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Save the Date — AAHSA’s Legislative Conference —
April 11-13, 2011

AAHSA will hold its Future of Aging Services conference April 11-13 in Washington, DC at the Marriott Wardman Hotel. This is AAHSA’s annual advocacy meeting where AAHSA members across the continuum of aging services make their voices heard on Capitol Hill about the policies and funding priorities that AAHSA members support to ensure that seniors receive the services they need, when they need them, in the place they call home. For housing members it will be the time to learn about the new Congress and to advocate on behalf of funding and new policies for the Section 202 program that may be introduced.


Association News
AAHSA Submits Comments on HUD Section 202 Reform
AAHSA Joins Letter on Tax Credit Implications of the HUD 202 Proposal
AAHSA Comments on Section 8 Renewal Guide
NAHMA Offers Green Housing Management Publication
NAHMA Offers Tax Credit Housing Management Publication

Industry News
"Fate of Affordable Housing Trust Fund TBD"
"Deficit Commission Leaders Hit LIHTCs, Other Programs"
"Surviving the Cycle"
"Tax Credit Cuts Would Save Missouri $220 Million a Year, Commission Says"
"Panelists: LIHTC Equity Market Needs Stability"
"House Hears Possible Role GSEs Will Play in Rental Assistance"
"Should the Government Do More to Encourage Renting?"
"The Community Reinvestment Act Shows Its Age"
"Landrieu to Push GO Zone Extension; Tax Credits Key to Building Projects"
"Green Building Goes on a Budget"
"Low Rates Hurt Bonds for Housing"
"History and the Hill: Can Effective-Yield Accounting Boost Investor Interest in the HTC?"
"Partnership for Sustainable Communities Awards Grants to Build Infrastructure Nationwide "
"Home Sweet Apartment Home"

Association News

AAHSA Submits Comments on HUD Section 202 Reform

On Nov. 15, 2010, AAHSA submitted formal comments to the U.S. Department of Housing and Urban Development (HUD) regarding its draft proposal to reform the Section 202 program. HUD’s intent in drafting the proposal is to make the Section 202 dollars go further, to bring the Section 202 program more in line with today’s development realities, and to make the Section 202 program the platform for the delivery of supportive services. Among the major changes suggested by HUD are converting the program to a gap financing program, requiring applicants to dedicate units to frail seniors, expanding applicant eligibility and changing the rental subsidy program to project based Section 8 in order to support debt service. Read an outline of the proposal via the link below.

AAHSA proposed outlining a series of principles to guide the suggested changes. While formal legislation has not been introduced and is not expected until the new Congress in 2011, AAHSA has recommended the following to guide any changes to the program. The Section 202 program should:
• Increase production and easily leverage other funding.
• Lead the process, not be a mere gap filler.
• Serve very low income seniors so that those who are served can safely age in place.
• Focus on housing with services for elders so that Section 202 can be shown as a lower-cost solution to much higher costs elsewhere in the service delivery system.
• Be targeted to traditional non-profit sponsors who have been the most significant advocates for the program historically.
• Solve the growing PRAC-renewal funding problem.

HUD’s proposal was released in early October 2010 to comply with the agency's announced intention in the Administration’s FY 2010 budget to provide legislative changes for the 202 program.

Read AAHSA's final comment letter on the HUD Section reform 202 proposal by following this link:

Download AAHSA's recommended changes to HUD's proposed Section 202 reform legislation by following this link:

AAHSA Joins Letter on Tax Credit Implications of the HUD 202 Proposal

AAHSA, Enterprise and SAHF have sent a joint letter to HUD on the Section 202 reform proposal and the issues it poses for low income housing tax-credit (LIHTC) mixed-finance deals. Among the primary concerns that the organizations have asked HUD to address are the timing of the new Section 202 commitments with the various state tax credit deadlines, coordinating Section 202 funds to maximize developer's ability to leverage dollars, and considering how investors will perceive rental assistance conversion to project based Section 8 rental assistance and new service delivery requirements.

Read the joint letter from AAHSA, Enterprise and SAHF on the HUD Section 202 proposal via the link below.
AAHSA Comments on Section 8 Renewal Guide

AAHSA submitted comments on November 15 to HUD regarding draft revisions posted in July and September to the Section 8 renewal guidebook. AAHSA's comments focus primarily on the late addition of changes that would fundamentally alter the assumptions regarding renewal and rent setting options for “exception rents” (often referred to as Option 4 renewals/adjustments). The proposed change effectively establishes a cap based on a required rent comparability study. Under the law, exception project rents are capped at the lesser of existing rent plus OCAF and budget based rents, recognizing for Section 202 properties particularly that they are not eligible for mortgage restructuring under MAHRA and that their rents were often above market from the start. This change could require marking rents down to market and additional restructuring of previously refinanced Section 202 properties that were underwritten at current Section 8 rents.
Read AAHSA’s comments via the link below.
NAHMA Offers Green Housing Management Publication

A new publication, Green Housing: A Practical Guide to Green Real Estate Management, is now available from the National Affordable Housing Management Association (NAHMA). The 82-page spiral-bound book is an informative yet easy-to-read primer on green real estate management, and covers all of the basic concepts, such as energy efficiency, indoor environmental quality, resource efficiency, site sustainability, water efficiency, integrated pest management, tenant green education, and creating a green operation and maintenance plan.

According to a recent report by the U.S. General Services Administration, green buildings have 13% lower maintenance costs and consume 26% less energy. Though there is a common perception that “going green” can be cost-prohibitive, property management professionals and building owners and developers are discovering that greening their properties is not only cost-effective but can be truly profitable. Green Housing, by real estate professional and certified green-building expert Barry P. Weaver, is a timely manual for those who have the desire but not a great deal of capital to accomplish green upgrades.

The book may be purchased for $35 per copy, plus $5 shipping and handling, via NAHMA’s webstore via the link below.
NAHMA Offers Tax Credit Housing Management Publication

The comprehensive "A Practical Guide to Tax Credit Housing Management" is available from NAHMA. The 74-page spiral-bound book is an informative yet easy-to-read primer on tax credit housing management.

The user-friendly guide will help you understand key concepts in the Low Income Housing Tax Credit (LIHTC) program, including Fractions and Credits, Eligible Basis, Qualified Basis, Minimum Set-Aside, Rules of Calculation of Income, Student Households, Amenities and Services, Non-Transient Occupancy, and more.

In addition, the book is designed as a referencew guide for the Specialist in Housing Credit Management® (SHCM®) certification. The SHCM program is unprecedented as the only national certification program supported by three national trade associations and their members. Joining NAHMA in the strategic alliance are the National Apartment Association Education Institute (NAAEI) and the American Association of Homes and Services for the Aging (AAHSA).

The publication can be ordered at NAHMA’s webstore via the link below.

Industry News

Fate of Affordable Housing Trust Fund TBD (11/29/10) Morphy, Erika

The fate of the National Housing Trust Fund (NHTF), currently languishing in Congress for lack of funding, may be uncertain until the next Congress. A bill funding the NHFT passed the House and is currently part of the Senate's extender bill, which may not pass. The Senate extender bill contains $1 billion for the NHTF, $65 million for project-based vouchers to be used in NHTF units, and provisions to extend the Low Income Housing Tax Credit exchange program for one year. It also extends the placed in service deadline for the Gulf Coast's Gulf Opportunity Zone tax credits. All of these items have been fully offset by cuts elsewhere. Additionally, there are several long-time Republican supporters of the measures, potentially helping the measure to move as a standalone bill or as part of a larger tax bill that will deal with the expiring Bush tax cuts. However, prospects of any action during the current lame-duck session remain uncertain. In early December, Senate Republicans said that they will block debate on all legislation, including the extender bill, in the lame-duck session until the fight over the Bush-era tax cuts and an extension of government funding is resolved.

Deficit Commission Leaders Hit LIHTCs, Other Programs
Affordable Housing Finance (11/10) Kimura, Donna

The co-chairs of the National Commission on Fiscal Responsibility and Reform, also known as the Deficit Commission, are proposing to cut $1.1 trillion in tax expenditures. The draft plan refers to tax programs in general and does not specifically mention housing bonds or LIHTCs (low income housing tax credits). It also enables leaders to retain any preferred programs and pay for them by increasing tax rates, but affordable housing leaders are still very concerned. Additionally, the plan calls for discretionary spending to roll back to fiscal 2010 levels in fiscal 2012 as well as a 1 percent cut in discretionary budget authority every year from fiscal 2013 through 2015. A final report is due by Dec. 1, and 14 of 18 commission members must agree to the plan for it to move to Congress. David Gasson, a vice president at Boston Capital and executive director of the Housing Advisory Group, says the LIHTC industry must organize and prepare its case for the tax credit. During the recent AHF Live: The 2010 Affordable Housing Developers’ Summit in Chicago, developers were urged to invite lawmakers to events at their developments -- such as grand openings -- and highlight the jobs created by their LIHTC projects. U.S. Rep. Jan Schakowsky (D-Ill.), a commission member, said the "proposal would have serious consequences for lower- and middle-class Americans, and that is why I cannot support it."

Surviving the Cycle
Journal of Property Management (10/10) Vol. 75, No. 5, P. 29 Hunt, Kristin Gunderson

Previous downturns can offer real estate managers valuable lessons on how to approach today's market and how to cope with the cyclical nature of the business in the future, according to Larry Baiamonte, CPM, a senior investment professional in the real estate equities division at Nationwide Insurance in Columbus, Ohio. "The benefit of comparing and contrasting is to learn from history and take the lessons of what worked and didn't work and apply them to today's downturn so we can make the best of it," says Baiamonte. The Congressional Oversight Panel's February 2010 oversight report, "Commercial Real Estate Losses and the Risk to Financial Stability," reveals that commercial property values have declined by more than 40 percent since the beginning of 2007. Vacancy rates range from 8 percent for multifamily housing to 18 percent for office buildings. Moreover, the largest commercial real estate loan losses are expected to occur in 2011 and beyond, with banks potentially seeing $200 billion to $300 billion in losses. Property owners believe they could see a higher vacancy rate, lower rents, and higher turnover costs. Some plan to focus more on providing good service, knowing that keeping tenants costs less than downtime with vacancies. Ultimately, being realistic about the market can help keep property managers from making costly management and business mistakes.

Tax Credit Cuts Would Save Missouri $220 Million a Year, Commission Says
Kansas City Business Journal (11/30/10) Volkmann, Kelsey

A commission appointed by Missouri Gov. Jay Nixon has recommended making sweeping cuts to its tax credit programs, including low-income housing tax credits, claiming the changes would save the state as much as $220 million annually. The bipartisan Missouri Tax Credit Review Commission suggests reducing the state low-income housing tax credits from $160 million, or about $16.5 million a year for 10 years, to five years.

Panelists: LIHTC Equity Market Needs Stability
Novogradac Journal of Tax Credits (11/10) Vol. 1, No. 11, Hill, Jennifer

Tax credit syndicators and lenders historically contextualized the current status of the low-income housing tax credit (LIHTC) equity market and debated the market impact of new investors at the Novogradac & Co. affordable housing tax credit conference. "2009 began as a product-rich, capital-restrained year and it's turned around 180 degrees," noted Enterprise Community Investment executive Raoul Moore. "We're a product-short, capital-rich environment these days." This year's market upswing was buttressed by the arrival or return of shareholders from outside the financial services domain, and Boston Financial Investment Management CEO Greg Judge said that insurance firms have comprised the majority of most new investors. "Tax credits aren't as sexy [as other investments] because they don't have huge growth, but they also don't have huge downsides," he pointed out. Judge is concerned, though, that many of the new investors will duck out as yields start to decline. Conversely, firms investing in LIHTCs for the first time must devote considerable effort to learning about the market, so they may be hesitant to depart. RBC Capital Markets director of investor relations Russell Ginise said insurance companies frequently hunt for investments in states where they do business or are exposed to premium taxes. Panelists speculated about further expansion of the investor base following the realization of regulatory measures such as Community Reinvestment Act (CRA) reform or the allowance of the effective-yield method for non-guaranteed transactions. Judge noted, however, that the latter's effect on insurers would be dampened due to the type of accounting they employ. In point of fact, banks' CRA responsibilities are supporting an artificial market where prices in popular markets have soared to more than 90 cents for some transactions, according to Ginise. "I don't think it's sustainable for an industry, but it's where we are now," he said. Ginise pointed to a faster than expected hike in pricing, and warned that "we're moving toward a softening of terms and no one on the investor side likes it." He thinks CRA reform could stabilize the market, while Judge said that to a lesser degree developers should bear rapidly rising LIHTC prices in mind. "Don't be greedy," he recommended. "We have to remember what we went through [last year] and feel fortunate that things are working out."

House Hears Possible Role GSEs Will Play in Rental Assistance
Housing Wire (09/29/10) Prior, Jon

The future of the government-sponsored enterprises (GSEs) was the topic of a Sept. 29 hearing of the U.S. House Financial Services Committee. National Housing Trust President Michael Bodaken testified that without Fannie Mae and Freddie Mac, the rental market would have "frozen" in 2008 and 2009. The GSEs or some version of the companies should offer apartment financing in the future, he said. Bodaken pointed out that the GSEs' delinquency rate for multifamily properties remained below 1 percent from 2005 to 2008, while single-family houses surged from 5 percent to 11.5 percent. However, Georgetown University McDonough School of Business visiting professor Phillip Swagel said the GSEs should not be in charge of rental assistance. "For reform of housing finance, it is essential that these activities be part of the public sector and not carried out within successor firms to the GSEs," he said. "Congress should vote on the use of all public resources, including for affordable housing activities." According to U.S. House Financial Services Committee Chairman Barney Frank (D-Mass.), the GSEs should follow the lead of the Federal Home Loan Banks and devote a fixed percentage of profits to subsidized housing, or rental housing in this case.

Should the Government Do More to Encourage Renting?
Fox Business (10/28/10) Bergsman, Steve

The federal government has numerous policies to support homeownership, including the mortgage interest deduction, but federal policies to benefit renters focus on low-income households. "We are subsidizing the wealthier homeowners and the poorer renters," says National Multi Housing Council (NMHC) President Doug Bibby. "We should still subsidize the poorer renters, but we are oversubsidizing the wealthy homebuyers." Those who believe the government overemphasizes homeownership believe houses should no longer be promoted as investment vehicles. The Clinton and Bush administrations encouraged homeownership with the belief that homeowners benefit neighborhoods more than renters. However, Bibby states, "There is not a shred of evidence showing that a homeowner is a better citizen than a renter." He adds, "Demographics and household formation are organically re-creating a positive attitude toward renting. Downsizing baby boomers, echo boomers, new immigrants, and the fact that married couples with children are just 20 percent of the total number of households shifts sentiment to more rentals." Some observers believe 35 percent of Americans should not purchase houses because they lack the necessary income and recently graduated college, while seniors, particularly those in poor health, also should avoid homeownership.

The Community Reinvestment Act Shows Its Age
Affordable Housing Finance (11/10) Ascierto, Jerry

In its current form, the Community Reinvestment Act (CRA) focuses on "assessment areas," or key metropolitan statistical areas or counties. This results in lenders and equity investors competing with each other in major metropolitan areas while ignoring secondary and tertiary areas. Many are calling for changes to how CRA requirements are gauged. Earlier in 2010, federal banking regulators started assessing the way the CRA is implemented, such as how it does not take into account online deposits. But 40 percent of Citibank’s deposits currently come from places other than its branches, so the bank's CRA requirements are inflated by 40 percent in each of its major retail banking hubs. The geographic disparity was smoothed over somewhat with the recent introduction of the Tax Credit Exchange and Tax Credit Assistance programs. These programs involved stimulus funds that facilitated many low-income housing tax credit (LIHTC) deals in smaller markets. But as those funds go away in 2011, developers working in secondary and tertiary markets will again feel neglected due their geography. "Without the exchange program, you won't have true markets" in the smaller cities, warns Andy Ditton, a managing director at Citi Community Capital.

Landrieu to Push GO Zone Extension; Tax Credits Key to Building Projects
New Orleans Times-Picayune (LA) (11/08/10) P. A1 Alpert, Bruce

Democrats plan to push a package of tax incentives for spurring housing and business redevelopment in Gulf states after Hurricanes Katrina and Rita during the lame-duck session of Congress. The package of "tax extenders," including the Gulf Opportunity Zone tax credits, is a top priority of Sen. Mary Landrieu (D-La.), and other Louisiana lawmakers say the program needs to be extended because many housing and business projects have been slowed by the credit crunch. The Senate Democrat bill includes an extension for two years until the end of 2012 for the deadline for low-income housing tax credit financed projects to be placed in service, which has a price tag of $357 million budgeted over 10 years. About 6,200 units, 77 projects and 13,000 jobs are now in jeopardy, according to Landrieu's office. The tax credits are key for ongoing construction of low-income housing in New Orleans. "If placed-in-service is not extended to December 2012, HANO [the Housing Authority of New Orleans] would lose $45 million in tax credit equity and $27 million in related Community Development Block Grant funding from the city of New Orleans for [B.W.] Cooper," says David Gilmore, administrator of HANO. The bill also would clarify that disaster-related low-income housing credits can be exchanged for low-income housing grants. Republicans have blocked efforts to pass the package in the past, but business groups are warning that their bottom lines will suffer if lawmakers fail to act quickly.

Green Building Goes on a Budget
Wall Street Journal (NY) (10/18/10) Whelan, Robbie

A number of affordable-housing communities across the United States are incorporating eco-friendly materials and energy-efficient appliances into their apartments. With the help of tax credits and aggressive cost-cutting, affordable-housing developers are incorporating green roofs, solar panels, and other "green" features into their projects. Enterprise Community Partners Inc. Vice President Dana Bourland predicts the affordable-housing industry will be 100 percent green by 2020 because green apartments are not only better for the environment, but also have financial benefits in terms of lower water and energy bills and renter turnover rates. She also indicates that investors view these "green" affordable-housing apartment communities as safer investments. The federal Low Income Housing Tax Credit (LIHTC) is the primary source of funds for these developments, though following the financial and housing crises, the market for those credits softened, forcing developers to offer investors higher yields that cut into the funds available for "green" features. However, as the markets have begun to recover, many expect LIHTC demand to rise, with some investors paying about 75 cents per dollar of credit rather than 60 cents. Matt Sheedy of MetLife Inc. says, "Investors commonly accept moderately lower returns for lower risk profiles, and green features are more in demand."

Low Rates Hurt Bonds for Housing
New York Times (NY) (11/09/10) Henriques, Diana B.

The investment income of hundreds of the nation's affordable-housing developments has been reduced drastically as interest rates remain near zero, according to S&P Ratings Services. These developments are earning much less than expected on cash reserves, the interest on which typically is used to pay off outstanding bonds. As a result, their bond ratings have dramatically declined, which could reduce the availability of affordable housing or make it more expensive for low-income families and seniors.

History and the Hill: Can Effective-Yield Accounting Boost Investor Interest in the HTC?
Novogradac Journal of Tax Credits (11/10) Vol. 1, No. 11, Leith-Tetrault, John

Key financial institutions have largely exited the historic tax credit (HTC) market over the past two years due to the HTC's early vesting characteristics and impact on profit and loss (P&L) statements. With the HTC, the capital account write-off typically occurs the year the property is placed in service when the entire 20 percent credit is taken. However, low-income housing tax credits (LIHTCs) and new markets tax credits (NMTCs) vest over 10 and seven years, respectively, and the capital account write-off can be taken on the P&L over the compliance period. The Accounting Standards Codification 323-740, formerly FASB EITF 94-1 - "Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects," provides investors in guarantied-yield LIHTC funds with more favorable P&L treatment of operating and capital losses by offering a method for avoiding volatility in earnings from affordable housing tax credit investments. "The key benefit of effective-yield accounting treatment is that the deductions and losses generated by federal income tax credit investments are recorded below the line as part of a company's income tax expense," explains Michael Novogradac, CPA, managing partner in Novogradac's San Francisco office. "The effective-yield accounting treatment appropriately nets income and expenses in the same place on a company's income statement." Equity method accounting rules have had a greater impact on appetite for the HTC than the LIHTC and NMTC. The HTC has the most to gain from a change in the IRS definition of CDE control (as it relates to the new NMTC related party test), and the HTC industry also needs to consider a potential expansion of effective-yield accounting.

Partnership for Sustainable Communities Awards Grants to Build Infrastructure Nationwide
U.S. Department of Transportation (10/21/10)

Partnership for Sustainable Communities grants were recently rewarded to support more livable and sustainable communities across the country. The Partnership, which involves the U.S. Department of Transportation (DOT), U.S. Department of Housing and Urban Development (HUD), and the U.S. Environmental Protection Agency (EPA), is dedicated to building economic competitiveness by connecting housing with good jobs, transportation, and other incentives. Recently, agencies started releasing local grants to support sustainable living across the country, with a combined sum of $409.5 million between the agencies. "We’re working to change the way government works, and that means investing tax dollars wisely and well," says President Barack Obama. "We want to make sure that when we’re building infrastructure, we’re considering how housing, transportation, and the environment all impact each other. These grants are designed to get the biggest bang for our tax dollar buck." HUD Secretary Shaun Donovan says the grants will help strengthen economic development by support the goal of enabling all Americans to live in communities with access to employment, schools, and transportation options. Coordinating federal investments in infrastructure, facilities, and services achieves multiple economic, environmental, and community objectives by helping create more housing choices, making transportation more efficient and reliable, and reinforcing existing investments. "President Obama has made clear that sustainable communities with affordable housing and access to a broad range of transportation," says EPA Administrator Lisa P. Jackson. "This Partnership is bringing our efforts together, allowing our resources to have more impact, and ensuring that we are collaborating on the housing, transportation and environmental needs that are essential to the success of every community. Our work has already helped to create healthier communities and open up better opportunities to attract new jobs and investments."

Home Sweet Apartment Home
Journal of Property Management (09/10) Vol. 75, No. 5, P. 14 Klein, John

The multifamily housing sector is in better shape than most real estate sectors, but it is still in turmoil as residents put off paying rent and save money by doubling-up, thereby lowering market demand as they add housemates. Owners and property management groups should begin by taking a critical look at operations. Focus on improvements in common areas, model, and vacant units, as well as amenities. Evidence reveals that a 10 percent reduction in energy and water usage is easily achievable without major capital expenditures. Reduce costs by adding controls for turning equipment off automatically, such as motion sensors in bathrooms, offices, and model units. Install ceiling fans, blinds, shade plants, and window films to reduce the need for air-conditioning. Where possible, open windows to allow fresh air flow. Property managers should also consider installing and marketing Energy Star appliances. This can attract occupants, lower occupancy costs, and potentially even permit the owner to increase rental costs. Install variable-speed pumps on fountains and pools, and lower temperature set points for pools and hot tubs. Cutting back on irrigation by watering plants less often and at night will also save money. As property managers fight to do more with less, enhancing energy and water efficiency through no- and low-cost improvements can make a difference on the bottom line.

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