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Presentation, discussion, and possible action regarding an increase to the Housing Tax Credit amount for Norwood Estates (HTC #19407)
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RECOMMENDED ACTION
recommendation
WHEREAS, Norwood Estates (the Development) received a 4% Housing Tax Credit (HTC) award in 2019 for the new construction of 228 units for the general population in Austin, Travis County;
WHEREAS, construction of the Development has been completed, and LDG Estates at Norwood, LP (the Development Owner or Owner) requests, at cost certification, to increase the annual HTC amount from $1,467,918, the amount reflected in the Determination Notice, to $2,431,282, a difference of $963,364, which represents a 65.63% 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 Norwood Estates 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
Norwood Estates received a 4% HTC award in 2019 for new construction of 228 units for the general population in Austin, Travis County. On October 14, 2019, a Determination Notice was issued with an approved annual tax credit amount of $1,467,918. The residential buildings in the Development placed in service in 2023, and the final cost certification was received by the Department on March 27, 2024.
In a letter dated March 27, 2024, Jason Trevino, the representative for the Development Owner, requested an annual tax credit award of $2,431,282, and this amount represents an increase of $963,364 (65.63%) from the amount reflected in the Determination Notice. Through the cost certification review process, the representative for the Development Owner explained that the Development incurred increased costs during construction and construction delays.
A comparison of the development costs from the time of the Application, in 2019, to Cost Certification indicates that total development costs increased approximately $12.5MM (28.49%), from $43,873,370 to $56,374,033. 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, which also increased the direct construction costs. Lumber had a significant price escalation during this timeframe. The City of Austin added unanticipated offsite construction work to the permit prior to issuance and refused to issue a permanent water meter until the offsite construction was complete. There was also a delay from Austin Energy, as they were unable to provide transformers and meters. Furthermore, grading plans had to be reissued for the project, as errant grades were discovered during construction causing additional concrete for retaining walls and additional dirt haul off. There was also an extended delay in getting the detention pond details approved by the City of Austin. General Conditions and Overhead costs increased due to construction delays. Construction delays caused an increase to financing costs such as construction interest and financing fees. Developer fees also increased, as they are calculated at 15% of the project’s eligible costs.
In addition, the credit calculation at application was based on an applicable percentage of 3.45%, whereas at cost certification the percentage was adjusted due to the enactment of the Consolidated Appropriations Act of 2021. In this instance, a supplemental bond was funded on May 1, 2023, allowing the Owner to take advantage of the new 4% floor rather than the applicable percentage based on the placed in service date of each building.
Staff’s analysis of this transaction at cost certification has concluded that the Development supports an annual tax credit allocation of $2,431,282 and that the recommended 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 65.63% increase from $1,467,918, 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.