PRIVATE LETTER RULING 200703024 (

1
PRIVATE LETTERRULING200703024 (PLR)
2
The PLR Was Published OnJanuary 19, 2007

• Each tenant, granted a right of first refusal,
  can buy that unit, along with all the tenants in
  the property, upon the conversion of Section 42
  rental property to condominiums. The ownership
  plan can be implemented after the compliance
  period ends. All tax credits taken will not be
  recaptured.
• The State HFA can terminate the existing LURA
  after the compliance period terminates and
  substitute a new LURA for rental and home
  ownership.

3
MHDC Supported PLR

• A conversion does not diminish the affordable
  housing pool
• Tenants will be more committed to stay to
  conversion date, keeping property in better
  condition
• Prior to conversion, the owner has the incentive
  to maintain the property
• Following the conversion, tenants, as owners,
  have the incentive to maintain the property
• MHDC will not have to use new allocations of
  housing tax credits or other resources
• The propertys use for affordable housing is
  maintained and extended and
• The American Dream of home ownership is advanced.

4
Major PLR Guidelines

• The Mathematical Formula setting the homes sales
  price is derived from the maximum monthly LITC
  rent. The new monthly payment pays the mortgage
  and the condominium fee.
• No displacement can occur after the conversion
  process starts.
• The extended use period was extended from 15
  years to 30 years.

5
The PLRs Redacted Facts

1. The sales price is 79,500 for the 1BR and
   89,500 for the 2BR (including one parking
   space).
2. The condominium fee is all inclusive.
3. The tenancy rent credit is 1 of the sales price
   for each full year of occupancy.
4. Any home re-sales must be to a then income
   eligible Section 42 buyer.
5. The re-sale price is capped at the original sales
   price plus 10, compounded per year.

6
MHDCs Baseline

• MHDC has issued a Baseline memorandum detailing
  implementation rules that include
• i. No ongoing tenant income re-certifications
  after conversions
• ii. Non-tenant and resale home buyers are
  income certified on the date of the sale
  contract
• iii. HOA manager must be Section 42
  experienced
• iv. All units must be owner occupied and
• v. The qualified contract period can be
  by-passed.

7

• The Baseline sets forth PLR criteria for other
• 1990 1995 project conversions
• i. MHDC must approve all PLR conversions
• ii. Once approved, all leases must include a
  tenant right of
• first refusal
• iii. A physical needs assessment must be
  prepared
• iv. A sales schedule and HOA management plan
  must be submitted
• v. No conversion will be approved if there
  are material
• Form 8823 violations and
• vi. MHDC will continue to monitor the
  propertys physical condition.
• Nixon Peabody Reliance Letter.

8
PLR Sponsor Imposed Requirements

• Common paymaster for mortgage payment and
  condominium fee
• Mandatory home ownership counseling course and
• HOA management company will have entry rights to
  fix common elements and make unit repairs.

9
Each State HFA Must Adopt the PLR

• Nixon Peabody Reliance Letter.
• Each State HFA may specify its own approval
  process.

10
(No Transcript)
11
Downtown Kansas City, MO
12
Quality Hill Projects
13
Phase II-B
14
Phase II-B
15
Phase II-B
16
Quality Hill Phase II-B

• 84 Units 60 1-BRs
• 24 2-BRs
• Parking 90
• LITC Allocation 1991
• Year Completed 1993
• LITC Award 9

17
Phase II-B

• 2005/2006 NOI 200,000 per year
• Apartment Value 2,500,000
• Existing Debt (12/31/06) 5,110,000
• (1st Mortgage 1,110,000)
• (2nd 5th Mortgages 4,000,000 )

18
Value as Condos 6,900,000
Phase II-B

• Less
• 1. Commissions
• 2. Marketing
• 3. Closing costs
• 4. Project Close Out
• 5. Home Ownership Counseling
• 6. Professional Fees
• 7. Condominium Survey/Platting
• 8. Rehabilitation Interior/Exterior
• 9. Conversion Loan Interest/Additional Advance
• Existing Debt Retirement
• Developer Fee
• LP Return of Capital/Taxes

19
Phase II-B

• 1 BR 2 BR
• Current Maximum Tax Credit Rents
• (Net of Utility Allowances) 695 817
• Purchase Price (with 1 parking space) 79,500 89,
  500
• Monthly Payment
• All In Condo Fee 232 276
• Mortgage-Monthly
• (6, 30 Year) (95 Financing) 454
  510
• 686 786
• Down Payment Required
• Before Occupancy Credit Grant 3,706 4,516

20
Special Home Buyer Incentives

• 1 Per Annum Credit To Tenant For Occupancy Up To
  10 Years.
• Homeowner Down Payment/Closing Grant From City of
  3,000 per Home.
• Real Estate Tax Freeze.
• CRA End Loan Programs
• (A) Bank Of America
• (B) HFA (First Time HFA Financing).

21
Purchase Example For A 3-Year Tenant

• 1 BR 2 BR
• Price 79,500 89,500
• Closing Costs 905 905
• Less
• City Grant (3,000) (3,000)
• Credit 3 yr Occupancy (2,385) (2,685)
• Cash Down Payment (500) (500)
• 74,520 84,220
• Monthly Payment
• Loan (6, 30 years) 447 505
• Condo Fee 232 276
• Total 679 781
• Max Tax Credit Rent 695 817
• (Net Of Utility Allowance)

22
Other Issues

• Local and State condominium conversion laws.
• Section 8 Tenants.
• Partner Consents.
• Lender Consents.
• Tax Implications.

23
Take Aways

• Each State HFA Must Approve the PLR.
• The politics of affordable/workforce Home
  Ownership are positive and real.
• The Mathematical Formula must work for the
  homebuyers and the developer.
• Conversions are not for beginners.
• Most post compliance period properties may not
  fit into the PLR.