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Presentation, discussion, and possible action regarding a Material Amendment to the Housing Tax Credit Application and a request for return and reallocation of tax credits under 10 TAC §11.6(5) related to Credit Returns Resulting from Force Majeure Events for Gatesville Crossing (HTC #24224)
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RECOMMENDED ACTION
recommendation
WHEREAS, Gatesville Crossing (Development) received an award of 9% Housing Tax Credits (HTCs) in 2024 for the new construction of 32 multifamily units, 28 of which were designated as low-income units, for the general population in Gatesville, Coryell County;
WHEREAS, Gatesville Crossing, LP (Applicant) requests approval for a decrease of six units in the total number of units from 32 to 26, by removing all four market rate units and two low-income units to ensure financial feasibility, representing a reduction of 7.14% in the number of low-income units and a reduction of 18.75% in the overall number of units;
WHEREAS, the reduction in units would result in an 18.75% decrease in residential density, from 5.43 units per acre to 4.41 units per acre;
WHEREAS, the Applicant requests approval for changes to the architectural design of the Development, including a reduction to the Net Rentable Area (NRA) from 32,028 square feet to 25,308 square feet, which is a reduction of 6,720 square feet or 20.98%, and for a reduction in the Common Area from 5,206 square feet to 4,978 feet, representing a reduction of 228 square feet or 4.38%;
WHEREAS, Board approval is required for a modification of the number of Units or bedroom mix of the Units, a reduction of 3% or more in the square footage of the Units or Common Area, a significant modification of the architectural design, and a modification of the residential density of at least 5% as directed in Tex. Gov’t Code §2306.6712(d)(2), (4), (5), and (6) and 10 TAC §10.405(a)(4)(B), (D), (E), and (F), and the Owner has complied with the amendment requirements therein;
WHEREAS, the requested changes do not negatively affect the Development or negatively impact the viability of the transaction and would not have caused the Application to not be awarded in the competitive round or affect the HTC amount awarded;
WHEREAS, after receiving its award, the Development Owner executed a Carryover Allocation Agreement that included certifications stating each building receiving an allocation would be placed in service by December 31, 2026;
WHEREAS, the Development Owner has requested an extension to the placement in service deadline under 10 TAC §11.6(5), related to Credit Returns Resulting from Force Majeure Events;
WHEREAS, the Department lacks authority to extend federal placement in service deadlines and may only reset such deadlines by requiring the credits to be returned and immediately reallocated to the Development, as permitted solely under the force majeure provision of the Qualified Allocation Plan (QAP); and
WHEREAS, the Development Owner has submitted documentation demonstrating that a qualifying force majeure event has occurred;
NOW, therefore, it is hereby
RESOLVED, that the requested amendment for Gatesville Crossing is approved as presented at this meeting, and the Executive Director and his designees are each hereby authorized, directed, and empowered to take all necessary action to effectuate the foregoing; and
FURTHER RESOLVED, that the request to treat the matter under the force majeure provisions of 10 TAC §11.6(5) is approved, and that the 2024 Qualified Allocation Plan, Uniform Multifamily Rules, and the 2025 Program Calendar shall be applicable to the Development.
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BACKGROUND
Gatesville Crossing was approved for a 9% HTC award in 2024 for the construction of 32 units, of which 28 were designated as low-income units, of multifamily housing for the general population in Gatesville, Coryell County. In a letter dated August 25, 2025, Bronte Bejarano, the representative for the Applicant, requested approval for a material amendment to the Application.
The Applicant is requesting approval for a reduction to the number of units from 32 to 26, by removing the four market units and two HTC units, which represents a reduction of 7.14% in the number of low-income units and a reduction of 18.75% in total units. The reduction to the number of units will result in the reduction to the units at 60% of Area Median Income (AMI) from 28 units to 26 units. There are no changes to the square footage of the units. The Net Rentable Area would decrease from 32,028 square feet to 25,308 square feet, a reduction of 6,720 square feet (20.98%). The revised unit mix includes four one-bedroom units, 18 two-bedroom units, and four three-bedroom units instead of the originally proposed four one-bedroom units, 20 two-bedroom units, and eight three-bedroom units. The Development was originally proposed with two residential buildings, and as proposed in this amendment, all units will be in one building. The reduction to the number of units would result in an 18.75% decrease in residential density from 5.43 units per acre to 4.41 units per acre. Additionally, the Applicant requests approval for a reduction to the total Common Area from 5,206 square feet to 4,978 square feet due to a reduction to the breezeways size, a decrease of 228 square feet (4.38%), and to reduce the number of parking spaces, all of which are surface, from 55 to 50. The Applicant states that this redesign is needed to ensure financial feasibility of the Development.
The Applicant indicated that, due to circumstances that were not reasonably foreseeable or preventable by the Applicant at the time the Application was submitted, the initial design of the Development is no longer financially viable. The Applicant provided correspondences from the lender and syndicator which respectively cite an increase in the permanent interest rate from 6.75% anticipated at Application to 7.50% currently, and a decrease in credits price from $0.84 anticipated at Application to $0.73 currently. The Applicant states the rural location of the Development is contributing to a particularly steep drop in credit price, and tariffs are contributing to higher construction costs. The provided letter from the syndicator also cites increases in construction costs and property insurance, and changes in the equity markets since their initial underwriting.
Staff confirmed that the revised design plans and parking will continue to meet accessibility requirements. Additionally, staff reviewed the original Application and scoring documentation against this amendment request and has concluded that none of the changes would have affected the selection of the Application in the competitive round. The Development was re-underwritten with the proposed amendment and revised financial information. The analysis supports no change to the HTC allocation and demonstrates the Development remains feasible.
Staff recommends approval of the amendment as presented herein.
FORCE MAJEURE BACKGROUND
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Development |
Gatesville Crossing |
|
Target Population |
General |
|
HTC Award |
$1,036,766 |
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City |
Gatesville |
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Total Units |
32 |
|
HTC Units |
28 |
|
Initial Year of Award |
2024 |
|
Extension Requested |
Six months |
Gatesville Crossing is a 32-unit development located in Gatesville, Coryell County. The development received an award of 9% Housing Tax Credits in 2024. As a result, the current deadline to place in service in December 31, 2026.
Since its initial award, the Application has experienced disruptions caused by rising construction costs, fluctuations in equity pricing, and increasing interest rates. At the time of the initial Application, the Owner anticipated equity pricing of $0.84; however, this has since fallen to $0.73. In addition, the interest rate on the permanent loan was expected to be 6.75% but has risen to 7.5%. These changes have rendered the Development financially infeasible. The material amendment included in this item is necessary for the Development to be feasible.
APPLICABLE RULE
Under 10 TAC §11.6(5), a Development Owner may return credits and receive a reallocation outside the standard allocation process if the return is the result of a qualifying force majeure event occurring prior to issuance of IRS Form(s) 8609. Pursuant to 10 TAC §11.6(5), the Department’s Governing Board may approve execution of a Carryover Allocation Agreement for the current program year with the Development Owner that returned the credits, but only if the following conditions are met:
(A) The credits were returned as a result of "Force Majeure" events that occurred before issuance of Forms 8609. Force Majeure events are the following sudden and unforeseen circumstances outside the control of the Development Owner: acts of God such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; unrelated party litigation; changes in law, rules, or regulations; national emergency or insurrection; riot; acts of terrorism; supplier failures; or materials or labor shortages. If a Force Majeure event is also a presidentially declared disaster, the Department may treat the matter under the applicable federal provisions. Force Majeure events must make construction activity impossible or materially impede its progress.
Staff has reviewed this request and determined that construction cost increases, equity pricing fluctuations, and rising interest rates constitute a force majeure event under the rules.
IMPACT OF BOARD DECISION
If the Board approves the request:
• The credits will be returned and reallocated, with the 2024 Qualified Allocation Plan, Uniform Multifamily Rules, and the 2025 Program Calendar applicable to the Development.
• A new Carryover Allocation Agreement will be executed.
• The new 10% Test deadline will be July 1, 2026.
• The new placed in service deadline will be June 30, 2027.
If the Board denies the request:
• The current placed in service deadline of December 31, 2026, remains in place.
• The Development Owner may either meet the existing deadline, return the credits, or have the award terminated for failing to meet the deadline.
• Returned credits will first be reallocated within the original subregion in accordance with 10 TAC §11.6(2). If no pending applications are eligible within the subregion, the credits will be added to the statewide collapse for reallocation.
This request has no impact on any funding source other than the Low Income Housing Tax Credit program.
RECOMMENDATION
Staff recommends approval of the request to return and reallocate tax credits for Gatesville Crossing under the force majeure provisions of 10 TAC §11.6(5).