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Presentation, discussion, and possible action regarding an increase to the Housing Tax Credit amount for Eisenhower II (HTC #19410)
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RECOMMENDED ACTION
recommendation
WHEREAS, Eisenhower II (the Development) received a 4% Housing Tax Credit (HTC) award in 2019 to acquire and rehabilitate 66 multifamily units in El Paso, El Paso County;
WHEREAS, rehabilitation of the Development has been completed, and EP Eisenhower P3, LP (the Development Owner or Owner) requests, at cost certification, to increase the annual HTC amount from $376,008, the amount reflected in the Determination Notice, to $452,838, which represents a 20.43% increase from the amount in the Determination Notice;
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, and staff has determined that the increase is necessary for the viability of the transaction;
NOW, therefore, it is hereby
RESOLVED, that the annual housing tax credit increase to $452,838 for Eisenhower II 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
Eisenhower II received a 4% HTC award in 2019 to acquire and rehabilitate 66 multifamily units in El Paso, El Paso County. On March 14, 2019, a Determination Notice was issued with an approved annual tax credit amount of $376,008. The rehabilitation of the Development has been completed, and the residential buildings in the Development were placed in service in 2020.
During the review of the cost certification, Satish Bhaskar, the representative for the Development Owner, requested an annual tax credit award of $452,858, which represents a 20.43% increase from the amount in the Determination Notice.
A comparison of the development costs from the time of Application in 2019 to Cost Certification indicates that total development costs increased approximately $3.375 million (26.32%), from $12,822,602 to $16,197,017. Hard costs increased approximately $1.5 million (28.11%), from $5,319,165 to $6,814,574. The Owner explained that the requested increase to the HTC amount is primarily due to an increase in development costs, such as abatement, resulting in an increase in basis.
The Contractor fees and Developer fee also increased due to the additional construction costs. Contractor fees are $514,793 (68.95%) greater than the estimate at application. The recommended Developer fee increased 29.86%, from $1,447,601 to $1,879,922, which is the amount limited by the guidelines in the Qualified Allocation Plan (QAP) and lower than the Developer fee claimed by the Owner. The recommended deferred Developer fee increased from $365,155 to $636,747.
Staff’s analysis of this transaction at cost certification has concluded that the Development supports an annual tax credit allocation of $452,838, and that the 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 20.43% increase from $376,008, 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 Tax-Exempt Bond Credit Increase Request Fee required in 10 TAC §11.901(8) of 4% of one year of the increased credit amount, and any remaining required pending documentation for the cost certification review must be provided prior to the issuance of Forms 8609.
Staff recommends approval of the increase in the tax credit award as presented herein.