associated with Low-Income Housing Tax Credits (LIHTCs) and bonds for qualified residential rental projects. IRS' Notice 2020-53 provides regulatory and tax relief to issuers, operators, owners, and tenants of qualified low-income housing projects or qualified residential rental projects financed with exempt facility bonds, in addition to state agencies that have jurisdiction over such projects. For certain time-sensitive actions scheduled to be performed and requirements to be met on or after April 1, 2020, and before Dec. 31, 2020, owners and operators now have until Dec. 31, 2020, to perform the actions and satisfy the requirements. Furthermore, owners of qualified low-income housing projects are not required to perform some of the income recertifications or decrease the eligible basis in a building between April 1, 2020, and Dec. 31, 2020, because of the temporary closure of an amenity or common area due to the pandemic. State agencies that have jurisdiction over the projects also are not required to conduct compliance-monitoring. The Affordable Housing Tax Credit Coalition welcomed the relief, but cites additional legislative proposals and national affordable housing priorities, including a minimum 4 percent LIHTC rate.
HUD-Related Activity
RAD Road to Recovery—HUD Program, Tax Credit Offer Stable Investments
Bloomberg Tax (06/23/20) Soroka, Kathie
The Housing and Urban Development Department's (HUD) Rental Assistance Demonstration (RAD) program converts public housing and certain privately held housing into new rental assistance subsidy contracts. A 2019 HUD study of public housing RAD properties revealed that more than 90 percent of residents surveyed said their housing was better as a result of RAD. However, RAD rents tend to be lower than market, and many potential RAD transactions do not work without additional funding. As a result, pairing Low-Income Housing Tax Credits (LIHTCs) with RAD is a stronger combination because LIHTCs provide tax credits and depreciation losses to investors over 10 years in exchange for up-front equity investment. More than 40 percent of RAD projects use LIHTCs, but there is room for expansion. While the availability of competitive 9 percent LIHTCs is limited, most states do not use their full allocation of tax-exempt bond volume cap, which generates 4 percent LIHTCs as-of-right. A 2018 study by Cohn Reznick found that LIHTC properties experience foreclosure at rates considerably below 1 percent and much lower than traditional multifamily real estate rental properties. Even during the post-2008 foreclosure crisis, when conventional foreclosure rates rose above 4 percent, LIHTC properties experienced average foreclosure rates of less than 0.1 percent every year since 2000. Meanwhile, participant investors reported yields of 0.7 percent to 4.2 percent above the yields expected at closing.
Management and Compliance
Thoughtful Design Can Create High-Quality Affordable Multifamily Housing
Brookings Institution (06/17/20) Hoyt, Hannah; Schuetz, Jenny
Developers that are looking to build high-quality affordable housing should consider cost-saving strategies for the exterior shell, interiors and services. For the exterior shell, developers can create a dynamic facade by pairing simple, regular facades with a few big visual shifts and a mixture of higher- and lower-cost materials. Developers also should consider off-site construction as well as new materials such as cross-laminated timber and other alternative timber products. For the interiors of an affordable housing building, developers should design the layout and dimensions of units with flexibility and efficiency in mind. Moreover, developers can reuse designs and rotate floorplans to create variation at little cost. To control the cost of building services, developers should incorporate best practices for plumbing, such as stacking and standardizing kitchens and bathrooms, and develop building layouts that can use elevators efficiently. Also, investing in environmental performance offers a way to create long-term savings.
Green Building
Resilience in the Face of a Pandemic: Green Affordable Housing Matters More Than Ever
Shelterforce (05/29/20) Vermeer, Kimberly; Wells, Walker
As the COVID-19 pandemic continues to jeopardize public health, green building methods have become more important than ever. While some might consider green buildings an unaffordable luxury, the truth is that they are essential in boosting the health of residents, as well as removing economic stressors and building community engagement. Healthy, sustainable buildings will boost resilience to COVID-19 and other health emergencies, even if they were not constructed with pandemics in mind. Some elements of green buildings, including good ventilation, will protect residents against respiratory illnesses and airborne vectors. Green multifamily buildings can use air sealing systems that create compartmentalization for individual units, reducing the risk of cross-unit contamination. Moreover, green affordable housing reduces utility costs, alleviating stress on residents who may struggle to pay significant utility bills, especially in the midst of the pandemic. And many green building organizations prioritize community engagement, creating community spaces, resident services, and other programming to generate social cohesion and support during crises.
Association News
NAAEI Announces Tax Credit Property Management Online Training
The National Apartment Association Education Institute is offering a 12-hour online course to prepare students for the SHCM certification exam. The training topics include program regulations, unit eligibility, applicant eligibility and certification, documentation, recordkeeping, compliance reporting and monitoring. This course satisfies the education requirement to apply for the SHCM credential and will be available for purchase in August 2020. Click on the Web Link for more information.
NAA Offers Free Diversity and Inclusion Resources
The National Apartment Association offers many resources on its website to support individuals and organizations. Resources include scholarships and grants, best practices, a monthly webinar series, online courses, articles and a catalog of podcasts, books and videos. These resources are free to all members. Click on the Web Link for updates.
2020 Q2 Apartment Jobs Snapshot
NAAEI brings you its workforce update: The Apartment Jobs Snapshot, which highlights labor force trends in the rental housing industry. The profile examines total job posting trends by position and geography as well as average salaries, time required to fill a position and the top skills found in job postings.
Time to Start Preparing COQ Awards Applications
Are you a national recognized Community of Quality? Then enter the NAHMA 2020 Communities of Quality (COQ) Awards competition? The submission deadline to NAHMA is Nov. 5.
To enter the awards competition, a property must first apply for and achieve national recognition as a NAHMA Community of Quality with a minimum score of 325 points on its National Recognition application. The deadline for submitting an application to a local AHMA for consideration in the national program is Sept. 3.
The Communities of Quality (COQ) Awards recognize outstanding property management companies providing the highest quality of safe, affordable multifamily rental housing in communities across the country.
Judging is based on a point system that takes into account your National COQ Recognition Program application and the required COQ Awards application essay. All affordable multifamily properties may compete—it doesn’t matter how big or small your community may be, where it is located, or which affordable rental program (HUD, RD or LIHTC) it participates in. To download a copy of the COQ Awards brochure, click on the Web Link below.
NAHMA Releases 2020 Affordable 100 List
The National Affordable Housing Management Association (NAHMA) announces its 2020 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 issue of NAHMA News. 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 two 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) and the National Apartment Association Education Institute (NAAEI).
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
NAHMA Biannual Top Issues in Affordable Housing Virtual Fall Conference
October 26-30, 2020
More
NAA Apartmentalize
November 4-6, 2020
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