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Presentation, discussion, and possible action on a waiver of 10 TAC §13.11(c)(14)(I) for Boulevard 61
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RECOMMENDED ACTION
recommendation
WHEREAS, Boulevard 61 is a 2021 9% housing tax credit Development that received supplemental credits in 2023 and then force majeure treatment in 2024. The current deadline to place in service for the tax credits is December 31, 2026;
WHEREAS, the Development also received a National Housing Trust Fund (NHTF) loan from the Department, and the contract for that loan was signed in July 2023, and the grant year of those funds is 2021;
WHEREAS, the 2021 NHTF grant includes a deadline of July 30, 2026, by which those funds must be expended;
WHEREAS, construction of Boulevard 61 is anticipated to be completed in October 2026, but Department rules require that certain documents related to construction completion must be submitted prior to the final retainage of funds being disbursed, and therefore the Development will not be able to expend all funds by the deadline without a waiver of said rules; and
WHEREAS, the Department has identified some level of risk associated with this request, as is described below;
NOW, therefore, it is hereby
RESOLVED, that the waiver of the final draw requirements outlined in 10 TAC §13.11(c)(14)(I) for Boulevard 61 is hereby approved as further described herein.
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BACKGROUND
Boulevard 61 is a 2021 9% housing tax credit Development that proposes 100 newly constructed Units in Houston. The Development received supplemental credits in 2023 and then force majeure treatment in 2024, and because of that, the deadline to place in service for the tax credits is December 31, 2026. The current construction schedule anticipates project completion in October 2026, which is satisfactory for that deadline.
The Development was also approved for a fully repayable NHTF loan in the amount of $7,100,000 at 2.00% interest. The contract for these funds was signed in July 2023, and the grant year of those funds is 2021. The 2021 NHTF grant includes a federal expenditure deadline of July 30, 2026, by which all of the funds must have been expended on program-eligible costs.
While the Development is likely to have incurred enough costs by the deadline to draw down the entire NHTF loan, Department rules prohibit the final funds from being released until certain documentation related to construction completion are submitted. These include, but are not limited to, the Certificate of Substantial Completion, Certificates of Occupancy, and development completion reports. This creates an issue, because the Developer will not be able to provide these documents by the expenditure deadline of July 30, 2026, meaning that those funds cannot be drawn down on time without a waiver of the Department’s rules regarding the final disbursement of funds.
The Development is permit-ready; however, the Developer cannot close on its financing until this matter is resolved, as the investor is unwilling to move forward on a Development that has an impossible timeline. Staff recommends that the Board waive 10 TAC §13.11(c)(14)(I)(i)-(ix), which are the provisions of the rule that dictate what must be submitted prior to the final disbursement of funds. The waiver will allow the borrower to draw down the final NHTF funds prior to the expenditure deadline.
Staff has identified three specific risks with this waiver.
First, there is the risk associated with releasing the final funds prior to construction completion. Ordinarily, the final fund retainage is the Department’s leverage used to ensure timely correction of any issues related to completing construction, and to ensure that all necessary documentation related to that completion is submitted. Because Boulevard 61 also has Housing Tax Credit funding, the Department may also withhold IRS Forms 8609 if there are any completion-related issues, which would prevent the Developer from claiming those tax credits. Staff believes that this sufficiently mitigates this risk.
Second, if the Board grants this waiver and the Developer does not incur sufficient eligible costs by the expenditure deadline to draw down the entire NHTF loan, the Department is at risk of having any un-expended funds recaptured by HUD. As of the most recent Underwriting Report for the Development (attached to this item), the total housing development cost is $32,245,400. It is unlikely that the Developer will not incur $7,100,000 in eligible NHTF costs prior to the deadline, and therefore, staff believes that this risk is minimal.
Finally, staff has identified a risk associated with the federal project completion requirements. 24 CFR §93.402(d)(1) requires that complete project completion information must be entered into HUD’s disbursement and information system within 120 calendar days of the date of the final project drawdown. If satisfactory project completion information is not provided, HUD may suspend further project set-ups or take other corrective actions. The current completion date is within this window of time; however, any additional delays may cause the Department to be at risk of failing this deadline. The Department will also require additional mitigation by not allowing the final draw to be submitted until thirty days before the 2021 NHTF expenditure deadline.
Department staff has engaged with HUD to explore potential avenues to risk mitigation, including possibly swapping the 2021 NHTF funds for funds from a later grant year. The Department could also request a waiver of the expenditure deadline from HUD in the future, if there is good cause to do so. Given the tight timeline that the Development already faces, staff does not recommend putting this matter on hold for these discussions with HUD. The waiver presented in this item appears to be the most immediate path forward for the Development, and accordingly, staff recommends that the Board approve this item as described herein.