2008 REAL ESTATE UPDATE December 10-12, 2008 San Juan, Puerto Rico - PowerPoint PPT Presentation


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2008 REAL ESTATE UPDATE December 10-12, 2008 San Juan, Puerto Rico


Elimination of the subsidy layering process for projects with FHA insurance ... for elevator and coop buildings. Project Based Vouchers (PBV) (continued) ... – PowerPoint PPT presentation

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Title: 2008 REAL ESTATE UPDATE December 10-12, 2008 San Juan, Puerto Rico

2008 REAL ESTATE UPDATE December 10-12,
2008San Juan, Puerto Rico
  • Monica Hilton Sussman, Esq.

  • Signed by President Bush on July 30th, which
    becomes the Date of Enactment for certain
  • The Housing Credit provisions are the most
    significant changes to the program in almost 20
  • The Act provides additional flexibility and
    simplification that will make more properties
    financially feasible
  • The changes are expected to stimulate investment
    in Housing Credit properties

HUD and LIHTC Program Coordination
  • HUD given 6 months to implement the law
  • Objective is to improve efficiency, simplify and
    establish time deadlines, and request additional
    funding for staff, if needed
  • Required to consult with IRS as well as industry
    and provide a report to Congress within 9 months

FHA Mortgage Insurance and LIHTC
  • Elimination of the subsidy layering process for
    projects with FHA insurance
  • Exempt FHA projects with LIHTCs from HUD cost
    certification, if at the time of firm commitment
    the loan-to-cost ratio is below 80
  • HUD issued a memo in July addressing the need for
    escrowing LIHTC equity The law eliminates the
    requirement for escrow and/or letter of credit

FHA Mortgage Insurance and LIHTC(continued)
  • Exempts FHA-insured projects if tax credit agency
    is doing inspections (presumably from REACS).
    As to other compliance monitoring, if HUD
    determines the HFA monitoring is sufficient to
    ensure compliance with HUDs requirements, then
    it too need not be performed (for MORS ?)
  • Pilot for streamlined reviews for FHA loans where
    LIHTCS are being used (instructions to be issued
    within 180 days of enactment)

Project Based Vouchers (PBV)
  • Increases the term of a PBV contract from 10 to
    15 years and allows public housing agencies
    (PHAs) to commit to unlimited renewals
  • The PBV per-building limitation (no more than 25
    of the units unless it is elderly or there are
    family self-sufficiency services provided) is now
    calculated on a project-wide basis
  • PBVs are permitted for elevator and coop buildings

Project Based Vouchers (PBV)(continued)
  • Subsidy layering is not required for existing
    building or if the HFA has conducted SLR
  • Environmental review is not required before PHA
    enters into a HAP for existing buildings, unless
    otherwise required by law or regulation

Project Based Vouchers (PBV)(continued)
  • Rent floor is established
  • Rents for units in LIHTC projects need not go
    through rent reasonableness test if the PBV rent
    does not exceed the LIHTC unit rents, but also is
    not in excess of the PHA payment standard for the
    unit size
  • The law codifies HUD policy that for determining
    rent reasonableness voucher rents are to be
    compared with the private, unassisted market, up
    to the greater of the tax credit rents for
    comparable units or the housing authority
    established payment standard. (Seems not to
    apply to PBVs)

Section 202
  • Provides for delegated processing to state or
    local agencies with underwriting experience (not
    limited to LIHTC mixed finance transactions)
  • HUD retains approval on rents and development
    costs and will issue commitment within 60 days of
    receipt of commitment from delegated agency

Rural Housing
  • No clear implementation date
  • RHS and IRS have a mandate to coordinate the
    Section 515 policies with IRS policies when using
  • RHS shall facilitate timely approval of transfer
    requests (this is not the same as the pending 515
    transfer legislation, but should help move
    application along)
  • RHS to outreach to industry in implementation

Federally Subsidized and Below Market Federal
  • The Act eliminates the unfavorable treatment for
    below market federal loans
  • As a result, new construction and substantial
    rehabilita-tion expenditures will qualify for 9
    credits even if the project receives a below
    market federal loan -- a loan of federal funds
    with an interest rate below the applicable
    Federal rate
  • Effective for PIS after 7-30-08

Definition of Federally Subsidized Building
  • Tax-exempt bond financed projects are still
    federally subsidized and therefore will only be
    eligible for the 4 credit
  • The provision prohibiting the 30 percent basis
    boost for below market HOME loans receiving 9
    credits is repealed
  • Huge opportunities here to greatly reduce
    back-end residual value issues
  • But, it may be difficult to restructure already
    funded loans because of debt cancellation rules

Treatment of Federal Grants and Subsidies
  • Rental, operating, and interest reduction
    payments are not considered federal grants
    requiring a basis reduction
  • Loans made from the proceeds of federal grants
    are also okay. E.g., loans provided through
    exempt organizations

Treatment of Operating Subsidies
  • Treasury is directed to amend its regulations so
    that the following are not considered federal
  • (1) Sec. 521 of the Housing Act of 1949
  • (2) 538(f)(5) of the Housing Act of 1949
  • (3) Section 236 IRPs
  • (4) section 202 of the Housing Act of 1959
  • (5) section 811 of the Cranston-Gonzalez National
    Affordable Housing Act
  • (6) modernization, operating, and rental
    assistance pursuant to section 202 of the Native
    American Housing Assistance and
    Self-Determination Act of 1996
  • (7) title IV of the McKinney Homeless Assistance
  • (8) section 212 of the Cranston-Gonzalez National
    Affordable Housing Act
  • (continued on next slide)

Treatment of Operating Subsidies -- 2
  • (9) AIDS Housing Opportunity Act
  • (10) per diem payments under section 2012 of
    title 38
  • (11) rent supplements under section 101 of the
    Housing and Urban Development Act of 1965
  • (12) assistance under section 542 of the Housing
    Act of 1949 and
  • (13) any other ongoing payment used to enable the
    property to be rented to low-income tenants.
  • Effective Date is PIS after 7/30/08, but this is
    not intended to create any inference with
    respect to pre-Act treatment. What does this

Modification to 10-Year Placed-In-Service Rule
  • The Act creates a new exception to the ten year
    rule the ten year rule does not apply to
    projects substantially assisted, financed or
    operated under many federal or state housing
    programs similar in purposes to the federal
    programs. (discussed more on next slide)
  • This new exception replaces the Treasury waiver
    provisions regarding HUD and RHS properties
  • The 15-year Prior Compliance Period Rule for
    acquisition credits still applies to existing
    Section 42 projects

Substantially Financed, Assisted, or Operated
  • The new rule impacts properties substantially
    financed, assisted, or operated under
  • Section 8 of the United States Housing Act of
  • Sections 221(d)(3), 221(d)(4), or 236 of the
    National Housing Act
  • Section 515 of the Housing Act of 1949
  • any other housing program administered by HUD or
    the Rural Housing Service
  • or any other similar state housing programs
  • What does substantially mean?
  • Is there an old and cold requirement?

Miscellaneous Provisions
  • The Act repeals the prohibition on the use of
    Housing Credits with properties that were
    assisted under the Section 8 Moderate
    Rehabilitation program
  • The period for satisfying the 10 percent test
    for carryover allocations is lengthened to one
    year after the date of the carryover allocation.
    Remember states can still have their own rules.

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