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Presentation, discussion, and possible action regarding a Material Amendment to the Housing Tax Credit Application for Lost Oaks (HTC #23209)
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RECOMMENDED ACTION
recommendation
WHEREAS, Lost Oaks (the Development) received a 9% Housing Tax Credit (HTC) award in 2023 for the new construction of 78 units in Houston, Harris County;
WHEREAS, Lost Oaks, LP (the Applicant) requests approval to change the Qualified Low Income Housing Development Election from the requirement that specifies that at least 40% or more of the residential units must be both rent restricted and occupied by individuals whose income is 60% or less of the median gross income (i.e., 40% at 60% minimum set-aside election) to the Average Income set-aside;
WHEREAS, Board approval is required for a request to implement a revised election under §42(g) of the Code prior to filing of IRS Form(s) 8609 as directed by 10 TAC §10.405(a)(4)(G), and the Owner has complied with the amendment requirements under 10 TAC §10.405(a); and
WHEREAS, the requested change does not negatively affect the Development, impact the viability of the transaction, or impact the tax credit award;
NOW, therefore, it is hereby
RESOLVED, that the requested amendment for Lost Oaks is approved as presented at 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
Lost Oaks was approved for a 9% HTC award in 2023 for the new construction of 78 units of multifamily housing in Houston, Harris County. The Applicant originally elected the set-aside requirement that specifies that at least 40% or more of the residential units must be both rent restricted and occupied by individuals whose income is 60% or less of the median gross income (i.e., 40% at 60% minimum set-aside election) as the Qualified Low Income Housing Development Election for the Development. The Development was underwritten based on the Rent Schedule provided by the Applicant that originally identified the set-asides for the 78 units as eight units at 30% Area Median Income (AMI), 32 units at 50% AMI, and 38 units at 60% AMI.
In a letter dated May 31, 2024, Taylor Pate, the representative for the Applicant, has now requested approval for a material amendment to the Application to revise the Qualified Low Income Housing Development Election from maintaining at least 40% or more of the residential units as both rent restricted and occupied by individuals whose income is 60% or less of the median gross income (i.e., 40% at 60% minimum set-aside election) to the Average Income election. The Applicant states that due to the rising costs, reduced tax credit pricing, and reduced borrowing capacity due to increased interest rates, the project is no longer financially feasible. By changing the election to Average Income and using updated rents, annual potential gross rent increases by approximately 11% from the estimates at Application. This benefits the Development by closing part of the widening gap that was caused by rising rates. The proposed change results in an average income of 54% for the Development.
The amendment request letter states it was not reasonably foreseeable that there would be a need to transition to the Average Income election, as it was impossible to anticipate the ongoing decline in the macroeconomic environment since the submission of the HTC Application. The letter also indicates that the proposed changes are necessary to ensure financial feasibility of the Development.
The Development was re-underwritten based on the proposed set-asides and revised financial information that was submitted. The analysis supports no change to the HTC allocation and demonstrates the Development remains feasible. Additionally, staff reviewed the original Application and scoring documentation against this amendment request and has concluded that none of the changes would have resulted in selection or threshold criteria changes that would have affected the selection of the Application in the competitive round.
Staff recommends approval of the amendment request as presented herein.