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Presentation, discussion, and possible action regarding an increase to the Housing Tax Credit amount for The Ridge at Lancaster (HTC #21421)
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RECOMMENDED ACTION
recommendation
WHEREAS, The Ridge at Lancaster (the Development) received a 4% Housing Tax Credit (HTC) award in 2021 for the construction of 300 units, of which 270 are low-income units, for the general population in Dallas, Dallas County;
WHEREAS, construction of the Development has been completed, and LDG The Ridge at Lancaster, LP (the Development Owner or Owner) requests at cost certification to increase the annual HTC amount from $2,707,319, the amount reflected in the Determination Notice, to $3,292,947, a difference of $585,628, which represents a 21.63% increase;
WHEREAS, §42(m)(2) of the Internal Revenue Code allows an increase of tax credits for a bond financed project when the increase is determined necessary as demonstrated through the submission of the cost certification package;
WHEREAS, 10 TAC §10.401(d) requires approval by the Board if an increase to the amount of tax credits exceeds 120% of the amount of credit reflected in the Determination Notice; and
WHEREAS, a review of the cost certification package submitted by the Development Owner supports the need for the additional tax credits requested, and staff has determined that the increase is necessary for the viability of the transaction;
NOW, therefore, it is hereby
RESOLVED, that the housing tax credit increase for The Ridge of Lancaster requested by the Development Owner is approved as presented to 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
The Ridge of Lancaster received a 4% HTC award in 2021 for new construction of 300 units, of which 270 are low-income units, for the general population in Dallas, Dallas County. On February 26, 2021, a Determination Notice was issued reflecting an annual tax credit amount of $2,707,319. The residential buildings in the Development placed in service between November 15, 2023, and April 25, 2024, and the cost certification documentation is currently under review by the Department.
The cost certification documentation reflects a requested annual tax credit amount of $3,292,947, which represents an increase of $585,628 (21.63%) from the amount reflected in the Determination Notice. In a letter dated October 3, 2024, Jason Trevino, the representative for the Development Owner, formally requested the additional credits and explained that this is due to unavoidable obstacles and increased costs during the construction of the Development.
A comparison of the development costs from the time of the Application, in 2021, to Cost Certification indicates that total development costs increased approximately $10.6 million (15.77%), from $67,545,802 to $78,199,028. The Owner explained that direct construction costs were underestimated at the time of application, as the applicant did not have actual construction bids at that time. Additionally, there were several change orders and material price escalations for lumber/trim. There was also a soil stabilization redesign to utilize shotcrete, which increased design costs and delayed construction, and there was a redesign of the grading and retaining walls, which required additional retaining walls for the project. Sanitary sewer and dry utility systems were redesigned post-closing, and there were improvements to paving and to the perimeter fence. Oncor electrical design changes were also required, and water plan changes required additional irrigation pumps. The City of Dallas changed the offsite utility tie-in plan multiple times due to an unstable creek crossing, which resulted in a delay of more than five months. The City of Dallas also required wastewater line upgrades not associated with the permit before they released permanent water service. General Conditions and overhead costs increased due to the lengthened schedule. Construction delays also caused an increase to construction interest. Developer fee also increased, but the final amount is not at the maximum limit of 15% of the Development’s eligible costs.
Staff’s analysis of this transaction at cost certification has concluded that the Development supports an annual tax credit allocation of $3,292,947, and that the requested increase is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period. This results in a 21.63% increase from $2,707,319, the original annual HTC amount in the Determination Notice. In accordance with 10 TAC §10.401(d), Board approval is required because the requested tax credit amount exceeds 120% of the HTC amount reflected in the Determination Notice. The Development Owner will be required to submit the Tax-Exempt Bond Credit Increase Request Fee required in 10 TAC §11.901(8) for the increase to the HTC amount prior to issuance of Forms 8609. Additionally, all required pending documentation for the cost certification review must be provided for the issuance of 8609s.
Staff recommends approval of the increase in the tax credit award as presented herein.