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Presentation, discussion and possible action regarding a waiver of 10 TAC §11.302(d)(1)(B) of the Qualified Allocation Plan (QAP) relating to miscellaneous income for Aster Villas (#25490).
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RECOMMENDED ACTION
recommendation
WHEREAS, a 4% Housing Tax Credit application for Aster Villas was submitted to the Department on September 8, 2025;
WHEREAS, the application submitted includes miscellaneous income in excess of $30 per unit, which is the maximum amount allowed under 10 TAC §11.302(d)(1)(B) of the 2025 Qualified Allocation Plan (QAP), thus rendering the development ineligible;
WHEREAS, subsequent to submitting the tax credit application, the applicant submitted a request to waive 10 TAC §11.302(d)(1)(B); and
WHEREAS, staff recommends a waiver be granted pursuant to 10 TAC §11.207 and based on specific factors relating to the application and structure of the Development;
NOW, therefore, it is hereby
RESOLVED, that a waiver of §11.302(d)(1)(B) of the 2025 QAP relating to miscellaneous income for Aster Villas is hereby granted.
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BACKGROUND
General Information: Aster Villas is to be located in Pharr, Hidalgo County, and proposes the new construction of 196 units that will serve the elderly population (62+) and includes the development of a new administrative headquarters for the Pharr Housing Authority (PHA). The Certificate of Reservation from the Bond Review Board was issued under the Priority 3 designation, which does not require any specific restrictions on rent or income. The applicant has elected to use the Average Income set-aside, and, according to the tax credit application submitted, 50 units will be rent- and income-restricted at 50% of Area Median Income (AMI), 126 units will be rent- and income-restricted at 60% of AMI, 10 units will be rent- and income-restricted at 70% AMI, and 10 units will be rent- and income-restricted at 80% AMI.
Waiver Request: §11.302(d)(1)(B) of the QAP states the following,
“Miscellaneous Income. All ancillary fees and miscellaneous secondary income, including but not limited to, late fees, storage fees, laundry income, interest on deposits, carport and garage rent, washer and dryer rent, telecommunications fees, and other miscellaneous income, are anticipated to be included in a $5 to $30 per Unit per month range. Projected income from tenant-based rental assistance will not be considered. Exceptions may be made at the discretion of the Underwriter and must be supported by either the normalized operating history of the Development or other existing comparable properties within the same market area.”
The rent schedule for Aster Villas includes $20 per unit per month in miscellaneous income derived from NSF fees, application fees, and vending. In addition, it includes $72.19 per unit per month in commercial rental income, totaling $14,149 per month, which the Applicant has requested be considered in the Department’s underwriting. This income is based on a draft long-term lease agreement between the Development and the Pharr Housing Authority, which intends to construct and occupy 9,089 square feet of commercial space for its new headquarters. The Applicant has requested a waiver of the income policy outlined in §11.302(d)(1)(B), as the inclusion of this commercial income is necessary for the financial feasibility of the project.
Based on projected residential rents and the maximum allowable miscellaneous income, the Development generates a debt coverage ratio (DCR) of approximately 1.09. This is below the minimum 1.15 DCR required by Department underwriting standards and represents an estimated shortfall of approximately $5,500 per month. The Applicant has asserted that the project, as currently structured, is not financially feasible without consideration of the commercial lease income. As such, the waiver is necessary to allow the project to proceed.
According to the waiver request submitted, the Pharr Housing Authority will have multiple roles in the Development. These include direct involvement through the provision of Project-Based Vouchers (PBVs), the construction and occupancy of the on-site headquarters, and control of the Partnership through its instrumentality, the Pharr Housing Development Corporation. The Applicant proposes to enter into a 50-year lease agreement with the Pharr Housing Authority at a fair market rent, which is being substantiated by an excerpt from an appraisal in process for the HUD 221(d)(4) lender. Supporting documentation includes a CoStar report providing comparable commercial lease data from the area.
The commercial space is currently estimated to cost $405,606 to deliver in white box condition. The Applicant plans to enter into a separate general contractor agreement for this scope of work to ensure the cost can be properly segregated and excluded from eligible basis. The Pharr Housing Authority will be responsible for the final finish-out of the space, to be completed under a separate contract outside the scope of the tax credit application.
Under §11.207 of the QAP, a waiver request must establish the following:
1. That the need for the waiver is not within the control of the Applicant or is due to an overwhelming need;
2. That granting the waiver serves the policies and purposes articulated in Tex. Gov’t Code §§2306.001, 2306.002, 2306.359, and 2306.6701 more effectively than not granting the waiver; and
3. That the Board is not waiving any requirement contained in statute.
The Applicant believes that granting the waiver advances state housing goals by enabling the development of deeply affordable senior housing, with income targeting ranging from 30% AMI (via PBVs) up to 80% AMI. They also state this would be the first affordable development owned by a related party of the Pharr Housing Authority serving elderly residents in Pharr. The waiver would also allow the Housing Authority to centralize and modernize its operations, thereby expanding access to essential services. In support of the waiver, the Applicant cites Tex. Gov’t Code §2306.001(1)(A), which calls for government action to address housing shortages and essential public services, and §2306.002(1) and (2), which emphasize the importance of safe and affordable housing through public-private cooperation.
Staff recognizes that the 50-year lease with a related governmental entity - specifically, the Pharr Housing Authority, which also serves as the General Partner - significantly reduces the risk typically associated with commercial or office tenancy. This long-term commitment from a mission-aligned public entity creates a uniquely stable occupancy arrangement, unlike traditional retail or office leases.
It is important to emphasize that this is a highly unique circumstance. In no way should this be interpreted as a precedent or indication that commercial income is allowable or appropriate when determining financial feasibility for LIHTC properties. Given the unusual nature of this situation and the reduced risk profile, Staff recommends approval of the waiver request.