Friday, May 11, 2012

More ways #LIHTC projects are surviving Year 15

Further to the IRS qualified contracts rule: Harold Berk, the experienced tax credit attorney who helped me with Wednesday's detailed post on the subject, adds more reasons why subsidized housing that was financed using low-income housing tax credits (LIHTC) may actually not be at risk for conversion to market rate in its 15th year. He writes:
"...often the tax credit investors will exit the transaction before the developer general partner decides to invoke the qualified contract process. Usually the investors want to exit soon after the end of the tax credit period, and the developer wants them out before putting in place its strategy for dealing with post-year-15. The developer might want to invoke the qualified contract process if not waived or more likely do a refinancing and re-syndication to rehabilitate-repair the property and earn additional developer fees. Unlike historic tax credit properties where there are usually put and call options to allow or push out the investor, those are not usually found in LIHTC deals, though there can be other provisions for dealing with post-year-15. It all depends on the specifics of the deal, and many are different.
There is another point to note though that many of these LIHTC deals had governmental financing which included use restrictions that require continued low-income occupancy for 15 or 30 years or in Vermont, in perpetuity. These independent obligations will remain and will not be affected by the qualified contract process even if it is available and not waived."
When I was last writing regularly on tax credit housing, around 2002-2007, there seemed to be more dread in the air about tenants getting hurt when LIHTC investors invoked their rights to exit the low-income housing business after 15 years. This 2003 article, for example, looked ahead pretty apprehensively to the approaching 15-year expirations of affordability restrictions. (The LIHTC program was created in 1986 and took a while after that to get off the ground properly. So as of 2003, most projects' fifteenth years were still ahead of them.)

Feels like there's less fear now: the Year 15 problem is still out there, still very possibly a danger to some low-income tenants, but in a lot of places it has been successfully worked around.

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