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Presentation, discussion, and possible action regarding an increase to the Housing Tax Credit amount for Twelve620 (HTC #20471)
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RECOMMENDED ACTION
recommendation
WHEREAS, Twelve620 formerly known as Northwood Apartments (the Development) received a 4% Housing Tax Credit (HTC) award in 2020 for the new construction of 288 units for the general population in Houston, Harris County;
WHEREAS, construction of the Development has been completed, and LDG Northwood, LP (the Development Owner or Owner) requests, at cost certification, to increase the annual HTC amount from $2,378,498, the amount reflected in the Determination Notice, to $2,863,348, a difference of $484,850, which represents a 20.38% increase;
WHEREAS, §42(m)(2) of the Internal Revenue Code allows an increase of tax credits for a bond financed project when the increase is determined necessary as demonstrated through the submission of the cost certification package;
WHEREAS, 10 TAC §10.401(d) requires approval by the Board if an increase to the amount of tax credits exceeds 120% of the amount of credit reflected in the Determination Notice; and
WHEREAS, a review of the cost certification package submitted by the Development Owner supports the need for the additional tax credits requested, and staff has determined that the increase is necessary for the viability of the transaction;
NOW, therefore, it is hereby
RESOLVED, that the housing tax credit increase for Twelve620 requested by the Development Owner is approved as presented to this meeting, and the Executive Director and his designees are each authorized, directed, and empowered to take all necessary action to effectuate the foregoing.
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BACKGROUND
Twelve620 formerly known as Northwood Apartments received a 4% HTC award in 2020 for the construction of 288 units for the general population in Houston, Harris County. On July 29, 2020, a Determination Notice was issued with an approved annual tax credit amount of $2,378,498. The residential buildings in the Development placed in service in 2023, and the cost certification documentation is currently under review by the Department.
In a letter dated January 27, 2025, Jason Trevino, the representative for the Development Owner, requested an annual tax credit award of $2,863,348, and this amount represents an increase of $484,850 (20.38%) from the amount reflected in the Determination Notice. Through the cost certification review process, the representative for the Development Owner explained that the Development incurred increased costs during construction and construction delays.
A comparison of the development costs from the time of the Application, in 2020, to Cost Certification indicates that total development costs increased approximately $5.4 million (8.38%), from $65,288,419 to $70,760,060. The Owner explained that direct construction costs were underestimated at the time of application, as the applicant did not have actual construction bids at that time. Additionally, there were several change orders, which also increased the direct construction costs. Lumber had a significant price escalation during this timeframe. Several redesigns and modifications were implemented to improve the overall quality and efficiency of the project which significantly increased materials and labor cost. Harris County Flood Control District required a 25-foot additional Right of Way (ROW) towards the south portion of the site. In order to accommodate that ROW, one of the buildings on the original site plan was eliminated and those 24 units were disbursed throughout three of the remaining buildings by increasing their levels from three stories to four stories. Additionally, to maintain the required number of parking spaces, one of the buildings was converted to a podium design with parking underneath it. HVAC units were upgraded to higher efficiency units to improve the overall energy efficiency of the project. Plumbing booster pumps were installed to help with low water pressure in several buildings. Countertops in all units were upgraded from laminate to granite. The detention pond was modified to an underground stormwater detention system, which caused modification to the sanitary sewer system and domestic water distribution system.
There were construction delays as a result of the county delaying the start of the project beyond the Notice to Proceed due to issues with the procurement bids and the subcontractor selection process. The offsite utility extension install was delayed, which in turn delayed water being provided to the site. In addition, the change in countertops to granite caused delays as some of the units already had laminate installed which require removal. General Conditions and Overhead costs increased due to construction delays. Construction delays also caused an increase to financing costs. Developer fee also increased, but is not at the maximum limit of 15% of the project’s eligible costs.
Staff’s analysis of this transaction at cost certification has concluded that the Development supports an annual tax credit allocation of $2,863,348 and that the recommended increase is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period. This results in a 20.38% increase from $2,378,498, the original annual HTC amount in the Determination Notice. In accordance with 10 TAC §10.401(d), Board approval is required because the requested tax credit amount exceeds 120% of the HTC amount reflected in the Determination Notice. The Development Owner will be required to submit the Tax-Exempt Bond Credit Increase Request Fee required in 10 TAC §11.901(8) for the increase to the HTC amount prior to issuance of Forms 8609. Additionally, all required pending documentation for the cost certification review must be provided for the issuance of 8609s.
Staff recommends approval of the increase in the tax credit award as presented herein.