The Bright Outlook of Affordable Housing

Affordable Updates The Bright Outlook of Affordable Housing

September 8, 2016 www.novoco.com

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Michael J. Novogradac Novogradac & Company LLP

@novogradac

Agenda

Unused Bonds – An Opportunity for Rental Housing

The Affordable Housing Credit Improvement Act Potential Impact

Presidential Election

Outlook After the Election


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$65 billion in private activity tax-exempt bond (PAB) cap went unused

In 2015, approximately

- $10.5 billion could not be carried forward and was forfeited.

$54.5 billion was carried forward to 2016 and is theoretically available for residential rental housing

+ ~$35 billion in approximate 2016 new cap

But…

Blog post coming soon to www.novoco.com/blog

$89.5 billion in 2016 resources that could be used to finance affordable rental housing.

S. 2962 Affordable Housing Credit Improvement Act of 2016

Announced May 19, 2016

Sen. Cantwell D-Washington

Sen. Hatch R-Utah

Sen. Wyden D-Ore.

Sen. Schumer D-N.Y.


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S. 2962 Affordable Housing Credit Improvement Act of 2016

Announced May 19, 2016

Sen. Cantwell D-Washington

Sen. Hatch R-Utah

Sen. Wyden D-Ore.

Sen. Schumer D-N.Y.


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Affordable Housing Credit Improvement Act of 2016, part 2


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S. 3237


New, expanded bill includes:

• 50 percent increase

• Income-averaging

• Minimum 4 percent rate


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Sen. Maria Cantwell D-Washington

S. 3237


Additional Resources

• Give states discretion to provide 30% basis boost for bond-financed projects

• Repeal QCT population cap

• Relocation costs included in eligible basis

• No basis reduction for certain energy tax incentives

• Indian areas generally treated as DDAs


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S. 3237


Financial Feasibility

• 50% basis boost for ELI units

• Modify student occupancy rules

• Codify increased tenant income guidance

• Modify 10-year rule – Limits apply to acquisition basis

• Adopt uniform income eligibility for rural projects


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S. 3237


Other

• Simplify the LIHTC student rule

• Clarify the ability to claim LIHTCs after casualty losses

• Replace the ROFR with a purchase option

• Add Native American projects as QAP selection criterion

• Modify the rent-setting rule



S. 3237

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Other

• Clarify the community revitalization plan

• Prohibit local approval or contribution requirements

• Change the official name of the LIHTC



S. 3237

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Largest impact on equity for bond deals: • Minimum 4 percent

• State discretionary boost of up to 30% in areas outside of DDAs/QCTs

• Repealing population cap on QCTs

• Automatic DDA for Indian areas


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Affordable Housing Credit Improvement Act of 2016, part 2 S. 3237


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Total Project Costs Housing Credit Eligible Costs Basis Boost Housing Credit Eligible Costs Housing Credit Rate Calculated Annual Housing Credit Total Tax Credits for Syndication Tax Credit Price per Credit Dollar Housing Credit Equity Debt Equity Gap: Soft Loans & Deferred Developer Fee Total sources

Without the 4 Percent Minimum

With the 4 Percent Minimum

$25,000,000

$21,650,000 100%

$21,650,000 4%

$866,000

$8,660,000 $1.00

$8,660,000

$25,000,000

$21,650,000 100%

$21,650,000 3.15%

$682,000

$6,820,000 $1.00

$6,820,000

$12,270,000 $5,910,000

$25,000,000

x x x + +

x x x + +

*

Financing a LIHTC Property With and Without the 4 Percent Floor 160-unit property with all units at 60% AMI

About $1.8m more equity available

* Housing Credit Rate based on September 2016 30% PV percentage


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Without the 4 Percent Minimum

With the 4 Percent Minimum

$25,000,000

$21,650,000 100%

$21,650,000 4%

$866,000

$8,660,000 $1.00

$8,660,000

$12,270,000 $4,070,000

$25,000,000

$25,000,000

$21,650,000 100%

$21,650,000 3.15%

$682,000

$6,820,000 $1.00

$6,820,000

$12,270,000 $5,910,000

$25,000,000

x x x + +

x x x + +

*

Financing a LIHTC Property With and Without the 4 Percent Floor 160-unit property with all units at 60% AMI

Therefore, about $1.8m less of a gap



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Without the 30% Basis Boost

With the 30% Basis Boost

$25,000,000

$21,650,000 130%

$28,145,000 4%

$1,126,000

$11,260,000 $1.00

$11,260,000

$25,000,000

$21,650,000 100%

$21,650,000 3.15%

$682,000

$6,820,000 $1.00

$6,820,000

$12,270,000 $5,910,000

$25,000,000

x x x + +

x x x + +

*

Financing a LIHTC Property With and Without the 30% Basis Boost


160-unit property with all units at 60% AMI

About $4.4m more equity available


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Without the 30% Basis Boost

With the 30% Basis Boost

$25,000,000

$21,650,000 130%

$28,145,000 4%

$1,126,000

$11,260,000 $1.00

$11,260,000

$12,270,000 $1,470,000

$25,000,000

$25,000,000

$21,650,000 100%

$21,650,000 3.15%

$682,000

$6,820,000 $1.00

$6,820,000

$12,270,000 $5,910,000

$25,000,000

x x x + +

x x x + +

*

Financing a LIHTC Property With and Without the 30% Basis Boost


160-unit property with all units at 60% AMI

Therefore, about $4.4m less of a gap

Recent Presidents Who Had Major Tax Bills the Year of their Inauguration


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OBAMA BUSH CLINTON BUSH REAGAN CARTER


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Presidential Candidates and Affordable Housing

SECRETARY HILLARY CLINTON DONALD TRUMP

• Includes housing as part of her policy platform

• Calls to increase supply of affordable rental homes by expanding annual LIHTC allocations for areas most in need

• Plans to create incentives at state and local level to enact effective land use rules and other regulations to promote development of new rental housing


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• Has not stated a position • However, his father developed a

substantial amount of unsubsidized affordable rental housing in NYC


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www.novoco.com/journal

Presidential Election


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Democrat Republican Democrat

November 2016


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Republican Republican Republican

November 2016


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The “Defensive” Path The “Offensive” Path

November 2016

PROTECTING OURSELVES

SEEKING RESOURCES


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Low-Income Housing Tax Credits

Ensuring LIHTC is retained in all future

tax reform bills

Pushing for a 50 percent increase and Cantwell-Hatch

improvements


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HUD

Minimizing cuts Trying to restore more

HUD funding and eliminating RAD unit cap


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GSEs

Retaining some form of government involvement in

mortgage finance

Increasing GSE multifamily activity


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NMTC

Ensuring the NMTC is not repealed before 2019 and at

least gets extended beyond that

Permanence, increase in authority, inflation adj.


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Affordable Updates The Bright Outlook of Affordable Housing


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Michael J. Novogradac Novogradac & Company LLP

@novogradac

The Bright Outlook of Affordable Housing

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