Duane Morris Closes $36,000,000 Acquisition and Rehabilitation Transaction

A team of Duane Morris lawyers lead by Art Momjian represented Federation Housing, Inc. in the acquisition and rehabilitation of the Samuel Tabas Apartments located in Philadelphia, Pennsylvania. The $36,000,000 transaction is structured with tax-exempt bonds and 4% Federal Low income housing tax credits. The tax-exempt bonds were issued in two series through the Philadelphia Authority for industrial Development. The Federal low income housing tax credits were syndicated by the National Equity Fund to TD Bank.

Duane Morris Forms Team for Acquisition Rehabs with Bonds and Tax Credits

Duane Morris partners Bob Archie and Art Momjian are working with Bob Jacobs of RCJ Consulting, LLC, Roy Diamond of Diamond and Associates, Eugene (“Geno”) Schiavo of Kitchen and Associates, and Pierce Keating of Keating Construction Company as a result of HUD authorizing the prepayment and refinancing of Section 202 Direct Loan projects have teamed together to help owners of seasoned Section 202 apartment buildings perform substantial renovations of their properties through the use of a financing structure known as a “lease/acquisition rehab” tax-exempt bond and tax credit structure. In this structure, the existing owner “leases” the apartment building to a technically unrelated limited partnership which leases and the renovates the apartment building through the use of tax-exempt bonds proceeds, 4% federal low-income housing tax credit equity proceeds, and owner’s purchase money mortgage financing. At least 50% of the prepaid rent or acquisition cost along with the renovation of the apartment building must be financed with volume cap tax exempt bonds, in order for the project to qualify for 4% Federal low income housing tax credits to provide equity for the project. Through the “low-income housing tax lease/acquisition rehab” structure, the owner may complete a substantial renovation of its project while reducing the amount of its existing debt service and receiving a developer fee for its services. To discuss whether your project would qualify for the “lease/acquisition rehab” structure contact Bob Archie at (215) 979-1915 or RLArchie@duanemorris.com or Art Momjian at (215) 979-1521 or ajmomjian@duanemorris.com

Bipartisan Coalition Proposes Hurricane Sandy Tax Releif Act of 2013

U.S. Rep. Bill Pascrell, Jr. (D-NJ-09) lead a bipartisan coalition including Reps. Joseph Crowley (D-NY), Rodney Frelinghuysen (R-NJ), Michael Grimm (R-NY), John Larson (D-CT), Frank LoBiondo (R-NJ), Charles Rangel (D-NY), Tom Reed (R-NY) and Carolyn McCarthy (D-NY) in introducing legislation to provide tax relief to the victims of the devastating storm that caused widespread destruction throughout the Northeast. The Hurricane Sandy Tax Relief Act of 2013 is aimed at providing tax relief for victims of Hurricane Sandy in areas designated as Federal Disaster Areas by the President. The bipartisan coalition will propose supplemental new market tax credit allocation authority for community development entities serving Hurricane Sandy disaster areas and increased low-incme housing tax credit allocation authority for delcared disaster areas.

NJHMFA Announces the Fund for the Restoration of Multifamily Housing

The New Jersey Housing and Mortgage Finance Agency has held two information sessions on the Additional Tax Credits/Fund for Restoration of Multifamily Housing which will be funded from the Super Storm Sandy CDBG grant provided to the State of New Jersey from HUD. The proposed Community Development Block Grant Disaster Recovery Action Plan submitted by the State of New Jersey to HUD for approval includes the creation of the Fund for Restoration of Multifamily Housing. This Fund will be administered by the New Jersey Housing and Mortgage Finance Agency (HMFA) and is expected to provide over $104 million in CDBG-DR funding to replenish the stock of quality, affordable housing units lost as a result of Super Storm Sandy. The NHMFA information sessions provided a description of the Fund’s proposed components, which includes leveraging CDBG-DR funds with the federal Low Income Housing Tax Credit Program.

Leveraging Sandy CDBG Grants

A prominent mandate of the New Jersey, New York City, and New York State action plans is the leveraging of Sandy CDBG grants with other federal programs and private funds. In this vein, there are several programs which are available to leverage Sandy CDBG funds. Coupling the Sandy funds with the Federal New Markets Tax Credit Program was done Post Katrina and will generate approximately 25% of project costs through Federal Tax Credit equity generated on the remaining 75% of Sandy funds which flow through the New Markets Tax Credit Structure. Under the proposed New Jersey Action plan approximately $100,000,000 is slated to go the New Jersey Housing and Mortgage Finance Agency to be used as a grant similar to TCAP to leverage the Agency’s 9% low income housing tax credit allocation as well as make 4% low income housing tax credit transactions economically feasible. In a similar vein, investment funds are forming with the plan of using private capital to leverage Sandy CDBG funds for projects. These transactions should be attractive to funds because the leverage would be relataively low and the security and financial return on the investment very good. Applicants seeking Sandy CDBG funds should be prepared to demonstrate the leveraging of these funds with public programs and private investment.

Treasury Asked to Clarify Ability to Use Hurricane Sandy Tax-Exempt Bonds

In anticipation of the tax exempt bond financing to be provided by the Hurricane Sandy and National Relief Act of 2012, the Treasury has been requested to clarify the ability to finance the acquisition and rehabilitation with tax-exempt bonds of an affordable housing project which previously received an allocation of 9% federal low-income housing tax credits. The request has been made that the use of tax-exempt financing by an unrelated third-party purchaser of an affordable housing project which previously received an allocation of 9% Federal low-income housing tax credits in an amount sufficient to fund a portion of the cost of the notional “separate new buildings” that are constructed in response to federally declared natural disaster will not preclude the purchaser from stepping into the shoes of the prior owner with respect to the existing project which received an allocation of 9% federal low-income housing tax credits. This would allow existing projects which received 9% LIHTCs which have been damaged by Super Storm Sandy to be acquired and rehabilitated with tax-exempt bond financing and 4% LIHTCs through the “step in the shoes” provision of Section 42 and not affect the prior 9% LIHTC allocation.

Congress Extends New Markets Tax Credit Program, Minimum 9% LIHTC rate, Wind Credit, and Bonus Depreciation

The American Taxpayer Relief Act of 2012 passed by Congress yesterday extends several Federal tax credit benefits critical to the development of affordable housing, low-income community development, and renewable energy. The Act authorizes the extension of the Federal New Markets Tax Credit Program for two additional years at $3.5 billion dollars of New Markets Tax Credit authority for each year. The American Taxpayer Relief Act of 2012 also extends the minimum credit rate for the Federal low-income housing tax credit of not less than 9% for non-federally subsidized new buildings for allocations made prior to January 1, 2014, the Wind production tax credit for facilities placed in service before January 1, 2014, and bonus depreciation for an additional year.

Senate to Vote on Hurricane Sandy Bill

Voting 91 to 1, Senate Democrats and Republicans joined to move for a vote this week on the Hurricane Sandy and National Relief Act of 2012. This $60.4 billion Bill would fund recovery efforts in states affected by Hurricane Sandy. If passed by the Senate, the Bill would still need passage by the Republican controlled House. Although the Bill is less than the $82 billion requested by the governors of New York, New Jersey and Connecticut, the Bill would provide much needed funds for affected states to clean up storm damage and undertake long-term projects to protect against the effects of future storms. The Bill would authorize an increase of allocation of Federal low-income housing tax credits, Historic Tax Credits, and New Markets Tax Credits as well as Recovery Zone Bonds in those areas affected by Hurricane Sandy.

Senate Proposes Hurricane Sandy and National Relief Act of 2012

The Senate introduced a summary of the proposed Hurricane Sandy and National Relief Act of 2012. The major provisions of the Act include special allocations of Federal New Markets Tax Credit authority, Federal Low-Income Housing tax credit allocation; and Recovery Zone Bond authority. The proposed Act provides for an allocation of Federal New Markets Tax Credit authority of $500 million a year for three years to be used in federally declared major disaster areas. For the years 2013, 2014, and 2015, the Act permits States affected by Hurricane Sandy to allocate additional amounts of Federal Low-Income Housing tax credits for use in the disaster area of up to $8.00 multiplied by the State’s disaster area population. The Act will also permit affected States to issue tax-exempt Sandy bonds to finance qualified activities including residential rental projects, nonresidential real property and public utility property located in the disaster area.

A New Look at the 4% Federal Low-Income Housing Tax Credit

During the past several years as a result of reduced federal and state subsidies, the 4% Federal low-income housing tax credit has been an infrequently used Federal subsidy. However, with the competitiveness and unclear future of the Federal New Markets Tax Credit Program and the conservative underwriting of conventional debt, the 4% Federal low-income housing tax credit may have a new role for a wide range of projects. The advantages of the 4% Federal low-income housing tax credit are that it is virtually automatically available for residential rental projects with at least 20% of the units set aside for low to moderate income tenants and whose project costs are at least 50% financed with volume cap tax-exempt bonds. Accordingly market rate projects with a desire or requirement to set aside affordable units can both access tax-exempt financing and generate additional equity through the use of the 4% Federal low-income housing tax credit. In addition, the amount of the tax credit is only limited by eligible costs and may be increased if the project is located in a qualified census tract or difficult to develop area. Further in certain instances a percentage of the cost basis of community service facilities may be included in eligible basis and generate additional equity. In any apartment or mixed use development consideration should be given to the potential equity to be generated by the 4% Federal low-income housing tax credit.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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