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Presentation, discussion, and possible action regarding changes to the ownership structure and a waiver of 10 TAC §11.9(b)(2)(A) for Paige Estates (HTC #21121/23931)
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RECOMMENDED ACTION
recommendation
WHEREAS, Paige Estates (Development) received a 9% Housing Tax Credit (HTC) award in 2021 and supplemental credits in 2023 to construct 64 multifamily units in Waco, McLennan 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 and materially participating in the development and operation of the Development throughout the Compliance Period, and receiving 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, Paige Estates, L.P. (Development Owner or Owner) is seeking to revise the ownership structure by changing the current General Partner, JES Partnerships-Paige Estates, L.L.C., which is partly owned by a HUB, to a Special Limited Partner and adding a new General Partner, Waco Housing Opportunities Corporation, an entity formed by the Waco Housing Authority, which will allow the Development to receive a property tax exemption;
WHEREAS, the Applicant requests a waiver of the specific requirement in 10 TAC §11.9(b)(2)(A) that states the HUB must have an ownership interest in the General Partner, allowing the Development to continue to qualify for the two points for Sponsor Characteristics with the HUB in the ownership structure of the Special Limited Partner and continuing to meet the intent of 10 TAC §11.9(b)(2)(A) to have a HUB materially participate in the Development;
WHEREAS, the HUB will remain in the ownership structure as the sole member of Paige Estates HUB, L.L.C., the 40% member of the Special Limited Partner, and will continue to materially participate in the Development; and
WHEREAS, the requested changes and waiver do not negatively affect the Development, negatively 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 changes to the ownership structure and waiver request for Paige 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
Paige Estates received a 9% HTC award in 2021 and supplemental credits in 2023 for the new construction of 64 multifamily units of general housing, all of which are low-income units, in Waco, McLennan 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 Owner, 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 Owner’s representative, proposed changes to the ownership structure for the Development and requested 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 Owner is seeking to replace the current General Partner, JES Partnerships-Paige Estates, L.L.C., with Waco Housing Opportunities Corporation, of which the sole member is the Waco Housing Authority, and moving JES Partnerships-Paige 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 a property tax exemption. The Owner explained that these changes are necessary due to construction cost increases, increases in operating costs, particularly payroll, insurance, and property taxes, increases in interest rates, and decreases in equity pricing, and that Paige Estates is not feasible without significant changes. The Owner also stated that the proposed ownership structure will adhere to Texas Property Tax Code section 11.1825, and will be recognized by the McLennan County Appraisal District for ad valorem tax exemption, pursuant to the Texas Property Tax Code.
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 Owner 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. It should be noted that the Application would not have been awarded without the two Sponsor Characteristics points.
The Owner states that the need for this waiver was not foreseeable at Application and that the granting of the waiver better serves the policies and purposes Tex. Gov't Code §§2306.001, 2306.002, 2306.359, and 2306.6701 by improving the feasibility of the Development, and the HUB will continue to materially participate in the Development. The Owner indicated that the Special Limited Partner will be the functional equivalent of a general partner. Therefore, this proposed structure results in no change to the Development and is merely a change in title, but not role, responsibility, or obligation, of the HUB member's participation. 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 Owner at the time of Application.
Staff recommends approval of the changes to the ownership structure and the waiver request as presented herein.