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Novogradac Journal of Tax Credits Volume 1 Issue 10

The October 2010 issue of the Novogradac Journal of Tax Credits.

Journal cover October 2010

Articles

Michael J. Novogradac

Friday, October 1, 2010

While the opportunity zones (OZ) incentive is still in its infancy, investments in real estate are starting to take off. However, many believe that investment in operating businesses is what will make this incentive the most impactful community development tool. “This incentive is the brainchild of the folks at Economic Innovation Group [EIG]. They envisioned the incentive as an economic engine in those distressed communities,” said Michael Kressig, partner in the St. Louis office of Novogradac & Company LLP. “The fuel powering that engine would be operating businesses. … This program will not achieve the envisioned impacts unless we are able to incentivize the investment in operating businesses on a scalable level.” “The rules around operating businesses are murkier. There are far more questions than answers,” said Steve Glickman, founder and CEO of Develop LLC, who was also a co-founder of EIG. However, Glickman said, “There is a lot of investor interest as well as venture capital and private equity interest [in OZs].” Questions Surrounding Operating Businesses and the OZOne of the key benefits of the OZ incentive is that taxpayers holding qualified opportunity fund (QOF) investments for a period of at least 10 years can step up the basis of the investment to fair market value upon disposition, thereby avoiding taxation on the appreciated value.Ten years is a long time for an investor to hold an investment in an operating business. “That doesn’t line up well for venture

Amanda Talbot

Friday, October 1, 2010

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, as mandated by the duty to serve (DTS) provisions implemented by the Housing and Economic Recovery Act (HERA) of 2008, recently released proposals to implement modifications to their DTS plans. The plans, which were open for public comment, have the potential to help direct affordable housing investment toward some of the nation’s hardest-to-serve markets. After reviewing the proposed modifications, the Federal Housing Finance Agency (FHFA) published the updated GSEs plans in December 2018. BackgroundReleased in January and May 2018 by Fannie Mae and Freddie Mac, the GSE’s DTS plans were created in response to the Congressional mandate in HERA, which requires the GSEs to serve three historically underserved markets–manufactured housing, affordable housing preservation and rural housing. The DTS final regulations, finalized in December 2016, requires the GSEs to increase “liquidity for mortgage investments and improving the distribution of investment capital available for residential financing for very low-, low-, and moderate-income families in those markets.”As important as increased mortgage debt liquidity is, FHFA’s decision to permit the GSEs to resume low-income housing tax credit (LIHTC) equity investment should be noted here as well, given its significance both to the nation’s affordable rental housing market and the DTS. The LIHTC is the most important source for capital for affordable housing

Jennifer Hill

Friday, October 1, 2010

The U.S. Department of Housing and Urban Development’s (HUD’s) Rental Assistance Demonstration (RAD) program creates another type of affordable housing in which to invest–and investors like RAD, even though there have been hurdles.Most notably, RAD brought a different partner to affordable housing transactions: the public housing agency (PHA).“This is a terrific opportunity to improve the housing stock all over the country,” said Mahesh Aiyer, director at Citi Community Capital. “It’s been very successful. It’s taken a while for housing authorities to understand the program, but bit by bit, it’s changed.”As the number of properties that completed their RAD conversion surpassed 100,000 and the current cap of 455,000 eligible units approaches, several people on the investor side shared what they’ve learned, what they like and what they look for while making a RAD investment.They range from Hunt Capital Partners, a pioneer in RAD developments, to Citi Community Capital, which has been involved in about 50 RAD developments, to R4 Capital, a syndicator that has worked nationwide with large as well as smaller PHAs.“Smaller housing authorities who own a small number of properties and are rehabbing all or most of their public housing units will generally partner with a for-profit developer who knows the ins and outs of the RAD program,” said Alex Magliozzi, senior vice president at R4 Capital. “Larger PHAs are more likely to have expertise to go it alone.”BeginningsRAD was enacted

Jennifer Dockery

Friday, October 1, 2010

Funding a historic building renovation with historic tax credits (HTCs) can be an uncertain undertaking. The HTCs are not awarded until after the National Park Service (NPS) certifies the building, and the NPS does not certify the building until after the developer completes millions of dollars of renovations. Although NPS issues guidance on the program, it judges each building on a case-by-case basis, so there is no guarantee that materials used on one building will be compliant on another building. One area in which this can have a significant effect is in the repair and replacement of a project’s windows. The NPS has strict guidelines for this most visible of features on a building’s façade and window repair and replacement is often one of a developer’s largest expenses.

H. Blair Kincer

Friday, October 1, 2010

The Housing Authority of the City of Passaic, N.J., was among the first housing authorities to use the U.S. Department of Housing and Urban Development’s (HUD’s) Rental Assistance Demonstration (RAD) program to revitalize three of its former public housing developments. “This was everyone’s first RAD deal,” said Vincent Wynter, director of finance at the Housing Authority of the City of Passaic. “We were the guinea pigs.” The Murphy Hecht Ascension Apartments is a scattered-site development consisting of three former public housing properties: the Hecht Apartments (50 units) and Murphy Apartments (50 units) were built in 1965 while the Miller Apartments (30 units) was built in 1978. “Scattered-site developments are not unusual for RAD conversions,” said Terry Wellman, senior vice president, Federal Housing Administration (FHA) chief underwriter at PNC, the FHA lender and 4 percent low-income housing tax credit (LIHTC) equity investor for the Murphy Hecht Ascension Apartments. “[Combining multiple public housing developments under one RAD conversion] is a great way to save on fees, reports and other costs.” Converting the three properties from public housing to Section 8 housing began in December 2012 when the Murphy Hecht Ascension Apartments was among the first round of RAD recipients. The development received its certificate of occupancy in July 2017. With years of deferred maintenance, the RAD program provided the best option to bring these three developments up-to-date.


News Briefs

Friday, October 1, 2010

The Treasury Department in response to a recent survey’s finding that state housing agencies sought further clarification on recapture events released guidance in August for Section 1602 low-income housing tax credit (LIHTC) exchange funds.

Friday, October 1, 2010

The Ohio Housing Finance Agency’s (OHFA’s) office of program compliance has updated the state’s affirmative fair housing marketing plan (AFHMP) form and instructions.

Friday, October 1, 2010

On August 25, the U.S. Department of Housing and Urban Development (HUD) announced the availability of $189 million in combined grants for the HOPE VI Revitalization program and the Choice Neighborhoods pilot initiative.

Friday, October 1, 2010

The Michigan Economic Development Corporation (MEDC) has approved incentives for 12 business projects and one brownfield development project that are expected to bring more than 4,000 jobs and nearly $100 million in new investment to the state.

Friday, October 1, 2010

The Community Development Financial Institutions (CDFI) Fund posted submissions received in response to its request for public comment concerning improving its data collection system, the Community Investment Impact System.

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