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Presentation, discussion, and possible action regarding a Material Amendment to the Housing Tax Credit Application, changes to the ownership structure, and a waiver of 10 TAC §11.9(b)(2)(A) for Park at Dogwood (HTC #24079)
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RECOMMENDED ACTION
recommendation
WHEREAS, Park at Dogwood (Development) received an award of 9% Housing Tax Credits (HTCs) in 2024 for the new construction of 85 multifamily units for the general population in New Braunfels, Comal County;
WHEREAS, the HTC Application received two points for proposing a number of Low-Income Units at 20% greater than the subregion average of the 2022 and 2023 competitive rounds according to the 2024 Site Demographic Report;
WHEREAS, the 2024 Site Demographic Report shows that the 20% Benchmark for Urban Subregion 9, where this property is located, requires 85 units in order to qualify for the two points;
WHEREAS, Comal Partners, L.P. (Applicant) requests approval for a 10.59% reduction in the number of units from 85 to 76 units, with a decrease of nine one-bedroom units;
WHEREAS, this change would result in a revision to the rent and income restrictions from nine units at 30% Area Median Income (AMI), 34 units at 50% AMI, and 42 units at 60% AMI to eight units at 30% AMI, 31 units at 50% AMI, and 37 units at 60% AMI;
WHEREAS, the elimination of the nine units and slight changes to the unit sizes would result in a 9.96%, or 8,496 square feet, reduction in the Net Rentable Area, from 85,320 square feet to 76,824 square feet;
WHEREAS, the change would result in a significant modification of the architectural design and site plan, a 10.59% decrease in the residential density, going from 12.14 units per acre to 10.86 units per acre, and a reduction in the parking spaces and building configuration;
WHEREAS, the HTC Application also received two points for agreeing to include a certified Historically Underutilized Business (HUB) in the ownership structure of the General Partner and materially participating in the development and operation of the Development throughout the Compliance Period;
WHEREAS, in order to qualify for a property tax exemption, the Applicant also seeks to revise the ownership structure by adding the New Braunfels Housing Authority (NBHA) as the General Partner, and changing the current General Partner, Park at Dogwood LLC, that is currently owned by a Historically Underutilized Building (HUB), BETCO Consulting, and by Park Group Properties II, LLC, to a Special Limited Partner (SLP);
WHEREAS, the Applicant requests approval to revise the HUB requirement for the Development to specify that the HUB must remain in the ownership structure and have an ownership interest in the Special Limited Partner in order to continue to meet the intent of 10 TAC §11.9(b)(2)(A) to have a HUB materially participate in the Development;
WHEREAS, Board approval is required for a reduction to the number of units or bedroom mix of units, a significant modification of the site plan, a reduction of 3% or more in the square footage of the units and common areas, a significant modification of the architectural design of the Development, and a modification of the residential density of at least 5% as directed in 10 TAC §10.405(a)(4)(A), (B), (D), (E), and (F), and in Tex. Gov’t Code §2306.6712(d)(1), (2), (4), (5), and (6), and the Applicant has complied with the amendment requirements therein;
WHEREAS, Board approval of a waiver is required because 10 TAC §11.9(b)(2)(A) specifies that the HUB is required to have an ownership interest in the General Partner; and
WHEREAS, the requested reduction to the number of units will materially affect the Development, but the requested waiver does not negatively affect the Development, impact the viability of the transaction, impact Tex. Gov't Code §§2306.001, 2306.002, 2306.359, and 2306.6701, or affect the amount of the tax credits awarded;
NOW, therefore, it is hereby
RESOLVED, that the requested amendment to the number of units for Park at Dogwood is presented as neutral; and
FURTHER RESOLVED, that the waiver request and changes to the ownership structure are approved as presented, 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
Park at Dogwood was approved for a 9% HTC award in 2024 for the construction of 85 units, of which all are designated as low-income units, of multifamily housing for the general population in New Braunfels, Comal County. In a letter as of February 5, 2025, Lora Myrick, the representative of the Applicant, requested approval for a material amendment to the Application, changes to the ownership structure, and a related waiver, all of which are to protect the long-term feasibility of the Development.
The Applicant requests approval for a reduction in the number of units from 85 to 76 units, which will decrease the one-bedroom units by nine while maintaining the proposed number of two-bedroom units for a 21%/79% mix instead of the 29%/71% ratio originally proposed in the Application. In addition, a reduction in unit sizes from 756 square feet to 729 square feet (-3.57%) for one-bedroom units, and from 1,107 square feet to 1,086 square feet (-1.90%) for two-bedroom units is being proposed. This change would also result in a revision to the rent and income restrictions from nine units at 30% AMI, 34 units at 50% AMI, and 42 units at 60% AMI to eight units at 30% AMI, 31 units at 50% AMI, and 37 units at 60% AMI. This change will also result in a reduction of 8,496 square feet (9.96%) in the Net Rentable Area, from 85,320 square feet to 76,824 square feet; and a 10.59% reduction to the residential density from 12.14 units per acre to 10.86 units per acre. Additionally, the requested change decreases the number of parking spaces to be proportionate to the unit reduction and will remain in compliance with the requirements of the City of New Braunfels.
The Applicant indicated that this request is the result of a decrease in the proposed purchase price of the tax credits from an initial rate of $0.88 per credit to $0.81 per credit due to credit pricing being negatively impacted by speculation of a proposed reduction to the corporate tax rates. This results in a potential $1,399,860 equity loss. In addition to the drop in equity pricing, construction costs increased when FEMA updated their flood maps on May 8, 2024, after the Application was submitted. The new maps required additional mitigation to ensure that the finished ground floor elevations and drive areas met the elevation requirements as outlined in the Qualified Allocation Plan. According to the Applicant, the additional costs related to hauling in off-site dirt to get the site above the 100-year floodplain is currently estimated at $616,262.
The Applicant stated it was not possible to retain feasibility without reducing the number of units. After extensive analysis, a reduction from 85 units to 76 units in combination with the other amendments allowed the property to be feasible and meet underwriting thresholds. In accordance with 10 TAC §10.405(a)(7)(A)(ii), the Applicant provided a letter from the syndicator and lender confirming that the Development would not be financially feasible without the proposed changes.
In addition to the amendment, the Applicant is requesting approval for changes to the ownership structure, which will require a waiver for a requirement related to ownership by a Historically Underutilized Business (HUB). The Application for the Development received two points because the Development was structured to include a HUB in the ownership structure that would have some combination of ownership interest in the General Partner of the Applicant, cash flow from operations, and Developer Fee, which taken together equal at least 50% and no less than 5% for any category. The HUB is also required to materially participate in the development and operation of the property throughout the Compliance Period.
The Applicant is proposing a change to the ownership structure of the Owner and Developer, and is seeking a waiver of the provision in 10 TAC §11.9(b)(2)(A) that specifies the HUB is required to have an ownership interest in the General Partner. The Applicant is seeking to revise the ownership structure by adding the New Braunfels Housing Authority (NBHA) as the General Partner to obtain a 100% property tax exemption for the Development. The current General Partner, Park at Dogwood, LLC, that is currently owned by the HUB, BETCO Consulting, LLC (40%), and by Park Group Properties II, LLC (60%), will become a Special Limited Partner (SLP).
The change in the structure will result in the HUB no longer meeting the requirements for the two points for Sponsor Characteristics awarded at Application. Therefore, the Applicant requests to waive this specific requirement and to allow the Development to continue to qualify for the two points for Sponsor Characteristics with the HUB in the ownership structure of the SLP. The HUB would continue to be required to meet all other requirements in 10 TAC §11.9(b)(2)(A), including the requirement to materially participate in the development and operation of the Development throughout the Compliance Period. This revised ownership requirement would be codified in the Land Use Restriction Agreement for the Development. The Applicant indicated that the HUB will remain in the proposed ownership structure as a member of the SLP but will perform the same duties and be functionally equivalent to the general partner.
The Applicant states that the need for this waiver was not foreseeable at Application and that the granting of the waiver better serves the policies and purposes Tex. Gov't Code §§2306.001, 2306.002, 2306.359, and 2306.6701 by improving the feasibility of the Development, and the
HUB will continue to materially participate in the Development.
Staff confirmed that the revised design plans and parking would continue to meet accessibility requirements. Additionally, staff reviewed the original Application and scoring documentation against this amendment request and concluded that the reduction to the number of units would have resulted in the loss of the two points awarded for providing units at the 20% threshold. While this ultimately did not affect the selection of the Development for an award in the competitive round, this was not known by the Applicant when the Application was submitted.
Therefore, staff has a neutral recommendation for the amendment to the Application for the 10.59% reduction to the number of units, from 85 to 76 units, which will materially alter the Development in a negative manner.
So long as the Development can be restructured for feasibility without the reduction to the number of units, staff recommends approval of the amendment to the ownership structure and waiver request. The approval for the change in the ownership structure will be contingent upon the results of the Previous Participation Review (PPR). Additionally, a letter of continued support from the Mayor of the City of New Braunfels was provided.
If the Board elects to approve the reduction to the number of units, the approval will be subject to underwriting by the Department to confirm the transaction remains feasible with the proposed modifications.