1. Low Income Housing Tax Credits
The Basics

2. Arizona LIHTC Projects
2019 Annual Credit Ceiling $19,766,849
Projects in Operations: 402
Projects Under Development: 26

3. Why do we do this?
All citizens of Arizona want to live in a good home in a safe neighborhood.
People stuck in low wage jobs or fixed incomes need a decent place to live and still have money left over for other necessary living expenses.
People who pay more than they can afford for housing face:
Eviction and homelessness
Inability to pay for necessary expenses such as food, medical and transportation.

4. Who lives in LIHTC housing?
Seniors living on Social Security
Arizona has 952,601 retirees with an average social security benefit of $17,193 per year.
That equates to $430 per month available to spend on rent and utilities combined.

5. Who lives in LIHTC housing?
People with Disabilities
SSI Federal Benefit Rate:
$750 + $15 Nutrition Assistance
$230 rent + utilities is affordable
$1,125 for eligible couples
$338 rent + utilities is affordable.

6. Who lives in LIHTC housing?
Families
In order to qualify for their housing in Graham County, this family could not earn more than $39,780 per year, which equates to $994 per month for housing plus utilities.
A two-earner household receiving minimum wage does not qualify.

7. What are Low Income Housing Tax Credits?
Public Private Partnership
Tax Credit
$ Equity $
I.R.S. Section 42
Investor
Affordable Housing

8. How does the Owner receive LIHTC?
Pays development costs
as investment for 15 years
Builds project
Owner Entity
Investor Limited Partner
Developer General Partner
Control & Risk
Tax Credit over 10 years
to recoup investment
Form 8609

9. Tax Credits claimed over 10 Years
Can be claimed year Placed In Service
Or the following year

10. How are they affordable?
LIHTC developments incur less debt, which allows the Owner to charge lower rents to tenants.
Market Rate
9% LIHTC

11. Allowable Imputed Rent
Based upon Income Limits
(not individual HH income)
Published Annually
By County

12. Gross Rent & Income Limits
Rent & Utilities Combined:
Maricopa County

13. Utility Allowance TV & Data Telephone Heating & Cooling Hot Water
Included in 30% Gross Rent
Not eligible – Other Expense
Heating & Cooling
Hot Water
Lights & Appliances (i.e., cooking)
Photovoltaics
Utility Service Fee
Water, Sewer, Trash usually paid by owner, but may be included.
TV & Data
Cable
Internet
Satellite
Entertainment subscriptions
Telephone
Land line
Cell Phone & Data

14. Utility Allowance Calculation
Energy Consumption Model
Other Models
Qualified Allocation Plan
RESNET Rater Estimate
Then 12 months consumption data
Public Housing Authority (HUD)
Rural Housing Service (USDA/RD)
Local Utility Company Estimate
HUD Utility Schedule Model

15. Rents

16. How many people are involved?
Developer
Owner
Syndicator
Investor
Lenders
Contractor
Architect/Engineer
Market Analyst
Environmental Professionals
Energy Consultant
CPA
Attorneys
Service Provider
Property Manager
Tenant
Asset Managers
Compliance Monitors

17. Land Sold to LP at Equity Closing
Timeline
Placed In Service
Compliance Period
Extended Use Period
Seller Owns Land
Land Sold to LP at Equity Closing
Construction

18. How are LIHTC calculated?

19. Eligible Basis Construction Architecture/Engineering Building Permits
Eligible Costs
Ineligible Costs
Construction
Architecture/Engineering
Building Permits
Construction Related Taxes, Insurance, Legal Costs
Environmental Audits
Construction Loan Costs
Developer Fees
Land
Marketing/Lease Up
Non-Construction Taxes, Insurance & Legal
Permanent Loan Costs
Syndication Fees
Organizational Costs
Capitalized Reserves

20. How are LIHTC calculated?

21. How much equity does this provide?

22. Same Calculation with Basis Boost

23. 130% Basis Boost results in lower financing gap:

24. Effect of Basis Boost:
Without the basis boost, many projects are not be feasible.

25. Cash Flow

26. Considerations Rents limited only by market Higher return to investor
Market Rate Property
LIHTC Property
Rents limited only by market
Higher return to investor
More cash flow possible
More marketable
Rents restricted based upon imputed incomes
Limited cash flow
Limited ability to borrow
Lower return to investor
Compliance restricts potential buyer pool

27. Arizona Department of Housing
Questions?
Jeanne Redondo
Arizona Department of Housing

28. Developers, Syndicators, and Investors
Understanding the players and deal structure

29. Low Income Housing Tax Credit Developers and Investors
Types of developers:
Nonprofit organizations
For-profit organizations
Types of investors:
Individuals
Corporations
Large real estate firms
Insurance companies
Utility providers
Manufacturing firms

30. Syndicator role and purpose of involvement
Syndicators are financial intermediaries who stand between developers and investors in the LIHTC marketplace.
Buy tax credits
Organize the investment vehicle
Educate prospective investors
Evaluate and select LIHTC properties

31. Syndicator role and purpose of involvement Continued
Negotiate price and adjusters
Negotiate guarantees
Monitor progress
Provide asset management
Continually assess risk
Syndicator role and purpose of involvement Continued

32. The Partnership & Partnership Agreement
Tax credit projects are generally owned by operating partnerships comprised of a general partner (developer), and a limited partner (investor)
Percent of ownership
Partnership Agreement:
A contractual document that outlines
all business terms

33. Partnership Agreement
Some important provisions of the Partnership Agreement include:
Purpose of the business
Contribution amounts
Allocation of profits, losses and tax credits
Distributions
Powers, rights and duties of the general and limited partners
Transfer rights and obligations
Dissolution
Partnership Agreement

34. What investors get in exchange for their equity
Tax credits
Tax deductions
Cash distributions
Sale proceeds
What investors get in exchange for their equity

35. What syndicators look for in a LIHTC deal & partner
Deals vary depending on the specifications of the project and the experience of the developer.
Syndicators want deals most likely to perform
This decreases the risk to their investment
Syndicators want partners that will deliver credits and meet compliance guidelines
And they want partners that understand the direct relationship between a well built property and the cost of operating the project for at least 15 years

36. Guarantees/Risk and the partner who shoulders it
Performance Guarantees:
Construction completion
Lease-up
Long term operating deficits
Tax credit delivery
Basis adjustor
First year of credits/ on going years
Repurchase obligations
Recapture:
What is it
When does it occur
Guarantees/Risk and the partner who shoulders it

37. Questions? Cynthia Boston Boston Affordable Housing Advisors

38. How are LIHTC properties appraised?

39. Approaches to Value Cost Approach Sales Comparison Approach (Market)
Income Approach

44. How are cap rates for LIHTC projects estimated?
Market rate sales
LIHTC sales (limited)
Brokers/sellers/buyers
Anecdotal evidence

47. LIHTC / Section 8 Rents – External Obsolescence (continued)

48. Brekan Nava Allen Group
Questions?
Albert Nava, MAI, SGA
Brekan Nava Allen Group