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Presentation, discussion, and possible action regarding a waiver of 10 TAC §11.9(b)(2)(A) and ownership structure change for Estacado Estates (HTC #23807 / #22153)
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RECOMMENDED ACTION
recommendation
WHEREAS, Estacado Estates (Development) received a 9% Housing Tax Credit (HTC) award in 2022 and a reallocation of tax credits under Force Majeure in 2023 to construct 46 multifamily units in Amarillo, Randall County;
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 that would materially participate in the development and operation of the Development throughout the Compliance Period, and receive 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, for purposes of achieving a property tax exemption to improve the financial feasibility of the Development, Estacado Estates, L.P. (Applicant) is seeking to revise the ownership structure by replacing the General Partner at time of Application, JES Partnerships-Estacado, L.L.C., with Estacado Estates PRH GP, L.L.C., the sole managing member of which is the Panhandle Regional Housing Finance Corporation, and moving JES Partnerships-Estacado Estates, L.L.C. from the role of General Partner to the new role of Special Limited Partner, with no composition changes to JES Partnerships-Estacado Estates, L.L.C.;
WHEREAS, the Applicant requests approval to revise the HUB requirement for the Development to specify that the HUB must remain in the ownership structure and have an ownership interest in the Special Limited Partner in order to continue to meet the intent of 10 TAC §11.9(b)(2)(A) to have a HUB materially participate in the Development;
WHEREAS, Board approval of a waiver is required because 10 TAC §11.9(b)(2)(A) specifies that the HUB is required to have an ownership interest in the General Partner;
WHEREAS, the HUB, Trinity Realty, will remain in the ownership structure as the sole member of Estacado Estates GPM, L.L.C., the 40% member of the Special Limited Partner, and will continue to materially participate in the Development and receive a combination of ownership interest in the Applicant, cash flow from operations, and developer fee which taken together equal at least 50% and no less than 5% for any category; and
WHEREAS, the requested waiver does 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 waiver request and change to the ownership structure for Estacado Estates are 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
Estacado Estates received a 9% HTC award in 2022 and a reallocation of tax credits under Force Majeure in 2023 for the new construction 46 units, all of which are low-income units, of elderly housing in Amarillo, Randall County.
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 Applicant, cash flow from operations, and developer Fee, which taken together equal at least 50% and no less than 5% for any category. The HUB is also required to materially participate in the development and operation of the Development throughout the Compliance Period.
In a letter dated February 26, 2024, Brian Kimes, the Applicant’s representative, proposed changes to the ownership structure of the Development, which require 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 revise the ownership structure by replacing the General Partner at time of Application, JES Partnerships-Estacado Estates, L.L.C., with Estacado Estates PRH GP, L.L.C., the sole member of which is the Panhandle Regional Housing Finance Corporation, and moving JES Partnerships-Estacado Estates, L.L.C. from the role of General Partner, to the new role of Special Limited Partner. The requested changes to the ownership structure will improve the financial feasibility of the Development by providing an ad valorem tax exemption. The proposed new general partner will also be a co-Developer in the transaction.
The Applicant explained that due to construction cost increases, increases in operating costs, particularly payroll, insurance, and property taxes, increases in interest rates, and decreases in equity pricing, the Development is not feasible without significant changes. The Applicant also pointed out that rather than change the construction scope, which would directly impact residents and the number of residents served or decrease the quality of the finished product, the Applicant is proposing a partnership with the Panhandle Regional Housing Finance Corporation that will result in reduced operating expenses by reducing property taxes.
Title to the fee interest in the development site will be transferred to the Panhandle Regional Housing Finance Corporation at closing, and the Panhandle Regional Housing Finance Corporation will enter into a ground lease with the Applicant. The Applicant also stated that the proposed ownership structure will adhere to Tex. Prop. Tax Code §11.1825, and will be recognized by the Potter-Randall County Appraisal District for ad valorem tax exemption.
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.
On June 25, 2024, the City of Amarillo passed the enclosed Resolution 06-25-24-3, in which it acknowledges the change of the Development to tax-exempt, and re-affirms its support for the Development.
The Applicant states that the need for this waiver was not foreseeable at Application. The granting of the waiver better serves the policies and purposes of Tex. Gov't Code §§2306.001, 2306.002, 2306.359, and 2306.6701 by facilitating the feasibility of the Development, and the HUB will continue to materially participate in the Development.
The Applicant indicated that the proposed structure results in no change to the Development and is a mere change in title, as there will be no change to the role, responsibility, or obligations of the HUB member's participation. The Applicant’s request letter states that the new general partner will delegate development and operational authority to the special limited partner. Therefore, the Development will continue to comply with the intent, purpose, and material provisions of the elected Sponsor Characteristics.
The requested change does not materially alter the Development in a negative manner, impact the viability of the transaction, and was not reasonably foreseeable or preventable by the Applicant at the time of Application.
Staff recommends approval of the waiver request and the changes to the ownership structure of the Development as presented herein.