Alex Zeltser, Esq. Author Archives

For an affordable multifamily housing project to qualify for the maximum allowable amount of four percent LIHTCs, at least 50 percent of the project’s aggregate basis (consisting of eligible basis plus land) must be financed with the proceeds of tax-exempt bonds issued pursuant to an allocation of private activity bond volume cap by a state housing authority or another municipal issuer (the 50 percent test).

Due to the COVID-19 pandemic and resulting impacts on the economy and financial markets, as well as the Federal Reserve’s raising of short-term rates to stave off inflation, interest rates and construction costs have risen dramatically, resulting in funding gaps that many multifamily affordable housing developers in the four percent LIHTC space have had difficulty filling.

In the current affordable housing development environment, multifamily projects that are not awarded competitive nine percent Low Income Housing Tax Credits are frequently exploring the four percent credit available for transactions in which, at least, 50 percent of the aggregate basis in the project is financed with proceeds of tax-exempt bonds or loans (“bonds”) issued by state and local housing agencies and certain municipalities using private activity bond volume cap (the “50 percent test”).