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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 Avanti Legacy Rosewood (HTC #22039/23804)
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RECOMMENDED ACTION
recommendation
WHEREAS, Avanti Legacy Rosewood (Development) received a 9% Housing Tax Credit (HTC) award in 2022 and was approved for a reallocation of credits under Force Majeure in 2023 (HTC #23804) for the new construction of 99 multifamily units, of which 96 are low-income units, for the elderly population in Laredo, Webb County;
WHEREAS, Avanti Legacy Rosewood, LP (Applicant) requests approval for a reduction in the number of units from 99 to 86, with an increase of one one-bedroom unit and decrease of 14 two-bedroom units, which would result in a 15.37% reduction to the Net Rentable Area, from 82,392 square feet to 69,728 square feet, and a 13.13% reduction in density, from 13.59 units per acre to 11.81 units per acre;
WHEREAS, the Applicant also requests a revision to the rent and income restrictions from 10 units at 30% Area Median Income (AMI), 20 units at 50% AMI, 66 units at 60% AMI, and three units at market rate to nine units at 30% AMI, 18 units at 50% AMI, 59 units at 60% AMI, and zero units at market rate;
WHEREAS, the Applicant also requests a significant modification of the architectural design, including an increase in floors of the sole residential building from three to four, a 14.92% (3,995 square feet) decrease in the Common Area from 26,769 square feet to 22,774 square feet, and a reduction in the parking spaces from 212, including eight carports, to 174, including 16 carports;
WHEREAS, Board approval is required for a modification to the number of units or bedroom mix of units, a reduction of 3% or more in the square footage of the units or common areas, a significant modification of the architectural design of the Development, and a modification of the residential density of the Development of at least 5%, as directed in 10 TAC §10.405(a)(4)(B), (D), (E) and (F) and in Tex. Gov’t Code §2306.6712(d)(2), (4), (5) and (6), and the Applicant has complied with the amendment requirements therein;
WHEREAS, to improve the financial feasibility of the Development by obtaining a property tax exemption, Applicant is seeking to replace H4 Development, Inc. with the Laredo Public Facility Corporation as the new sole member of the General Partner;
WHEREAS, the HTC Application for the Development 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, and receiving a 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;
WHEREAS, Applicant is seeking to revise the ownership structure by adding a Special Limited Partner, Avanti Legacy Rosewood I, LLC, and moving the HUB, H4 Development, Inc., from the ownership structure of Avanti Legacy Rosewood GP, LLC, the General Partner, to the newly formed Special Limited Partner, which will be 85% owned and managed by the HUB as well as 10% owned by Tamez Landholdings, LLC and 5% owned by Toby-Marie Dev Co, LLC;
WHEREAS, the Applicant requests a waiver of the specific requirement in 10 TAC §11.9(b)(2)(A) that states the HUB must have an ownership interest in the General Partner, allowing the Development to continue to qualify for the two points for Sponsor Characteristics with the HUB in the ownership structure of the Special Limited Partner and continuing to meet the intent of 10 TAC §11.9(b)(2)(A) to have a HUB materially participate in the Development; and
WHEREAS, the requested changes and waiver do 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 Housing Tax Credit Application, changes to the ownership structure, and a waiver of 10 TAC §11.9(b)(2)(A) for Avanti Legacy Rosewood are each 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.
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BACKGROUND
Avanti Legacy Rosewood received a 9% HTC award in 2022 and a reallocation of credits under Force Majeure in 2023 for the new construction of 99 multifamily units, of which 96 units are low-income units, for the elderly in Laredo, Webb County. In a letter dated January 26, 2024, Enrique Flores, IV, representative and authorized signatory for the Applicant, requested approval for a material amendment to reduce the number of units from 99 to 86 by increasing the number of one-bedroom units by one, and decreasing the number of two-bedroom units by 14 from what was originally proposed in the Application. This change would result in a revision to the rent and income restrictions from 10 units at 30% Area Median Income (AMI), 20 units at 50% AMI, 66 units at 60% AMI, and three units at market rate to nine units at 30% AMI, 18 units at 50% AMI, 59 units at 60% AMI, and zero units at market rate. The total number of low-income units would decrease by approximately 10%.
The change will result in a reduction of 12,664 square feet (15.37%) in the Net Rentable Area from 82,392 to 69,728 square feet; a 13.13% decrease to the residential density from 13.59 to 11.81 units per acre; a significant modification of the architectural design, including an increase from three floors to four floors for the sole residential building, and a decrease of 3,995 square feet (14.92%) in the Common Area from 26,769 square feet to 22,774 square feet. Additionally, the number of parking spaces is reduced to 174, 16 of which are carports spaces, from the 212, eight of which were carport spaces, identified at Application. The enclosed table compares the site plan of the Development at Application and the revised site plan after the amendment.
The Applicant states the reason for the requested changes is to reduce development costs to maintain feasibility, and indicates that without reduction to the overall size, the Development is no longer feasible. The Applicant cites increased construction costs, increased borrowing costs, and increased operating expenses, namely property insurance, and states that these factors were not foreseeable or preventable by Applicant.
The Applicant submitted letters of support from their lender and investor, which indicated that the adjustment to the number of units is necessary for feasibility. The Applicant also submitted a letter of continued support from State Representative Richard Peña Raymond as well as Resolution No. 2023-R-134 from the City of Laredo (the City), passed August 7, 2023, which also states the City’s continued support for the Development.
In addition to the amendment for the redesign, 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 HTC Application for the Development received two points because the Development was structured to include a Historically Underutilized Business (HUB) in the ownership structure that would have some combination of ownership interest in the General Partner of the Owner, cash flow from operations, and Developer Fee, which taken together equal at least 50% and no less than 5% for any category. The HUB was also required to materially participate in the development and operation of the Development throughout the Compliance Period.
In a letter dated January 30, 2024, Enrique Flores, IV, representative and authorized signatory for the Applicant, proposed changes to the ownership structure for the Development, which requires 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 add a Special Limited Partner, Avanti Legacy Rosewood I, LLC, and move the HUB, H4 Development, Inc., from the ownership structure of Avanti Legacy Rosewood GP, LLC, the General Partner, to the newly formed Special Limited Partner, which will be 85% owned and managed by H4 Development, Inc. Laredo Public Facility Corporation will replace H4 Development, Inc. as the sole member of the General Partner, Avanti Legacy Rosewood GP, LLC. The requested changes to the ownership structure will improve the financial feasibility of the Development by providing an ad valorem tax exemption. The Applicant explained that these changes are necessary due to increased construction costs, interest rates, and operating expenses, particularly property insurance.
However, this change to the ownership structure would result in the HUB no longer meeting the requirements for the two Sponsor Characteristics points awarded at Application because it will no longer be in the ownership structure of the General Partner. Therefore, the Applicant requests to waive this specific requirement and to allow the Development to continue to qualify for the two Sponsor Characteristics points with the HUB in the ownership structure of the Special Limited Partner. 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 LURA for the Development.
The aforementioned resolution of support from the Laredo City Council states the City of Laredo supports the partnership with the Laredo Public Facility Corporation for purposes of obtaining a property tax exemption, in addition to the City supporting the reduction of units.
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. The Applicant indicates that the Special Limited Partner will be the functional equivalent of a general partner. Therefore, this proposed structure results in no change to the Development and is merely a change in title, not the HUB member's participation. Therefore, the Development will continue to comply with the intent, purpose and material provisions of the elected Sponsor Characteristics.
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, conditioned on approval of the Application amendment and 100% property tax exemption, without which the Development will be infeasible. Staff also 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 scoring or selection of the Application in the competitive round.
Staff recommends approval of the Application amendment, changes to the ownership structure and the waiver of 10 TAC §11.9(b)(2)(A) as presented herein.