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Presentation, discussion, and possible action on a request for return and reallocation of tax credits for Melody Grove
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RECOMMENDED ACTION
recommendation
WHEREAS, Melody Grove was awarded 9% housing tax credits during the 2023 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, 2025;
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 2023 Qualified Allocation Plan, Uniform Multifamily Rules, and the 2025 Program Calendar shall be applicable to the Development, with a new deadline to place in service of June 30, 2026.
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BACKGROUND
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Development |
Melody Grove |
|
Target Population |
Elderly |
|
HTC Award |
$1,830,000 |
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City |
Waco |
|
Total Units |
79 |
|
HTC Units |
79 |
|
Initial Year of Award |
2023 |
|
Extension Requested |
Six months |
Melody Grove is a 79-unit development located in Waco, McLennan County. The development received an award of 9% Housing Tax Credits in 2023. As a result, the current deadline to place in service in December 31, 2025.
Melody Grove is a rehabilitation, which comes with unique federal requirements to place in service. While a new construction project is generally placed in service at the time that it receives its Certificates of Occupancy, a rehabilitation is placed in service once certain minimum expenditure requirements are met. These expenditures are aggregated over a 24-month period selected by the Developer, and the Development may be occupied by low-income households prior to the end of that 24-month period. Construction activities at the Development are nearing completion, and the Owner has represented that the requirements to place in service will be met by this existing deadline of December 31, 2025.
The Developer has requested to have the credits reallocated to allow an additional six months to place in service. Doing so would allow for approximately $3 million in basis to be included in the first-year credits for the investor. According to the request, this will “provide a benefit to the development by counteracting the effect of credit adjusters, providing more cash to counteract cost overruns, and reducing the need for excess debt burden to balance the sources and uses, each of which should benefit the residents by strengthening the project.” To support that the requirements have been met under the force majeure provision for this approval, the request cites a protracted approval process with HUD that required 270 days rather than the typical 60-90 days.
While this request is unusual, staff is unable to identify any material downsides to approving it. The Owner has already begun moving in tenants, who are receiving the benefit of the program’s rent and income restrictions. This request is essentially an accounting function.
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 protracted federal approval process constitutes 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 2023 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, although this is irrelevant as the Development has already met its 10% test.
• The new placed-in-service deadline will be June 30, 2026.
If the Board denies the request:
• The current placed-in-service deadline of December 31, 2025, 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 Melody Grove under the force majeure provisions of 10 TAC §11.6(5).