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Presentation, discussion, and possible action regarding the Issuance of a Multifamily Housing Governmental Note (Fiji Lofts) Series 2026 Resolution No. 26-009 and an increase to the Housing Tax Credit amount
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RECOMMENDED ACTION
recommendation
WHEREAS, at the Board meeting of November 10, 2021, Resolution No. 22-010 was approved authorizing the issuance of a Multifamily Housing Governmental Note for Fiji Lofts, Series 2021, and a Determination Notice was issued;
WHEREAS, Fiji Lofts subsequently closed on the original bond amount of $23,849,000 on December 10, 2021;
WHEREAS, as a result of unforeseen changes in circumstances following the Board’s approvals of the original Resolution and issuance of the original Bonds, including inflation and related increases in construction costs, along with an increase in the total number of units from 174 units to 204 units, the Owner has requested the Department issue additional revenue bonds or notes in one or more series for the purpose of providing additional tax-exempt bond financing for the Development as further described herein;
WHEREAS, Fiji Lofts (#21608) was induced by the Board on October 10, 2024, with a requested bond amount of $6,000,000;
WHEREAS, a Certificate of Reservation was issued in the amount of $6,000,000 on August 14, 2025, with a bond delivery deadline of February 10, 2026;
WHEREAS, a supplemental bond application for Fiji Lofts, sponsored by Sphinx Development Corporation, was submitted to the Department on August 20, 2024;
WHEREAS, the application reflects an increase to the annual housing tax credit from $2,080,856 which was the original amount reflected in the Determination Notice, to $2,884,338, which represents a 38.61% increase;
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;
WHEREAS, in connection with the underwriting of the supplemental bonds and evaluation of costs, staff has determined that the increase is necessary for the viability of the transaction;
WHEREAS, staff recommends approval of the issuance of a Multifamily Housing Governmental Note for Fiji Lofts (Series 2026); and
WHEREAS, recognizing the cost certification package has not yet been submitted by the Development Owner, staff recommends approval of up to a 45% increase to the original annual housing tax credit amount reflected in the Determination Notice that would not necessitate additional Board consideration;
NOW, therefore, it is hereby
RESOLVED, that the issuance of a tax-exempt Multifamily Housing Governmental Note (Fiji Lofts) Series 2026 in the amount of $6,000,000, Resolution No. 26-009, is hereby approved in the form presented to this meeting;
FURTHER RESOLVED, the annual housing tax credit increase for Fiji Lofts, of up to 45% from the tax credit amount reflected in the Determination Notice is approved; and
FURTHER RESOLVED, that if approved, staff is authorized, empowered, and directed, for and on behalf of the Department to execute such documents, instruments and writings and perform such acts and deeds as may be necessary to effectuate the foregoing.
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BACKGROUND
General Information: The Governmental Note will be issued in accordance with Tex. Gov’t Code §2306.353 et seq., which authorizes the Department to issue governmental notes for its public purposes, as defined therein. Tex. Gov’t Code §2306.472 provides that the Department’s governmental notes are solely obligations of the Department, and do not create an obligation, debt or liability of the State of Texas or a pledge or loan of faith, credit or taxing power of the State of Texas.
Development Information: Fiji Lofts is located at 301 South Corinth Street in Dallas, Dallas County, and involves the new construction of a development that will serve the general population. At the time of the original application in 2021, the project contemplated the construction of 204 units. However, the number of units was scaled back to 174 units to comply with the zoning requirements of the City of Dallas and to allow the transaction to close prior to the bond reservation deadline.
Subsequent to closing, the City of Dallas approved and permitted a revision that allowed the addition of 30 units. The Department approved an amendment request at the Board meeting of November 10, 2022, to increase the number of units to a total of 204. All of the units are rent- and income-restricted at 60% of the Area Median Income. The Department’s underwriting at that time reflected a 13.9% increase to the annual tax credit amount, from $2,080,856 to $2,370,797. Since that time, the additional costs incurred have allowed for a further increase to the tax credit amount of 21.6%, to $2,884,338, resulting in an overall increase from Determination Notice to supplemental bond underwriting of 38.61%. Pursuant to 10 TAC §10.401(d) approval by the Board is required if an increase to the amount of tax credits exceeds 120% of the amount of credit reflected in the Determination Notice.
While the project is close to being completed, there may still be nominal cost increases and a final accounting of costs that could increase the tax credit amount further. Staff is requesting approval of the additional tax credit increase at this time and that such increase be limited to 45% without necessitating additional Board consideration once the cost certification package is submitted. The fee associated with the increase in credits will be due at the time of cost certification once the final tax credit amount is determined.
In addition to the units that have been added since the original closing, there were construction cost increases that jeopardize the ability of the project to satisfy the federal requirements of the 50% test and the owner has requested an additional issuance of a governmental note in the amount of $6,000,000 to cover such costs.
Organizational Structure and Previous Participation: The Borrower is SDC Corinth III, LP, and includes the entities and principals as illustrated in Exhibit A. The original organizational structure included the Cameron County Housing Finance Corporation. Given the enactment of Texas House Bill 21 (HB 21), which amended Section 394.031 of Local Government Code (Housing Finance Corporations in Municipalities and Counties), it necessitated a change in the Sole Member of the General Partner. Under HB 21, the area in which a housing finance corporation may own real property for residential development is limited to the boundaries of the county that sponsored the corporation. As a result, the Dallas County Housing Finance Corporation is proposed to replace the original Sole Member of the General Partner, the Cameron County Housing Finance Corporation. The Previous Participation review has been completed, and the applicant’s portfolio is considered a Category 2 and deemed acceptable.
Tax Equity and Fiscal Responsibility Act (TEFRA) Public Hearing/Public Comment: On March 18, 2022, the IRS released Revenue Procedure 2022-20, which permanently allows TEFRA hearings for qualified activity bonds to be held telephonically. Staff conducted a telephonic hearing for the proposed development on April 17, 2025. Representatives from the Department and the Developer were present, and no public comment was made. A copy of the hearing transcript is included herein. The Department received a letter of support this development from Dallas City Councilmember for District 4, Carolyn King Arnold at the time of the original award.
Summary of Financial Structure
The transaction originally involved the issuance of an unrated, fixed rate tax-exempt multifamily governmental note in the amount of $23,849,000 on December 10, 2021, that was purchased by CommunityBank of Texas (CoBT), who served as the construction and permanent lender. The note has an 18-year term, 40-year amortization, and final maturity date of June 1, 2058. The original transaction also included a taxable construction loan in the amount of $9,750,000, payments of which have been interest only. Additionally, CoBT provided a taxable construction loan in the amount of $6,000,000 with a forward permanent loan in the amount of $5,735,000, which closed on December 12, 2022.
The supplemental transaction will involve the issuance of an unrated, fixed rate tax-exempt multifamily note in the amount of $6,000,000 that will be purchased by Stellar Bank (formerly CoBT). The lender will provide a construction loan in the amount of $6,000,000. Payments will be interest only and the tax-exempt loan will be co-terminus with the original loans, with an opportunity for a six-month extension. The interest rate is based upon the two-year SOFR Swap Index plus a spread of 2.20%, currently estimated at 5.96%. The expected Maturity Date is June 1, 2027.