Industry News

"Affordable-Housing Efforts in NYC Could Spread Nationwide"
"Tax Credits, Plans Wither"
"Being Compliant"
"Affordable Housing Opportunities Highlighted"
"Make It Safe"
"Exploring Different Approaches for Preserving Affordable Housing Opportunities"
"Fund Could Jump-Start Affordable Housing in N.Y."
"$40M Green Affordable Housing Fund Will Help Build 500 Green Homes"
"Tapping FHA Funds"
"Going to the Next Level"
"LRA Moving Forward With Affordable Rental Program"
"Stimulus Plan Money to Help NH Housing"

"Affordable-Housing Efforts in NYC Could Spread Nationwide"
Washington Post (03/15/09) P. A3; Shulman, Robin

New York City's former housing commissioner, Shaun Donovan, is now secretary of the U.S. Department of Housing and Urban Development. He hopes to expand successful programs used in New York nationwide, such as a 10-year, $7.5 billion affordable housing project in 2004 that led to 165,000 units. In addition, he formed a $320 million acquisition fund that supplied capital for affordable-housing developers. The fund allowed these developers to bid competitively in the private market by merging city loans with bank guarantees. The program has since been replicated in Atlanta and Louisiana. A 2007 plan involved rezoning underused land for housing, enabling the creation of 1,833 units of affordable housing so far. The plan lets developers build market rate housing to maximum height only if they agree to construct low-cost residences as well. Donovan also made changes to a tax break that now requires developers to include affordable housing to get the break.
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Developers, nonprofits, and housing agencies were easily able to sell tax credits to investors in order to fund housing projects a few years ago. Missouri issued $162 million in credits to revitalize St. Louis in 2008. The low-income housing tax credit program had $8 million worth of funds in 2007 and helped to build 75,000 affordable-housing units. Another program called New Markets Tax Credits spent $3.5 billion to develop business in poorer areas. The economic downturn has brought development to a halt, decreasing the market by two-thirds, because most investors were large financial organizations who can no longer afford to buy tax credits. This year, nine billion dollars worth of credits were declared, but only $3 billion to $4 billion have been purchased by investors. "It's almost impossible to find investors right now," says Richard Baron, CEO of McCormack Baron Salazar, a St. Louis based affordable housing builder. "Very little multifamily housing is going to get built, because there's no money to do these deals." The tax credit market will recover if investors are profitable, which involves reviving the deflated economy.
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It is important that property managers be aware of changes to the Sec. 42 tax credit program at both the federal and state levels. For instance, it is now permissible for low-income families to transfer between buildings that are 100 percent LIHTC (low income housing tax credit) as well as between mixed buildings. However, a family's most recent certification must be reviewed to ensure their income remains below the 140 percent threshold. It is also important to determine if a building targeted for a transfer is actually a project or a building for tax credit purposes. This requires examining line 10b of a building's 8609 form. If an owner chose not to include each building in a multiple building project, each building is considered its own project, which would prohibit any transfers. Any transfers outside the building should not be allowed unless the family's income qualifies at move-in. Adequate documentation and verification data is essential in all cases, and management teams should designate a person who tracks the requirements of multiple programs. This person is responsible for finding potential disparities and creating a plan to deal with them prior to opening a project.
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To encourage the creation of affordable housing, governments should provide an initial subsidy to developers, said Margery Turner, vice president for research at the Urban Institute. This can take the form of tax credits, donated land, or block grants, she said, and such incentives need to be paired with regulatory tools. In Milwaukee, for example, the city government provided forgivable loans to developers that agreed to repair roofs, enhance energy efficiency, or bring buildings up to code in another way. These loans in effect become grants that pay for up to 50 percent of rehabilitation costs. Los Angeles' government keeps a database of landlords who fail to maintain their buildings. Landlords who cannot repair their properties due to a costly mortgage or other reason are offered low-interest loans to promote rehabilitation. Turner noted that some localities have new inclusionary zoning laws that require a portion of new apartment units to be allocated to low-income renters. Turner also encouraged cities' mayoral offices to collaborate with local housing authorities.
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Developers need to establish local links in order to curb crime in a community, says Mark James, project manager for affordable housing developer Community Preservation and Development Corp. (CPDC). He estimates it can cost between $20,000 to $40,000 per month to adequately secure a site. CPDC usually limits each property's entrances to one or two, and also sets up fences, adds new locks, and installs cameras. It is also advisable to visit a property during the day and night to identify problem areas and to ensure that lighting and other systems are working. CPDC typically hires a security consultant and security guards, and requires visitors to sign in to the property during the day and night. Furthermore, CPDC informs residents that it will enforce the terms of the tenant leases and property rules, and violations may result in evictions. When taking control of a newly acquired property, James says it is essential for project managers to meet with resident leaders individually in their own units, provide their cell phone number, discuss the property's security plans, and listen to residents' concerns.
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An increasing number of banks are using the federal Low Income Housing Tax Credit (LIHTC) within a "lease purchase arrangement." The banks serve as a limited partner investor with a nonprofit organization, and create an entity that oversees the property acquisition, rehabilitation, and rental of housing units. In addition, the bank provides construction financing to the nonprofit toward property renovation. When the property is ready to be leased, proceeds from the LIHTCs provide the long-term funding for the properties. The LIHTC program usually calls for a percentage of the units in a project to be occupied by low- or moderate-income households for at least 30 years. After the firsts 15 years, the LIHTC program requires an additional 15-year binding commitment to maintain property as affordable housing. An exception to the LIHTC rules, however, lets tenants exercise a right of first refusal to purchase the property in year, allowing the nonprofit to manage the property over the initial 15-year tenancy period and renting it to eligible, low-income tenants while applying rent payments to service the LIHTC debt. When the purchase option is implement, a tenant/home buyer obtains a mortgage for the balance of the LIHTC debt that is attributable to that property so that payments remain affordable.
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Legislators in New York have developed the Upstate Equity Fund in order to stimulate funding of affordable-housing construction by financial companies. The economic downturn has stalled investing and construction because financial institutions have smaller profits, so they do not need tax credits to assist with the cost of paying taxes. Although investment in tax credits has slowed, proponents of the Upstate Equity Fund feel that the market will revive with the help of the program. They also argue that the need for affordable housing, especially rented units, will increase because of the recession, since citizens do not have as much money to spend on residences. Demand for affordable housing in conjunction with the Upstate Equity Fund will help the construction industry, which is also suffering. "We think it's just a great way to bring together these two sectors . . . And a way to make these scarce public dollars go as far as they can by bringing in this private investment," says Deborah VanAmerongen, commissioner for the Income Housing Tax Credit.
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In California, a coalition comprising Enterprise Community Investment and four long-term financial partners have created a housing fund for green, affordable housing. The $40 million Enterprise California Green Communities Fund will help finance 500 energy-efficient, affordable homes through the syndication of federal low-income housing tax credits (LIHTC) equity. The homes will be located in Los Angeles, Oakland, and metropolitan San Francisco, and investors include U.S. Bancorp Community Development Corp., Wells Fargo & Co., Merrill Lynch Community Development Corporation, and MetLife. Each development will adhere to national standards for green, affordable housing set by Enterprise Green Communities. The homes will feature such things as rooftop solar panels, hydronic space heating, and Energy Star appliances in an effort to reduce utility costs and the homes' environmental impact. "We anticipate launching more financing tools like this in the near future and will continue connecting capital to communities to provide green, affordable housing," said Rich Gross, vice president of California Initiatives, Enterprise Community Partners.
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Recent changes to the Sec. 221(d)(4) program have made it more compatible with LIHTCs (low-income housing tax credits). These include a simplified process where the submission of final plans and specifications can be delayed until the Department of Housing and Urban Development (HUD) issues its commitment. HUD has also slashed the equity needed at construction closing to a recommended minimum of 20 percent. The Sec. 221(d)(4) program offers a non-recourse construction-to-permanent loan with a maximum amortization of 40 years. The debt-coverage factor remains at 1.15x, and the low interest rate is locked in at construction closing. It is advisable to bring in a lender early during a project's planning phases, which can facilitate the selection of architect, contractor, and others. Furthermore, it is essential that the entire team have experience with HUD and that developers meet with the HUD office to present the deal. This will allow HUD to get involved prior to submitting the application, and potentially provide feedback on other recently closed deals submitted under the revised rules.
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Since implementing a green modular home design program in 2005, students at the University of Virginia's School of Architecture have created three prototype designs that are at least 50 percent more energy efficient than traditional home models yet are affordable in price. The ecoMOD program acts as a local partnership between the school and the community under which students design homes for real-life use, said John Quale, an assistant professor at the School of Architecture. The models include a two-unit condominium, a stand-alone family home, and a refurbished historic residence. Each home contains energy-reducing features such as solar paneling, rainwater collection systems, c-shaped steel beams, high-insulation windows, solar hot-water heating, and high-performance appliances. Engineering students working with the project also have created a real-time updating system that allows the homeowner to see how much energy is being used in various areas of the home. Ultimately, the factory-built housing interests are expected to design home plans based on the ecoMOD creations for affordable housing groups and low- and middle-income home buyers.
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To meet a shortage of available rental units, the Louisiana Recovery Authority (LRA) is implementing a new program to replenish the affordable housing stock in the New Orleans metro area. More than 82,000 units of rental housing statewide were either destroyed or sustained major damage by Hurricane Katrina, including 44,130 in the New Orleans market. The LRA reports that it has a number of programs to support increased rental housing. Some legislators are worried that, with so many apartment vacancy signs posted throughout the city, the government-sponsored programs are potentially putting more units on the market than necessary. LRA Deputy Director Robin Keegan counters that her agency's programs are helping to provide new or renovated rental apartments in a number of locations throughout the metro area. In doing so, LRA is helping to fill niches and provide neighborhoods with mixed-income housing. Rental rates in and around New Orleans are 52 percent higher than pre-Katrina levels, according to recent LRA research. For instance, the average two-bedroom apartment that rented for $661 per month five years ago would now be at $1,030. Keegan, though, cautions that metropolitan New Orleans may be seeing a general decrease in monthly rents and an increase in vacancies--possible proof that the market is settling down. The eventual goal for LRA's small rental program is approximately 8,500 affordable units.
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Low-income residents, seniors, and families in New Hampshire will have access to an additional $8.2 million in tax credits through the state's Low Income Housing Tax Credit (LIHTC) Program. The funds, part of President Obama's economic stimulus plan, exceed the combined tax credits distributed by the New Hampshire Housing Finance Authority (NHHFA) in the past two years, officials say. Authority spokesperson Jane Law says the demand for senior and family housing in recent years has tripled the supply. Currently there are $5.57 million in pending applications for the tax incentive, which Law says is awarded on a competitive basis. Projects that have received the credit in the past average between 20 and 35 units, though the NHHFA gave its smallest award--$198,481 for 10 units at the Lafayette School in Portsmouth--and its largest--$669-661 for a 72-unit development in Manchester--in 2008. Developers use the proceeds from sold tax credits to subsidize housing for individuals and families earning between 30 percent and 60 percent of the area median income, said an official from Anagnost Properties, a development firm that has benefited several times from the LIHTC program.
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