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Presentation, discussion, and possible action regarding an increase to the Housing Tax Credit amount for The Element (HTC #21456)
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RECOMMENDED ACTION
recommendation
WHEREAS, The Element formerly known as Residences at Howard Lane (the Development) received a 4% Housing Tax Credit (HTC) award in 2021 for the new construction of 300 units for the general population in Austin, Travis County;
WHEREAS, construction of the Development has been completed, and The Residences at Howard Lane Ltd. (the Development Owner or Owner) requests, at cost certification, to increase the annual HTC amount from $1,912,595, the amount reflected in the Determination Notice, to $2,430,538, a difference of $517,943, which represents a 27.08% increase;
WHEREAS, the Department’s analysis indicates that an annual HTC amount of $2,427,791 is supported, and this amount is $515,196 (26.94%) greater than the amount in the Determination Notice;
WHEREAS, §42(m)(2) of the Internal Revenue Code allows an increase of tax credits for a bond financed project when the increase is determined necessary as demonstrated through the submission of the cost certification package;
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; and
WHEREAS, a review of the cost certification package submitted by the Development Owner supports the need for the additional tax credits as adjusted, and staff has determined that the increase is necessary for the viability of the transaction;
NOW, therefore, it is hereby
RESOLVED, that the 26.94% increase to the housing tax credit amount for The Element is 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
The Element formerly known as Residences at Howard Lane received a 4% HTC award in 2021 for the construction of 300 units for the general population in Austin, Travis County. On October 1, 2021, a Determination Notice was issued with an approved annual tax credit amount of $1,912,595. The residential buildings in the Development placed in service in 2024, and the cost certification documentation for the Development is currently under review by the Department.
The cost certification documentation reflects a requested annual tax credit amount of $2,430,538, and this amount represents an increase of $517,943 (27.08%) from the amount reflected in the Determination Notice. However, the Department’s analysis indicates that an annual HTC amount of $2,427,791 is supported, and this amount is $515,196 (26.94%) greater than the amount in the Determination Notice.
A comparison of the development costs from the time of the Application, in 2021, to Cost Certification indicates that total development costs increased $9,869,982 (15.79%), from $62,499,251 to $72,369,233. The Owner contact explained that the cost overruns stem primarily from a 12-month delay in unit delivery, driven by three major construction challenges. The original civil plans misrepresented the elevation of the wastewater tie-in point, requiring a full redesign and extension of the wastewater line. Additionally, gravel backfill around the existing sewer line created unsafe trenching conditions, necessitating wider excavation, enhanced safety measures, and additional paving. Also, revised plans required multiple rounds of approval from the City of Austin and Austin Water Utility, delaying construction start and utility release.
Staff’s analysis of this transaction at cost certification has concluded that the Development supports an annual tax credit allocation of $2,427,791, and that this increase is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period. This results in a 26.94% increase from $1,912,595, the original annual HTC amount in the Determination Notice. In accordance with 10 TAC §10.401(d), Board approval is required because the requested tax credit amount exceeds 120% of the HTC amount reflected in the Determination Notice. The Development Owner will be required to submit the Tax-Exempt Bond Credit Increase Request Fee required in 10 TAC §11.901(8) for the increase to the HTC amount prior to issuance of Forms 8609. Additionally, all required pending documentation for the cost certification review must be provided for the issuance of 8609s.
Staff recommends approval of the increase in the tax credit award as presented herein.