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Presentation, discussion, and possible action regarding a waiver and extension of the 10% Test submission deadline in 10 TAC §10.401(a) and 10 TAC §11.2(a) for 3300 Caroline Street (HTC #20114/21711/22802)
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RECOMMENDED ACTION
recommendation
WHEREAS, 3300 Caroline Street (Development) received a 9% Housing Tax Credit (HTC) award in 2020 out of the nonprofit set-aside, and was approved for reallocations of credits under Force Majeure in 2021 (HTC #21711) and in 2022 (HTC #22802), for the construction of 149 multifamily supportive housing units, designated to assist previously homeless persons in Houston, Harris County;
WHEREAS, after the approval of the second Force Majeure, the Development was reissued a Carryover Allocation Agreement on July 8, 2022, that specifies that the 10% Test requirements identified in §11.2(a) of the 2022 Qualified Allocation Plan (QAP) and in §10.401(a) of the Post Award and Asset Management Requirements (AM Rules) must be met by July 1, 2023, or such later date as is specifically granted by the Department pursuant to a written extension;
WHEREAS, pursuant to §42(h)(1)(E)(ii) of the Internal Revenue Code (Code), the Owner’s basis in the Development as of the date which is one year after the date that the allocation was made must be more than 10% of the Owner’s reasonably expected basis in the Development;
WHEREAS, Magnificat Permanent Affordable, LLC (Development Owner or Owner) submitted documentation to the Department on May 28, 2024, confirming that the Owner met the 10% expenditure threshold required by the Code by June 30, 2023, but the Owner did not meet the July 1, 2023, submission deadline requirements specified in the 2022 QAP and AM Rules;
WHEREAS, the Owner now requests approval for a waiver of the 10% Test Documentation Delivery Date specified in the 2022 QAP and AM Rules and to extend the submission deadline from July 1, 2023, to May 28, 2024;
WHEREAS, §11.9(f) of the QAP states that, for failure to meet a 10% Test deadline, staff may recommend that an Applicant or Affiliate should be found ineligible to compete in the following year’s competitive Application Round or that they should be assigned a penalty point deduction in the following year’s competitive Application Round of no more than two points for each submitted Application; and
WHEREAS, 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 waiver of the 10% Test submission deadline in 10 TAC §10.401(a) and 10 TAC §11.2(a) and the extension of the deadline from July 1, 2023, to May 28, 2024, for 3300 Caroline Street are approved as presented at this meeting, with the maximum two-point penalty deduction to Applications submitted by the Owner or their Affiliates in the 2025 competitive Application Round, and the Executive Director and his designees are each hereby authorized, directed, and empowered to take all necessary action to effectuate the foregoing.
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BACKGROUND
3300 Caroline Street received a 9% HTC award in 2020 and reallocations of credits under Force Majeure in 2021 and in 2022 for the construction of 149 multifamily supportive housing units in Houston, Harris County. All units are designed as single-room occupancy (SRO) units that will provide housing for previously homeless persons. In a letter dated May 28, 2024, Michelle J. Snedden, the representative for the Owner, requests a waiver of the 10% Test Documentation Delivery date identified in 10 TAC §11.2(a) of the 2022 Qualified Allocation Plan (QAP) and as specified in 10 TAC §10.401(a) of the Post Award and Asset Management Requirements (AM Rules). Ms. Snedden states that due to human oversight, the required 10% Test package was not submitted to the Department until May 28, 2024. Consequently, the Owner did not meet the Department’s 10% Test Documentation Delivery Date of July 1, 2023. The letter from Ms. Snedden states that the 10% Test submitted to the Department substantiates the Owner met the 10% Test expenditure requirement and deadline under §42(h)(1)(E)(ii) of the Code.
Ms. Snedden states that the Owner and its Affiliates are experienced operators in affordable housing in Texas and that this is the first time an oversight of this kind has occurred. She further states that the Owner has implemented safeguards for all their projects to avoid a recurrence of this incident. Therefore, as allowed under 10 TAC §11.207, the Owner requests a waiver of the QAP and AM Rules to allow the 10% Test Documentation Delivery Date submission deadline to be extended from July 1, 2023, to the date the Department received the 10% Test package, which is May 28, 2024. Ms. Snedden states that granting this waiver better serves the policies and purposes articulated in Tex. Gov't Code §§2306.001, 2306.002, 2306.359, and 2306.6701. The Development is a project focused on serving the homeless and will provide affordable housing to meet the needs of individuals and families. Without the waiver, the Development would be jeopardized. Therefore, by granting the requested waiver, the Owner can continue to develop the project as the Owner represented in the Application.
Staff reviewed the Report of Independent Auditors issued May 24, 2024, that was submitted with the 10% Test package on May 28, 2024. The report confirms the basis incurred by the Owner as of June 30, 2023, was $15,495,796, representing 34.53% of the $44,873,292 total reasonably expected basis for the Development, which meets the Code requirements. Furthermore, the 10% Test package indicates that the site acquisition cost of $6.96MM, which is counted as part of the incurred basis for the 10% Test, was incurred on October 3, 2022. It should also be noted that the third party inspection report dated April 30, 2024, included in the latest quarterly Construction Status Report, indicates the Development is 74% complete as of March 25, 2024, and is expected to achieve substantial completion by August 31, 2024.
Staff recommends approval of the waiver of the 10% Test submission deadline in 10 TAC §10.401(a) and 10 TAC §11.2(a) and the request to extend the 10% Test Documentation Delivery Date deadline from July 1, 2023, to May 28, 2024, as presented herein. Additionally, for failure to meet the 10% Test Documentation Deadline, staff recommends assessing the maximum two-point penalty deduction to Applications submitted by the Owner or their Affiliates in the 2025 competitive Application Round as allowed under 10 TAC §11.9(f).