Tax Credit Pilot
Case Studies
Midwest Lender’s Conference – June 2013
Auburn Manor

Acquisition and rehab of 100% Section 8 Project

Tax exempt bonds with 4% tax credits; 223 (f) loan, GNMA swap program

Project had been rehabbed prior to tax exempt bond financing; prior rehab
counts for tax credits but not for meeting the bond requirements

3 tests for tax exempt bond financing (transaction must meet all three):

50% test: total tax exempt bonds issued must equal 50% or more of total transaction
costs

95% test: 95% of bonds must be used for good costs: acquisition and rehab

15% test: rehab must equal at least 15% of acquisition cost less land that is financed
with tax exempt bonds . Rehab must be incurred within 2 years after closing and no
earlier than 60 days prior to the tax exempt bond inducement

Example:

Total project cost = $9 million; minimum $4.5 million of tax exempt bonds must be issued

95% test: $4,275,000 must be spent on good costs

Acquisition cost = $6 million, value of land is $275,000

15% test: acquisition cost financed with bonds = $4,275,000 less land = $4 million;
minimum rehab is 15% of $4 million or $600,000
Valley at Cobb Park

Refinance of newly rehabbed 168 unit tax credit project under the
waiver of the 3 year rule

Existing project that was gut rehabbed and was 50% occupied at
completion; 100% of the units restricted to 60% AMI

Occupancy requirements for waiver: Sustaining Occupancy for 3
months prior to endorsement; 85% physical occupancy 3 months
prior to endorsement. Sustaining occupancy for project calculated
to be 83%. Project has a waiting list of over 400;

Completion estimated to be June 30; 100% occupancy estimated
by August 15. Sustaining occupancy and 85% test estimated early
August. 3 month tests require closing not before November 1.

Submission July 15, Firm Commitment September 15, closing
November 1
Underwriting Issues

Both projects incorporated green initiatives such as insulation,
windows, HVAC systems, water saving appliances and fixtures.
Historical utility costs were therefore not relevant; there are firms
specializing in estimating utility costs going forward based on the
specific type of renovation involved

HUD requires the valuation NOI be based on market rents and
expenses, therefore two NOIs have to be concluded by the
appraiser and lender. Typical differences include:

Higher market rents and tenant charges for market rate properties

Higher advertising expense for market rate properties

Higher payroll, administrative and management expenses for LIHTC
properties