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Presentation, discussion, and possible action regarding a Material Amendment to the Housing Tax Credit Application for 305 E Round Grove Living (HTC #23007)
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RECOMMENDED ACTION
recommendation
WHEREAS, 305 E Round Grove Living (the Development) received a 9% Housing Tax Credit (HTC) award in 2023 for the new construction of 90 units, 57 of which are designated as low-income units, in Lewisville, Denton County;
WHEREAS, due to the need to fill a funding gap, which is expected to be filled by obtaining Multifamily Direct Loan (MFDL) funding from the Department and fee waivers from the City of Lewisville through an Economic Incentive Agreement, 305 E Round Grove Living, Ltd. (the Applicant) requests approval to change the Qualified Low Income Housing Development Election from Average Income to 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);
WHEREAS, one of the major factors in the City of Lewisville granting this incentive to the Development is the number of market units (36.7% of total units) being provided to the community, but per 10 TAC §13.3(d)(2)(a), if average income is elected, no more than 15% of total units can be designated market rate and still remain eligible for MFDL funds;
WHEREAS, with a change to the 40% at 60% set-aside, the number of market rate units can remain the same, and the Development can be eligible for MFDL funds and receive the fee waivers from the City of Lewisville;
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 Applicant 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, impact the scoring of the Application, or impact the HTC award;
NOW, therefore, it is hereby
RESOLVED, that the requested material application amendment for 305 E Round Grove Living 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
305 E Round Grove Living (HTC #23007) was approved for a 9% HTC award in 2023 for the new construction of 90 units, 57 of which are designated as low-income units in Lewisville, Denton County. Construction of the Development has not begun, and the Applicant submitted a request for a reallocation of credits under force majeure, which will be presented for consideration separately. The Applicant originally elected Average Income as the Qualified Low Income Housing Development Election, with an average income under 54%, which would allow the property to serve households with incomes ranging from 20% to 80% of the Area Median Income (AMI).
In a letter received on August 13, 2024, Cody Hunt, the representative for the Applicant, requested approval for a material amendment to the Application. The Applicant requests to revise the Qualified Low Income Housing Development Election from Average Income to the set-aside requirement that specifies 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). With this change, the Development would have six units at 30% AMI; 23 units at 50% AMI; 28 units at 60% AMI; and 33 market rate units. The average income for the low-income units would decrease to 52.8%.
The Applicant states that since initial application in March 2023, total development costs for this project have increased from $26.6 million to $30.1 million. In addition to this, interest rates since March 2023 have continued to increase. These factors resulted in a need to fill a funding gap that the Applicant expects to fill using a direct loan from the Department and fee waivers from the City of Lewisville through an Economic Incentive Agreement. However, one of the major factors in the City of Lewisville granting this incentive to the Development is the number of market units (36.7% of total units) being provided to the community. If the number of market units is decreased, the City of Lewisville will remove the fee waiver incentive. This conflicts with 10 TAC 13.3(d)(2)(a), which states that if average income is elected no more than 15% of total units can be designated market rate and still remain eligible for the MFDL funds. With the change to the 40% at 60% income election, the number of market rate units can remain the same, and the Development can be eligible for the MFDL funds and receive the fee waivers from the City of Lewisville. The Applicant indicated that it was not reasonably foreseeable at initial Application that this project would need both MFDL funds and fee waivers in order to remain financially feasible. The recommendation for the direct loan funds from the Department will be presented separately from this amendment to the HTC Application.
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 with the additional proposed changes to the financing structure. 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 material amendment request.