11/12/2015 New Mexico Mortgage Finance Authority 1 MFA 2016 Qualified Allocation Plan and...

11/12/2015 New Mexico Mortgage Finance Authority 1

MFA 2016 Qualified Allocation Plan and Application Workshop

November 12, 2015

Presentation Overview

Page

•Tax Credit Program Overview 3

•2016 Qualified Allocation Plan Review 18 •Application Process 54 •What Makes a Successful Application 67

11/12/2015New Mexico Mortgage Finance Authority

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TAX CREDIT PROGRAM OVERVIEW

Housing Priorities

• Increase the supply of decent, affordable rental housing;

• Expand housing opportunities and access for individuals with special needs;

• Expand the supply of housing and services to assist the homeless; and

• Preserve the State’s existing affordable housing stock.


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Background

• LIHTC Program created by Tax Reform Act of 1986 as an incentive for individuals/ corporations to invest in the construction or rehabilitation of low income housing.

• The Tax Credit provides a dollar-for-dollar reduction in personal or corporate federal income tax liability for a 10 year period.

Internal Revenue Code §42

• IRC §42 sets forth the requirements and process for the Tax Credit program.

• §42(m) states the housing credit agency must

make Tax Credit allocations pursuant to a Qualified Allocation Plan, which: Sets forth project selection criteria;

Gives preference to those serving lowest income tenants for the longest period of time;

Provides a procedure for monitoring compliance


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Background, continued

• Credit Ceiling: $2.35 per capita allocation + any returned or unused credits + any National Pool credits – forward allocations

• MFA allocated $6.267mm in 2015

• MFA will allocate about $5mm in 2016

• Tax Credits are the deepest Federal Subsidy that funds up to 70% of total development cost

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Affordable Use Minimum set aside:

• 20% of units for tenants earning no more than 50% of median income (20/50 election) - Requires that all restricted units be at 50% AMI or below to be eligible for credits

OR

• 40% of units for tenants earning no more than 60% of median income (40/60 election)

• This election is irrevocable.

Use restriction for 30 years required (income and rent limits)

Applicable Fraction

• The percentage of the Project that is dedicated to Low Income use

• Employee units excluded from calculation


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Applicable Fraction Calculation:

Smaller of Percentage of Low-Income Floor Space and Percentage of Low-Income Units

Floor Space Fraction Unit Fraction Total Residential Rental Floor Space 79,200 Total Units 72Low-Income Units Floor Space 66,000

Low-Income Units 58

Percent Low-Income 83.33%Percent Low-

Income 80.56%

Applicable Fraction: 80.56%

Eligible Basis

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• The sum of the eligible cost elements that are subject to depreciation.

• 70% Eligible Basis (9% Tax Credits) for new construction or rehabilitation costs.

• 30% Eligible Basis (4% Tax Credits) for acquisition costs and projects with federal subsidy.

• Exclusions- federal grants, land acquisition cost, commercial, etc.

• “Basis Boost” – Increases Eligible Basis 30% if project is in a HUD Defined QCT or DDA

Basis Boost


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• Basis Boost – Up to 30% increase to Eligible Basis for new construction and rehabilitation costs

only (acquisition costs not eligible)

• For Projects in HUD designated QCT or DDA (30%)

• MFA designation of need for Financially Feasibility (up to 30%) and:

1. Not Financed with Tax Exempt Bonds; 2. Must score at least 10 points under Projects that

Benefit the Environment; and 3. Serve a target population.

Applicable Percentage


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• The amount of the low-income housing credit for any taxable year in the credit period shall be an amount equal to: (1) the applicable percentage of (2) the qualified basis of each qualified low-income building. IRC §42(a).

• Determination of Applicable Percentage: Percentages which will yield over a ten-year period amounts of credit which have a present value equal to:

1. 70% of the Qualified basis of non-federally subsidized new construction and rehab costs (9% fixed for projects that were placed in service before 1/1/2015); and

2. 30% of the Qualified basis of acquisition costs and/or projects that are federally subsidized.

• Applicant may elect to lock Applicable (Tax Credit) Percentage at either Carryover or at PIS.


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Tax Credit Calculation

Eligible Basis $2,250,000x Basis Boost (if applicable) 130%

$2,925,000

x Applicable Fraction 80.56%= Qualified Basis $2,356,380

Qualified Basis $2,356,380x Applicable (Tax Credit) % 7.48%**= Annual Tax Credit $176,257.22

**Example only


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Equity Calculation

Annual Tax Credit $176,257.22

x Years of Credit x 10= Total Credit Amount $1,762,572

x Price per Credit Dollar x $ 0.87

= Equity to Project $1,533,437.


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Partnership Structure

General Partner.01%

Limited PartnerInvestor99.99%

XYZ PROJECT

GENERAL PARTNERSHIP


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Partnership Structure

• General partner has 0.01% ownership, provides guarantees and operates the project

• General partner retains 0.01% of the tax credits, income and losses

• Limited partner has 99.99% ownership

• Limited partner receives 99.99% of the tax credits, income and losses

• Investor equity reduces the need for other financing which reduces debt service, and enables rents to be affordable


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Tax Credit Timeline

• Apply for credits

• Receive a tax credit reservation

• Receive carryover allocation, indicate lock-in election

• Incur 10% of estimated project basis and start construction by August 31 of the following year

• Complete project and place in service within two years of carryover

• Apply for 8609’s • Record extended use

agreement

• Project Lease-up: Qualify Tenants

• Begin claiming credits: PIS year or following year

• Keep tax credit units in compliance

** See 2015-2016 LIHTC Calendar on website


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2016 Qualified Allocation Plan Review


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Qualified Allocation Plan

What is it? The QAP is the State of NM’s plan for allocating its tax credits It is prepared annually, consistent with IRC §42(m).

Approval Process

Where is it?

http://www.housingnm.org/low-income-housing-tax-credits-lihtc-allocations




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Threshold Review

All Applications must meet each of the following and include all required materials:

• Site Control

• Zoning

• Minimum Project Score

• Applicant Eligibility

• Financial Feasibility

• Fees


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Site Control

• Fully executed purchase contract or option

• Written governmental commitment to transfer property by deed or lease

• Recorded deed or long term lease.

Site Control, Continued


Transfer Commitment must:•Provide an initial term lasting until at least July 31, 2016.

•Be binding on seller through initial term

•Have names, legal description, and acquisition cost that matches application.

**Initial term must not be conditioned upon any extensions requiring seller consent, additional payments or financing approval.


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Zoning

• Evidence that multifamily housing is not prohibited by the existing zoning and dated < 6 months before application deadline.

• No pending litigation or unexpired appeal process relating to zoning for project.

• Only exemption, a site that is not zoned or which is zoned agricultural.


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Fees

• All fees owed to MFA for all Tax Credit Projects in which Principal(s) participate must be current.

• Fees for 2016:

Application Fee: $3,500

Deposit: $8,500

Processing Fee:** 8% (9% award) or 5.5% (4% award)

**Applicable if a reservation is received


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Applicant Eligibility

All members of the development team of the proposed Project must be in good standing with MFA and all other state and federal affordable housing agencies.


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Financial Feasibility

• Applications must demonstrate, in MFA’s reasonable judgment, the Project’s financial feasibility.

• QAP Section IV.C.2, Section IV.D, and Section IV.E. summarize MFA’s financial feasibility considerations.

• Additional Underwriting Details in the Initial Application Underwriting Supplement


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Per Unit Costs Limits Based on average per unit costs of new

construction and adaptive re-use projects submitted in the round

Purchase price attributed to land, costs related to commercial space, and reserves will be excluded.

In 2015 the average was $191,211 and in 2014 it was $196,682

Per project maximum Tax Credit award is $1,150,000 and any entity (including affiliates) may not receive more than 2 awards.


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Minimum Project Score• 130 points for competitive round; 80 points for

bond projects

• Partial points will not be awarded

• Applicant self-scores application; MFA scores application

• Scoring criteria and information needed to obtain points in QAP and checklist

• Deficiency Correction used only to correct incomplete application or meet threshold – not scoring or Allocation Set Aside requirements


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Scoring CriteriaCriterion 1: Nonprofit, New Mexico Housing Authority , or Tribally Designated Housing Entity (0-10 points)

Requirements in application and checklist must be provided for points

Requirement for points different than requirements for set-aside

Net worth/net assets must be substantiated by reviewed or audited financial statements

Document fee split agreement among parties Entity required to attend training within 6 months prior

to application Indicate on checklist if submitting as a qualified

nonprofit, NMHA, or TDHE


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Scoring Criteria Continued

Criterion 2: Projects that Benefit the Environment (0-18 points)

•Five options, two scoring tiers: LEED, Enterprise Green Communities,

National Green Building Standard, or Build Green NM – 18 points

MFA Green Criteria – 10 points• Building Performance Standard• Use composite wood only if free of urea

formaldehyde


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• Projects that Benefit the Environment, continued Basic Application Requirements

• Narrative description of features• Green professional• Criteria Checklist• Architect or green professional certification


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Criterion 3: Locational Efficiency (0-2 points)Projects located in proximity and connected to:

1) services

2) public transportation


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Criterion 4: Rehabilitation Projects (15 points)•Rehabilitation hard costs of $25,000/unit or more

Greater of at least 15 Units, or 25 percent of total Units

Can be combined with points for sustaining affordability


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Criterion 5: Sustaining Affordability (0-15 points)

Use restrictions are to expire on or before December 31, 2020, or

Federal Rental Assistance Contract covering at least 75% of all Units, subject to a minimum of 30 units

5 points for Projects that have/will have a federal rental assistance contract covering at least 20 percent of all Units, subject to a minimum of 5 units


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Criterion 6: Average Gross Median Income (AGMI) (0-40 points)

Calculate a weighted average based on the number of units set aside at each income level

Market rate units treated as if they were set aside at 100%

Round to zero decimal points Three tiers Points differ for counties with AMI less than or

equal to $54,100


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AGMI Calculation

Percent of Set Aside Income Level Weighted

Total Units (As a % of Median) Average

6.94% X 30% = 2%20.83% X 50% = 10%55.56% X 60% = 33%16.67% X 100% = 17%

Total AGMI: AGMI for Scoring 62%


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Criterion 7: Average Gross Median Rent (AGMR) (0-30 points)

Weighted Average based on the number of units set aside at each rent level

A project can restrict rents at a lower level than the targeted income level for any given units

Market rate treated as if they were set aside at 100%

Round to zero decimal points Three tiers


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AGMR Calculation

Percent of Set Aside Rent Level Weighted

Total Units(As a % of Median) Average

6.94% X 30% = 2%

62.50% X 50% = 31%13.89% X 60% = 8%16.67% X 100% = 17%

Total AGMR: AGMR for Scoring 58%


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Criterion 8: Market rate units (10 points) Minimum 15% of the total Units Maximum points for AGMI, AGMR and market

rate units combined is 65.

Criterion 9: Extended Use Period (0-15 points) Maximum points for 45 year Extended Use

Period


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Criterion 10: Special Needs (0-15 points)

20% of the total units reserved and 50% of reserved units rent restricted at 30% AMI or 30% of tenant income for 15 points

5% of units reserved and rent restricted at 30% AMI for 5 points (only available for Projects Financed with Tax Exempt Bonds)

Signed commitment to set aside units and execute agreement with Local Lead Agency

Section 811 Project Rental Assistance may be available. See MFA website for more info.


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Criteria 11 & 12: Senior Housing, Individuals with Children (0-15 points)

100% of total units reserved for Senior Housing 25% of the total units reserved for Individuals with

Children Points range from 7 to 15 based on services provided Design requirements – mandatory for points On-site service coordinator – required for service

points The proposed Project annual operating budget must

include at least $2,500 for the provision of enrichment services.


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• Individuals with Children – Unit Mix Calculations

Total Units 68Units with 3/3+ bdrms and 1.75 bathrooms10Units with 2 bdrms and 1.75 bathrooms 503 bedroom percentage of total Units 14.7%2 bedroom percentage of total Units 73.5%

**See QAP definition of Unit


Criterion 13: Contribution from state, local or tribal government entity (0-10 points)

Cash flow or residual receipts loans eligible contributions but cannot have hard payments

The value of the contribution must be listed as a source on Schedule A-1 and, when not a cash contribution, as a cost on Schedule A.


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Criterion 14: Complete Application (5 points) Applications that do not require any deficiency corrections. See Section IV.A.4 in the QAP:

• Original Signatures in blue ink from all General Partners

• Don’t forget the CD, DVD or flash drive!

• Brown Classification Folder

• All Attachments, Current MFA forms

• Architectural Submissions must demonstrate compliance


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Criterion 15: Commitment to market units to public housing authority waiting lists (2 points)

Criterion 16: QCT/Concerted Community Revitalization Plan (0-5 points)

Projects that contribute to a Concerted Community Revitalization Plan or are located within ½ mile of a New Mexico designated Main Street are eligible for 3 points.

If the Project meets one of the above criteria and is located in a QCT, it is eligible for 5 points.


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Criterion 17: Projects with Units Intended for Eventual Tenant Ownership (5 points)

Cannot be combined with Extended Use Period Points

Criterion 18: Financial Literacy Programs (2 points) The proposed Project annual operating budget must

include at least $1,500 for the provision of the financial literacy classes

Criterion 19: Historic Significance (5 points)

Criterion 20: Blighted Buildings or Reuse of Brownfield Site (5 points)


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Criterion 21: Projects Located in Areas of Statistically Demonstrated Need (0-15)

•Tier 1 Areas (15 points) Chaves, Cibola, Curry, Eddy, Lea, Sandoval, Santa

Fe and Taos. All Projects on Native American Trust Lands or Native American-owned lands within the tribe’s jurisdictional boundaries.

•Tier 2 Areas (10 points) Bernalillo, Colfax, Grant, Lincoln, Luna, McKinley, Rio

Arriba, San Juan, and Torrance.


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Projects that request less than $15,000 Tax Credits per Low Income Unit and less than $15.50 Tax Credits per Low Income square foot are eligible for 5 points.

Projects that request 1) less than $16,500 Tax Credits per Low Income Unit and less than $17.00 Tax Credits per Low Income square foot or 2) less than $15,000 Tax Credits per Low Income Unit or $15.50 Tax Credits per Low Income square foot are eligible for 3 points.

Projects that involve Rehabilitation or Adaptive Reuse are not eligible even if they involve new construction.

Criterion 22: Efficient Use of Credits


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Criterion 23: Non-Smoking Properties (2 points) Projects which will be non-smoking properties and

participate in the American Lung Association in New Mexico Smoke Free @ Home program are eligible for 2 points.

Criterion 24: Adaptive Reuse Projects (5 points) In combined new construction and Adaptive Reuse

Projects, converted space must account for at least 20 percent of the sum of each Building’s Gross Square Feet.


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Additional 2016 QAP Changes

Tax Credit Design Competition- eliminated

2016 Mandatory Design Standards- see website;

Design Review:-Minimum of 4 design reviews;

-Shall not commence construction prior to MFA approval of complete construction documents

MFA’s Tax Exempt Bond Volume Cap $10mm limit- eliminated

Other Areas Covered in QAP• Quiet Period- Section IV.A.5

• Allocation Set Asides- Section III.D.2

• Affirmative Actions after Reservation- Section

IV.G.

• Termination of Reservations- Section IV.H

• Changes to the Project- Section IV.I.

• Tax Credit Monitoring & Compliance- Section X.


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Dates to Remember…

• Applications due February 1, 2016

• Awards: May 2016

• 2017 QAP Public Comment Period: August/September 2016

• Carryover: November 15, 2016

• Final plan submittal: June 30, 2017

• 10% Test: August 31, 2017

**See LIHTC calendar for additional dates


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Questions?

BREAK!


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APPLICATION PROCESS


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Application Review

• Universal Application HOME

Risk Share

Other

• Indicate Extended Use Period Set-Aside Option Special Needs Reservations


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Application Review Continued

• Utility Allowance Rent calculation – Schedule B Attach current documentation Must be approved allowance

• Contact Information – update MFA if this changes after application

• Ownership Information To-be-formed partnerships Non Profit participants


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Application Review Continued

•Development Team Identity of interest Developer fee amount Attach resumes

•Identification of Local Official

•Original Signature(s) in blue ink


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Schedules• Schedule A – Development Cost Budget

Calculations• Construction Contingency• Builder Fees• Developer Fee• Operating Reserve

Rehabilitation and Adaptive Reuse that also includes New Construction Projects must provide separate Schedule As for Rehabilitation or Adaptive Reuse component, for New Construction component, and total project

Construction Contingency

New Construction $ 6,388,500 Construction Costs before GRT, GR, Overhead &

Profit

5% Minimum Owner Contingency Percentage

$ 319,425 Minimum Owner Contingency Dollar

$ 350,000 Application Contingency

$ (30,575) (Excess)/under minimum

• Contingency included in construction contract will be included as a hard construction cost and will not count toward required Owner Construction Contingency.


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Builder’s Profit, Overhead, General Requirements

$ 6,388,500 Construction Costs before GRT, GR, Overhead & Profit

6% Allowed percentage for Profit

$ 383,310 Maximum for Profit

$ 383,310 Application Profit

$ 0 (Excess)/under used

Same formula as above for General Requirements

$ 6,388,500 Construction Costs before GRT, GR, Overhead & Profit

2% Allowed percentage for Overhead

$ 127,770 Maximum for Overhead

$ 127,770 Application Overhead

$ 0 (Excess)/under used


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Developer Fee Calculation

Developer fees may not exceed:

•Projects with 30 or fewer Units - $22,500 per Low Income Unit

•Projects with 31-60 Units - $21,000 per Low Income Unit

•Projects with 61-100 Units - $19,500 per Low Income Unit not to exceed $1.5 million

•Projects with more than 100 Units $15,000 per Low Income Unit not to exceed $1.8 million.

Additionally, in no case can the developer’s fee exceed 14% of Total Development Costs


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Developer Fee Calculation

Project with 72 Total Units, 60 Low Income Units

#1 $21,000 per Low Income Unit 60 Low Income Units

$1,260,000 Potential Developer Fee

#2 $6,388,500 Total Development Costs __ x 14% Maximum Fee Percentage

$894,390 Maximum Developer Fee


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Operating Reserve

Annual Operating Expenses $ 318,311

Annual Replacement Reserve $ 21,900

Social Service Delivery Costs $ 10,000

Annual Debt Service $ 161,604

Total $ 511,815

X .5 (i.e. 6 mos.)= $ 255,907

Application Operating Reserve $ 275,000

(Excess)/Under Operating Reserve ($19,093)


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Schedules Continued

• Schedule A-1 – Sources of Funds Construction and Permanent Deferred Fee Sources = Uses

• Schedule B – Unit Type & Rent Summary Distribution of units proportionately Set-aside rents cannot exceed tax credit limits Indicate unit net square feet


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Schedules Continued

• Schedule C – Operating Expense Budget Minimum 7% vacancy Maximum 6% management fee (calculated on

gross income) Replacement Reserves – we will underwrite to at

least MFA minimums

• Cash Flow Projection Income, expense, and reserve escalators at

minimum stated in underwriting supplement

• Schedule D – Contractor Cost Breakdown Tie to Schedule A

Schedules Continued

• Schedule G- Affordable Unit Set Aside Election- irrevocable

• Schedule H – Applicant’s Previous Participation One Schedule H for each General Partner

and Developer Compliance Affidavit from each General

Partner and Developer Principal


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What makes a successful application?


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2015 Tax Credit RoundOf the 16 Applications submitted:

• $14,309,500 in credits were requested Ratio of requests to credit ceiling was 2.63:1 This ratio decreased from 3.38:1 in 2014

• Average TDC per unit for new construction was $191,211

Down from $196,681 in 2014 Up from $191,034 in 2013 Range of $151,036 to $247,254 Range in 2014 was $125,823 to $248,232

• Average Project size decreased to 56 units from 60 units in 2014.


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2015 & 2014 Tax Credit Round Results

Seven awards in 2015, eight in 2014

• All Projects awarded have a sponsor or co-sponsor that is a non-profit, governmental or tribal entity.

• All projects committed to LEED Silver, Enterprise Green Communities Criteria, or Build Green NM.

• Five of the fifteen Projects scored points for acquisition/rehabilitation or Adaptive Reuse.

• Two of the fifteen Projects are mixed income projects.


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2015 & 2014 Tax Credit Round Results, Continued

Seven awards in 2015, eight in 2014• All of the Projects are providing services to

targeted populations: elderly, special needs, or households with children.

• All of the Projects are in MFA’s Areas of Statistically Demonstrated Need.

• Sizes range from 21 to 85 units.

• Award amounts range from $343,087 to $1,150,000.

The Most Successful Application


. . . Is for the project that you can deliver and successfully operate for the entire extended use period!


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Questions?


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Visit MFA’s website at: www.housingnm.org/developers

Contact:Susan H. Biernacki, J.D.

Housing Tax Credit Program Manager (505) 767-2273

[email protected]

For more information:

http://www.housingnm.org/developers

mailto:[email protected]

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