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Presentation, discussion, and possible action on a request for return and reallocation of tax credits under 10 TAC §11.6(5) related to Credit Returns Resulting from Force Majeure Events for Paige Estates
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RECOMMENDED ACTION
recommendation
WHEREAS, the above listed development was awarded 9% housing tax credits during the 2021 competitive Application round;
WHEREAS, staff executed a Carryover Allocation Agreement with the Development Owner, which included certifications from the Development Owner that each building for which the allocation was made would be placed in service by December 31, 2023;
WHEREAS, the Development received an allocation of supplemental housing tax credits in 2023 that further extended that deadline to December 31, 2025;
WHEREAS, the Department received a request from the Development Owner to extend the placement in service deadline under the provisions of 10 TAC §11.6(5) related to Credit Returns Resulting from Force Majeure Events;
WHEREAS, other than in situations covered by force majeure, the Department lacks authority to extend federal deadlines for placement in service; and
WHEREAS, the Development Owner has presented evidence that relief under force majeure is appropriate
NOW, therefore, it is hereby
RESOLVED, the request for treatment under an application of the force majeure rule is approved, with the 2021 Qualified Allocation Plan and Uniform Multifamily Rules, and the 2024 Program Calendar applicable to the Development.
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BACKGROUND
An award of Competitive (9%) Housing Tax Credits was approved by the Board for the above-listed development in 2021. Staff executed a Carryover Allocation Agreement with the Development Owner which included a certification from the Development Owner that documentation for the 10% Test would be submitted by a set date, and, in order to satisfy the requirements of §42 of the Internal Revenue Code, each building for which the allocations were made would be placed in service by December 31, 2023. The Department received a request from the Development Owner to extend the placement in service deadline under the provisions of 10 TAC §11.6(5) related to Credits Returns Resulting from Force Majeure Events. Staff determined that this effective “extension” of the 10% Test deadline due to Force Majeure events was appropriate under these circumstances.
Per 10 TAC §11.6(5) of the Qualified Allocation Plan (QAP), related to Credits Returns Resulting from Force Majeure Events, a Development Owner is allowed to return issued credits within three years of award, and have those credits re-allocated to the Development outside of the usual regional allocation system if all of the requirements of the subsection are met. Per 10 TAC §11.6(5), the Department’s Governing Board may approve the execution of a current program year Carryover Allocation Agreement regarding the returned credits with the Development Owner that returned such credits only if:
(A) The credits were returned as a result of "Force Majeure" events that occurred before issuance of Forms 8609. Force Majeure events are the following sudden and unforeseen circumstances outside the control of the Development Owner: acts of God such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; unrelated party litigation; changes in law, rules, or regulations; national emergency or insurrection; riot; acts of terrorism; supplier failures; or materials or labor shortages. If a Force Majeure event is also a presidentially declared disaster, the Department may treat the matter under the applicable federal provisions. Force Majeure events must make construction activity impossible or materially impede its progress.
The Development Owner has communicated to staff the specific challenges that impacted construction timelines and their ability to meet the 10% test and Placed in Service deadlines.
Paige Estates is a 64-unit Development to be completed in Waco. The project was awarded Housing Tax Credits in 2021 and subsequently received an allocation of supplemental tax credits in 2023. Since the initial Application, the Development has been impacted by decreased credit pricing and higher interest rates. In addition to supplemental credits, the Applicant has addressed these increased costs by applying for and receiving City of Waco ARPA funds. As a final step to securing financially feasibility, the Owner seeks to include the Waco Housing Authority in the partnership. This will enable the development to be tax-exempt and receive project based vouchers. Admitting a new partner to the Development has delayed closing and the start of construction until September-November of 2024. As construction is expected to take 16 months, the Development will not be able to meet the current placed in service deadline of December 31, 2025.
The Applicant included several documents to support their request, including a resolution from the Waco City Council that supports the tax-exempt status, minutes from a Waco City Council meeting evidencing that the HOME-ARP funds have been approved, and a resolution from the Waco Housing Authority approving that entity’s participation in the Development. These documents are attached to this item.
Staff has determined there is sufficient evidence of “sudden and unforeseen circumstances outside the control of the Development Owner . . . [regarding] supplier failures; or materials or labor shortages,” as described in 10 TAC §11.6(5), for the Department to treat the Development under an application of the force majeure rule. If the Board approves the request to consider these force majeure events, the Development Owner will return the awarded credits and execution of a 2024 Carryover Allocation Agreement will result in a new award and a new placed-in-service deadline of December 31, 2026, for the Development, with a new 10% Test deadline of July 1, 2025. The 2021 Qualified Allocation Plan and Uniform Multifamily Rules will be applicable to the Development for the purposes of the force majeure event.
If the Board denies the requests regarding the force majeure events, the date by which the denied Development must be placed in service will remain as previously agreed. Because the Development Owner had anticipated not meeting the placed in service deadline, the credits are expected to be returned. If the Development Owner returns the credits, the credits would first be made available in the subregions from which they were originally awarded, pursuant to 10 TAC §11.6(2), related to returned credits. If there are pending Applications on the 2024 or 2025 (depending on when the credits are returned) waiting list from the relevant subregions, the next Application would be awarded, assuming there are enough credits to make the award. If there are not enough credits in the subregion to make an award, the credits will go into the statewide collapse and contribute the next award.
Staff recommends the Board approve the requests for treatment under an application of the force majeure rule for the Development.