title
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 del Sol (HTC #23015)
end
RECOMMENDED ACTION
recommendation
WHEREAS, Avanti Legacy del Sol (Development) received a 9% Housing Tax Credit (HTC) award in 2023 for the new construction of 84 multifamily units for the elderly population in Brownsville, Cameron County;
WHEREAS, Avanti Legacy del Sol, LP (Applicant) requests approval for reductions of all units sizes, which would result in a 3.03% reduction to the Net Rentable Area, from 70,719 square feet to 68,573 square feet;
WHEREAS, the Applicant also requests approval for a significant modification of the architectural design, which includes but is not limited to a 34.70% (8,775 square feet) decrease in the common area from 25,290 square feet to 16,515 square feet, removal of all balconies, and removal of the pool to be replaced by more affordable outdoor amenities such as a picnic area and bocce ball court;
WHEREAS, Board approval is required for a reduction of 3% or more in the square footage of the units or common areas and for a significant modification of the architectural design of the Development, as directed in 10 TAC §10.405(a)(4)(D) and (E) and in Tex. Gov’t Code §2306.6712(d)(4) and (5), 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, the Applicant is seeking to replace H4 Development, Inc., a Historically Underutilized Business (HUB), with Brownsville Housing Opportunity Corporation as the new sole member of a new General Partner, Avanti Legacy del Sol BHOC GP, LLC, and to add a new Special Limited Partner that has as members H4 Development, Inc. and Tamez Landholdings, LLC;
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, 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 del Sol 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.
end
BACKGROUND
Avanti Legacy del Sol received a 9% HTC award in 2023 for the new construction of 84 multifamily units, of which all 84 units are low-income units, for the elderly in Brownsville, Cameron County. In a letter dated September 10, 2024, Enrique Flores, IV, representative and authorized signatory for the Applicant, requested approval for a material amendment, changes to the ownership structure, and an associated waiver related to the requirement to have a HUB in the ownership structure of the general partner. The Applicant also requested approval for a reallocation of tax credits under Force Majeure, but this request will be presented in a separate item.
The proposed changes to the Application include a reduction to the size of all units, which will result in a reduction of 2,146 square feet (3.03%) in the Net Rentable Area from 70,719 to 68,573 square feet; a 34.70% (8,775 square feet) decrease in the common area from 25,290 square feet to 16,515 square feet; a significant modification of the architectural design, which includes a reduction from 30% masonry exterior to approximately 10% masonry exterior; removal of all balconies; removal of the resident services room; reduction in the parking spaces from 110, including 16 carports, to 90 with zero carports; removal of one of the two elevators; and removal of the pool, to be replaced by more affordable outdoor amenities such as a picnic area and bocce ball court, for a total Development budget decrease of approximately $716,500.
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 and borrowing costs, and increased operating expenses, namely property insurance, and states that these factors were not foreseeable or preventable by Applicant.
Additionally, in a letter dated September 10, 2024, Enrique Flores, IV, representative and authorized signatory for the Applicant, requested approval for 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 del Sol I, LLC, and move the HUB, H4 Development, Inc., from the ownership structure of Avanti Legacy del Sol GP, LLC, the withdrawing General Partner to be replaced by a new General Partner, Avanti Legacy del Sol BHOC GP, LLC, to the newly formed Special Limited Partner, which will be 90% owned and managed by H4 Development, Inc. and 10% owned by Tamez Landholdings, LLC. Brownsville Housing Opportunity Corporation will replace H4 Development, Inc. as sole member of the new General Partner, Avanti Legacy del Sol BHOC 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 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. However, the proposed 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 approval for a waiver of 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 Applicant submitted a letter of continued support from State Representative Erin Elizabeth Gamez and Resolution No. 2023-016 from the City of Brownsville (the City), passed August 20, 2024, which also states the City’s continued support for the Development.
The need for this waiver was not foreseeable at Application and 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 with the proposed changes. 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, with the exception of the waiver, 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.