Developers to Move Ahead on Four Rhode Island Projects After Getting TCAP Awards
By Caitlin Jones
6 min read
Tax Credit Advisor, September 2009: Four affordable housing developments in Rhode Island are the first in the nation to take advantage of a new federal program to help developers complete financing on their projects when tax credit equity is unavailable.
The new federal Tax Credit Assistance Program (TCAP) was enacted in February as a response to the nationwide economic downturn in the real estate market that has sharply reduced the supply of low-income housing tax credit equity. TCAP and its twin, the tax credit exchange program, were established by the American Recovery and Reinvestment Act of 2009.
Susan Bodington, deputy director of Rhode Island Housing (RIH), the state’s housing finance agency, said the two programs are somewhat different, but both are succeeding in jumpstarting stalled affordable housing developments in the state.
“Clearly these programs are really working for us,” she said. “All the projects [that have received awards] were shovel ready. All they needed was final funding.”
Under what RIH calls the Tax Credit Exchange Program (TCEP), the U.S. Treasury Department buys back housing credits from RIH that couldn’t be used because of the market downturn. RIH then makes funding awards to developers for proposed projects to fill the funding gaps based on how much each needs. Awards, however, aren’t as large as the tax credit equity amount that would be raised in a normal market.
Even though there they don’t have any tax credit equity in them, TCEP-assisted deals must still meet the affordability requirements and other restrictions of the housing credit program, Bodington said.
Under TCAP, the U.S. Department of Housing and Urban Development (HUD) allocates funds to state housing credit agencies like RIH to provide gap financing to projects stalled because they’ve been unable to raise sufficient housing credit equity, such as because the actual pricing received for their housing credits was lower than originally anticipated.
In Rhode Island, developers were required to demonstrate that they couldn’t find a syndicator or direct investor to purchase their credits at a price acceptable to RIH.
In both TCAP and TCEP, developers with unfunded or underfunded projects had to submit applications for funding in a competitive process that also required revision of the original underwriting, Bodington explained.
She said Rhode Island’s TCAP and TCEP funds are still in the pipeline and that those developers who received awards have 90 days to close on their projects. Since this is the last funding element needed for their projects, these developers are moving quickly to finalize documents and hold closings, Bodington said.
Initial Awards
RIH so far has announced TCEP awards totaling about $35.1 million to five projects, of $36.8 million in exchange funds that Treasury has approved for the agency, and TCAP awards totaling nearly $10.2 million to four projects, out of $11.9 million in total available TCAP funds. RIH was the first state housing credit agency to enter TCAP awards to specific projects in the central tracking system set up by HUD.
RIH’s initial TCAP awards will help fund four projects in three cities: Coddington Point, in Newport; Kingstown Crossing I, in North Kingstown; and Medina Village and Carlton Court/Westside Apartments, both in Providence.
E.A. Fish Associates, LLC, of Braintree, Mass., is the developer for Coddington Point, a 32-unit affordable housing development for families. The project originally began as a 41-unit condominium building, but the real estate market downturn and a lack of financing led the original owner to sell the property to E.A. Fish. Nine condo units were completed but only seven sold by the time E.A. Fish bought the property.
E.A. Fish expects to receive up to $1.76 million in TCAP funds for the $7 million project. Other funding sources include $3.8 million in tax-exempt bond financing, $1.4 million in RIH dollars, and other soft debt.
“We applied for the TCAP funds through RIH in part because of the concerns raised by investors pertaining to our project,” said Dana P. Angelo, senior project director at E.A. Fish. Angelo mentioned project size and perceived risk from federal Section 8 as the major concerns.
Nonprofit developer Crossroads Rhode Island (CRI), which serves the homeless, expects $4.7 million in TCAP funds for Kingstown Crossing I, a 58-unit affordable housing development.
CRI Chief Operating Officer Michelle M. Wilcox said that the problem CRI faced in trying to finance the $13 million development was that nobody was buying tax credits. “The economy and the mortgage situation had a horrendously chilling effect on the sale of tax credits,” she noted.
In addition to TCAP funds, funding sources include $6.2 million in tax-exempt financing, plus a Federal Home Loan Bank grant, state Affordable Housing Trust loan, state grants, federal HOME and Community Development Block Grant dollars, CDBG funds, and RIH first mortgage. Wilcox still hopes to attract a tax credit investor for the development.
To receive the TCAP funds, CRI had to demonstrate that it couldn’t sell its tax credits, and had to put together a new, substantial application to convince RIH of the project’s viability.
Arch Street Development Group, Inc., of Needham, Mass., expects about $2 million in TCAP dollars to help finance the renovation and preservation of 86 housing units at the Carlton Court and Westside Apartments properties, which serve families and elderly and disabled tenants.
In addition to TCAP funds, other funding sources for the $9.5 million project include $4.3 million in tax-exempt financing, an Affordable Housing Trust loan, a targeted loan from RIH, deferral of developer’s fees, and cash equity from existing reserves, according to RIH.
Carlton Court and Westside Apartments were originally developed with 9% housing credits, but the 15-year compliance period for each has ended. The renovated properties will be subject to new 40-year affordability use agreements. Rehabilitation work for each will include upgrades to the interior and common areas, as well as mechanical system, exterior, roof, and fire protection improvements.
Some $1.6 million in TCAP funds is expected to help finance the renovation of Medina Village, a 22-building, 83-unit, Section 8 development. One of the other funding sources for the $11.8 million project, being undertaken by NBSHK, LP, is $6 million in tax-exempt financing.
RIH will provide TCAP funds as loans, generally at 0%. While not yet finalized, RIH expects TCEP funds to be provided as zero-interest, forgivable loans.
– Stephen K. Cooper
