Southeast U.S. Allocators Cope With Ongoing Credit Equity Crunch
By A. J. Johnson & Caitlin Jones
10 min read
Tax Credit Advisor, March 2009: State allocating agencies in the Southeast U.S. are experiencing differing impacts from changed market conditions as they carry out their 2009 low-income housing tax credit (LIHTC) application cycles.
The Southeast has witnessed robust population growth. According to the U.S. Census Bureau, between 4/1/00 and 7/1/08, Georgia’s population rose by 18.3%; Florida, 14.7%; North Carolina, 14.6%; South Carolina, 11.7%; and Virginia, 9.7%. Between 7/1/07 and 7/1/08, North Carolina was third among all 50 states in greatest numerical population growth; Georgia, fourth; Florida, sixth; and South Carolina, tenth.
Following are snapshots of the Southeast states’ 2009 LIHTC programs. [Note: The state officials were interviewed before the enactment of the stimulus bill and its LIHTC provisions.]
Georgia
The Georgia Department of Community Affairs (DCA) has over $20 million in housing credits available in its 2009 funding round. The application deadline is 5/21/09, while award announcements are expected in late September or early October, according to Laurel Hart, Director of DCA’s Office of Affordable Housing.
Hart said DCA has made some significant changes to its credit program for 2009, including to intensify the agency’s focus on making sure projects awarded credits will be feasible. “That has become the most important criteria that we look at; also, the ability to syndicate your deal,” she noted.
DCA, for instance, has created a new category of Tier 1 developers – applicants that satisfy certain financial, successful development track record, and other criteria to qualify for extra points in application scoring. Hart noted the gist is to provide more points to deals that have a better chance of obtaining tax credit equity. She indicated DCA has also curtailed extra points in some areas that were intended to facilitate certain policy objectives, like deeper income targeting.
Credit set-asides in Georgia’s 2009 program include: 10% nonprofit; 30% rural projects; up to $1.8 million preservation for certain existing and at-risk projects (new); special needs (up to $900,000, new); and supplemental set-aside (up to $2 million, new). The preservation set-aside replaces extra points instead in 2008.
Hart noted DCA has seen all but one of its 2007 credit award projects close on their equity, but is concerned about the 2008 deals, which received awards last October. Regarding the latter, she said, “we are being more flexible in terms of deadlines.”
Hart said DCA provided extra credits to 2008 deals, including by providing a flat 9% credit rate and by revising downward the assumed credit price in the agency’s gap calculation for each proposed project.
Hart said there is still strong demand for additional tax credit units in various parts of the state, among these rural areas and the outlying metro Atlanta area.
She noted that developers will be able to seek available federal HOME program and Neighbor-hood Stabilization Program (NSP) funds, and find out whether they will receive a commitment, before the May 21 tax credit application deadline. DCA on 2/18/09 issued an RFP to solicit requests for the NSP funds
Florida
The Florida Housing Finance Corporation (FHFC) is severely challenged as it prepares to finalize the requirements and timetable for its 2009 “universal cycle.”
In past years, Florida’s universal cycle has offered rental developers housing credits, tax-exempt multifamily bond financing, and State Apartment Incentive Loan (SAIL) funds. SAIL provides low-interest soft second mortgages.
However, new state legislation has recaptured $190 million previously appropriated to FHFC. As a result, FHFC doesn’t expect to be offering any SAIL funds in its 2009 universal funding cycle, down from about $50 million made available in 2008, said Debbie Blinderman, FHFC Deputy Development Officer. “That’s going to impact our bond deals, as well as some of our special goals or set-asides,” she noted. She explained FHFC has usually provided SAIL funds to bond deals, and some SAIL funds to homeless deals with 9% credits. She said FHFC is considering whether to provide HOME funds instead to homeless deals this cycle.
Blinderman said the final QAP, rule, instructions, and application for the 2009 cycle are scheduled to be approved by FHFC’s board on 3/13/09. The current timeline calls for the application cycle running 5/5/09-5/26/09, with award final rankings approved 10/23/09. Application workshops are anticipated in May.
Blinderman said changes in Florida’s LIHTC program for 2009 include, in addition to the expected lack of SAIL funds, the creation of a new Priority 1 and Priority 2 application process. In addition, Florida is cutting back on the previous incentive to do deeper income targeting in projects. All applicants will still have to reserve at least 10% of their project’s units for extremely low-income households, but there will no longer be extra points for stretching to 20%.
Proposed set-asides are similar to those in 2008: 10%-12% nonprofit; $300,000 for Rural Housing Service projects; $4 million preservation; and geographic (62% large counties, 34% medium, 4% small). There are also additional numerical goals for certain specific types of projects.
Blinderman said the tax credit equity shortage and credit pricing reduction that has hit the LIHTC industry generally has adversely impacted Florida’s LIHTC program. She said about eight projects with 2007 credit awards still haven’t closed their partnerships. “They don’t have an investor that we know of,” she said. These projects have been given until 3/31/09 to close.
Blinderman said FHFC has extended the normal deadline for payment of an administration fee for sponsors of the 29 projects receiving 2008 credit awards last fall. She noted FHFC provided the full 9% credit rate in 2008 but not the 30% basis boost because virtually all parts of the state already are in high-cost areas.
North Carolina
The North Carolina Housing Finance Agency (NCHFA) received 105 pre-applications by the 1/9/09 deadline in its 2009 housing credit program, requesting a total $74 million. The agency expects to have about $15 million in remaining credits available to award in 2009, according to NCHFA official Mark Shelburne.
After receiving pre-applications, NCHFA reviews the proposed site and market for each development, and reviews the market study prepared by an outside analyst. Projects meeting site and market thresholds can submit a full application. This year’s application deadline is 5/8/09; the hope is to announce awards no later than August.
North Carolina has made numerous significant changes to its LIHTC program for 2009. Among these are to establish standards for projects to qualify for a 30% boost in eligible basis, new energy-efficiency requirements, modified underwriting assumptions, etc. (For details on changes and NCHFA’s recent credit exchange initiative, see Tax Credit Advisor, February 2009, p. 7).
Shelburne said the shortage of tax credit equity has significantly impacted North Carolina’s LIHTC program. “We’ve got 40 to 45 projects that have 2007, 2008 awards that don’t have equity,” he noted. Shelburne indicated NCHFA has responded in various ways to try to help pipeline deals. One was a recent initiative in which the agency approved 64 voluntary exchanges by developers of their 2007 or 2008 credit awards for new 2009 credits, thereby giving them more time to try to find equity. It also provided a total $5 million extra credits to a number of the deals to strengthen them. Shelburne said NCHFA last year authorized the flat 9% credit rate for 2008 credit award projects and provided the 30% basis boost to many deals.
Shelburne said a number of the changes made to North Carolina’s QAP for 2009 are designed to make the new projects more attractive to equity investors, such as allowing a larger project contingency. Credit set-asides for 2009 include: 10% nonprofit; up to 20% for rehabilitation projects; up to $750,000 for rehab of existing RHS Section 515 projects; and new construction set-aides for west, central, metro, and east region counties.
Shelburne said other funding sources available to 2009 credit applicants include North Carolina’s refundable state housing tax credit, federal HOME dollars, and state housing trust fund monies.
Virginia
The Virginia Housing Development Authority (VHDA) has delayed its 2009 application deadline by about two months, to 5/15/09, and will have nearly $14 million in housing credits available, according to Jim Chandler, VHDA Director of LIHTC Programs. Announcement of final award rankings is expected 8/5/09.
Chandler said Virginia has made just a few “minor adjustments” to its LIHTC program for 2009. One requires architects to attend a certification seminar in order for their project to receive points for green building. The specific types and sizes of Virginia’s allocation pools – credit set-asides – are the same as in 2008. One overall change, though, is that no more than 20% of the credits in any pool can go to elderly developments. The pools include: 15% nonprofit; geographic pools; and 7.5% for large housing authorities.
Virginia has been spared from a dearth of equity for new deals. “We in Virginia have been very fortunate in that there is still interest from investors and syndicators and syndicators, as opposed to some states,” said Chandler. “Particularly in the high cost areas, such as Northern Virginia, Tidewater, Virginia Beach, and Richmond – the metro areas still have a lot of interest.” However, he said a few deals have had difficulty in some smaller cities, adding that Danville and Roanoke have softened somewhat. Still, Chandler indicated that 2007 and 2008 credit deals have generally been able to find equity.
Chandler said VHDA provided the flat 9% credit rate to 2008 projects, but is still trying to figure out the formal criteria for projects to qualify for the 30% basis boost in 2009. “We’re going to do it on a case-by-case basis,” he noted.
Chandler said VHDA has another funding source popular with LIHTC developers, the REACH program that provides lower-interest loans.
South Carolina
The South Carolina State Housing Finance & Development Authority’s 2009 housing credit program has a Tier 1 application deadline of 2/27/09. Tier 2, or full applications, will be accepted June 1-8. Credit awards will be made in mid-August. A little over $9.5 million in credits is available, according to agency Tax Credit Program Manager Laura Nicholson.
In Tier 1, developers submit certain required information including about the proposed site, and a market study is prepared. Tier 1 applicants that meet certain criteria are invited to participate in Tier 2 and submit a full application.
Nicholson said the agency hasn’t made major changes to its LIHTC program for 2009. Two changes, though, include a new $750,000 set-aside for projects “having historical significance,” and a “true” nonprofit set-aside whereby 10% to 15% of available credits will be awarded to projects with nonprofit sponsors. Before, Nicholson said, the authority hoped nonprofit applicants would score high enough in its other three other set-asides to be awarded at least 10% of the available credits. But this didn’t happen; no nonprofits received 2008 credit awards. Other credit set-asides for 2009 include: up to $750,000 for RHS projects; up to 25% for rehabilitation projects; and the general set-aside.
Nicholson said the authority this year also has added to its Energy Star criteria “across the board,” especially for new construction projects, and has beefed up its rehabilitation criteria.
She indicated projects with credit awards are struggling to obtain equity. Of the 18 projects awarded 2008 tax credits, “to our knowledge, only two of them have found syndication at this point,” Nicholson said. She added that some 2007 deals also haven’t found equity. She noted sponsors of all 2008 credit projects took the authority up on its offer and in mid-January exchanged their 2008 credits for 2009 credits. These projects now have until August 2009 to meet the 10% carryover expenditure test, but still must be placed in service in 2010.
Nicholson said the authority will provide a 30% basis boost in 2009 to qualified projects, and said federal HOME funds will be available in the 2009 cycle.
Nicholson indicated that there’s particular need in South Carolina for additional tax credit units in rural areas, and in areas with a lot of service industries, such as Myrtle Beach, Charleston, and Beaufort.
