title
Presentation, discussion, and possible action on a request for return and reallocation of tax credits for The Residence at Red Cedar
end
RECOMMENDED ACTION
recommendation
WHEREAS, The Residence at Red Cedar was awarded 9% housing tax credits during the 2024 Competitive Housing Tax Credit cycle;
WHEREAS, the Development Owner executed a Carryover Allocation Agreement that included certifications stating each building receiving an allocation would be placed in service by December 31, 2026;
WHEREAS, the Development Owner has requested an extension to the placement in service deadline under 10 TAC §11.6(5), related to Credit Returns Resulting from Force Majeure Events;
WHEREAS, the Department lacks authority to extend federal placement in service deadlines and may only reset such deadlines by requiring the credits to be returned and immediately reallocated to the Development, as permitted solely under the force majeure provision of the Qualified Allocation Plan (QAP); and
WHEREAS, the Development Owner has submitted documentation demonstrating that a qualifying force majeure event has occurred;
NOW, therefore, it is hereby
RESOLVED, that the request to treat the matter under the force majeure provisions of 10 TAC §11.6(5) is approved, and that the 2024 Qualified Allocation Plan, Uniform Multifamily Rules, and the 2025 Program Calendar shall be applicable to the Development.
end
BACKGROUND
|
Development |
The Residence at Red Cedar |
|
Target Population |
Elderly |
|
HTC Award |
$802,916 |
|
City |
Corsicana |
|
Total Units |
32 |
|
HTC Units |
32 |
|
Initial Year of Award |
2024 |
|
Extension Requested |
One year |
The Residence at Red Cedar is a 32-unit development located in Corsicana, Navarro County. The development received an award of 9% Housing Tax Credits in 2024. As a result, the current deadline to place in service in December 31, 2026.
After receiving its award, the Developer discovered that the municipal water line closest to the site was nonfunctioning, leaving the Development with no readily-available tie-in point for water. Because of this, the Developer is required to construct an 1,800-foot water line to reach the nearest functional water line, which will also require a pressure booster. This has resulted in more than $500,000 in excess costs and required multiple rounds of additional design and engineering revisions.
In addition to the issues with the water supply, credit pricing has also lowered significantly throughout the State. In response to the newly created funding gap, the Developer has worked to value-engineer the site, and has also unsuccessfully pursued soft funds from various entities. The most promising source of funds is currently Federal Home Loan Bank’s Affordable Housing Program, for which the Developer will be able to apply in 2026. Approval of this item would provide the time needed to apply for those funds.
APPLICABLE RULE
Under 10 TAC §11.6(5), a Development Owner may return credits and receive a reallocation outside the standard allocation process if the return is the result of a qualifying force majeure event occurring prior to issuance of IRS Form(s) 8609. Pursuant to 10 TAC §11.6(5), the Department’s Governing Board may approve execution of a Carryover Allocation Agreement for the current program year with the Development Owner that returned the credits, but only if the following conditions are met:
(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.
Staff has reviewed this request and determined that the unexpected change in water supply and subsequent financial gap constitute a force majeure event under the rules.
IMPACT OF BOARD DECISION
If the Board approves the request:
• The credits will be returned and reallocated, with the 2024 Qualified Allocation Plan, Uniform Multifamily Rules, and the 2025 Program Calendar applicable to the Development.
• A new Carryover Allocation Agreement will be executed.
• The new 10% Test deadline will be July 1, 2026.
• The new placed-in-service deadline will be December 31, 2027.
If the Board denies the request:
• The current placed-in-service deadline of December 31, 2026, remains in place.
• The Development Owner may either meet the existing deadline, return the credits, or have the award terminated for failing to meet the deadline.
• Returned credits will first be reallocated within the original subregion in accordance with 10 TAC §11.6(2). If no pending applications are eligible within the subregion, the credits will be added to the statewide collapse for reallocation.
This request has no impact on any funding source other than the Low Income Housing Tax Credit program.
RECOMMENDATION
Staff recommends approval of the request to return and reallocate tax credits for The Residence at Red Cedar under the force majeure provisions of 10 TAC §11.6(5).