Creative Preservation
with Residents in Place
HOMES WITHIN REACH 2015
NOVEMBER 17, 2015
Creative Preservation with
Residents in Place
OTHERWISE KNOWN AS TRIALS AND TRIBULATIONS OF
OCCUPIED REHAB!!!
Occupied rehab issues to be discussed in today’s program, most
often arise when a tenant occupied residential property is
acquired by a new entity with the intent of rehab to the
property, and the funds to develop the property are generated
through an investment of LIHTC
Creative Preservation with
Residents in Place
• Four staffing groups critical to the success of an
acquisition/rehab (preservation) transaction
Development/ Finance (Developer, Development Consultant
Accountant, Attorney)
• Property Management (Property Manager, Maintenance
Staff)
• Construction (Contractor, Architect)
• Relocation (Relocation Specialist) (if applicable)
• Other important team members
• Investor who understands acq/rehab issues
Creative Preservation with
Residents in Place
Goals of the Development Team- To
protect the developer’s ability to
maximize tax credit delivery, while
causing the least disruption to the
existing residents.
Creative Preservation with
Residents in Place
Contractor – Planning for Construction is critical
• SCOPE DEVELOPMENT
• Capital needs assessment
• Design team input
• PROJECT PLANNING
•
•
•
•
Scope of construction rehab
Resident impact
Schedule for construction
Schedule for relocation
Creative Preservation with
Residents in Place
Contractor – Scope Development
• Capital Needs Assessment (CNA, PNA, PCA, RPCA)
• 30 more years!
• Critical, near-term, long-term repair items
• All components including site conditions
• Budget
• Reserve analysis
• Energy Audit
• Scope to reduce energy costs
• Modeling and utility analysis
• Savings-to-investment ratio & payback period
Creative Preservation with
Residents in Place
Contractor – Scope Development
• Design team input
• Owner, management, maintenance, residents, investors
• Address maintainability, operability, comfort, health
• Design professional coordination
• Exploratory demolition
• Subcontractor feedback
• Code inspector input
• Budget constraints
• Documentation
Creative Preservation with
Residents in Place
Contractor – Project Planning
• Scope of rehab
• Is relocation necessary?
• Hospitality suites?
• Resident impact
• How will this disruption/relocation affect seniors, persons with
disabilities, young children etc.?
• Schedule for relocation
• Temporary relocation, permanent relocation, unit vacancies
• Problems with multiple buildings
• Schedule for construction
• Must work hand-in-hand with relocation schedule
• Understand how meeting deadlines affect residents
Creative Preservation with
Residents in Place
Project Planning – Sample Relocation Schedule
No work yet
Currently being renovated
Renovated, being used for temporary relocation
Renovated, has permanant residents in place
Vacant, under construction
Current Status
Move 1:
Construction Period 1
Clus
# of Current Tenant # of HH
ter Unit BR (size needed) Members
1524B
1526B
1528B
1530B
3
3
3
3
Lundy- Brabham (2)
0
5
0
2
1524B
1526B
1528B
1530B
3
3
3
3
Vacant
Vacant
Vacant
Vacant
1516B
1518B
1520B
1522B
3
3
2
2
Vacant
Daniels (3)
Cromwell (2)
Bolvin (2)
0
4
2
2
1516B
1518B
1520B
1522B
3
3
2
2
Darby (3)
Daniels (3)
Cromwell (2)
#3
1508B
1510B
1512B
1514B
1
1
3
3
Young (1)
Parsons (1)
Smalls (2)
Henry (3)
1
1
2
4
1508B
1510B
1512B
1514B
1
1
3
3
#4
1500B
1502B
1504B
1506B
2
2
1
1
Green (2)
Vacant
Poland (1)
Haynes (1)
3
0
1
1
1500B
1502B
1504B
1506B
2
2
1
1
1508S
1510S
1512S
1514S
2
2
2
2
Jackson (2)
Burgess (2)
Griffin (2)
McClain (2)
4
2
2
2
1508S
1510S
1512S
1514S
1516S
1518S
#6
1520S
1522S
2
2
3
3
Coleman (2)
White (1)
Muniz (3)
Allen (3)
2
1
3
4
1524S
1526S
1528S
1530S
3
3
3
3
Vacant
Ryant (3)
Donald (3)
Vacant
0
4
4
0
#1
#2
#5
#7
Vacant
Darby (3)
Vacant
Unit
Construction Period 2
Move 2:
# of Current Tenant # of HH
BR (size needed) Members
Unit
Daniels (3)
Darby (3)
Smalls (2)
Construction Period 3
Move 3:
Current Tenant # of HH
# of BR (size needed) Members
4
5
2
2
Unit
# of
BR
1524B
1526B
1528B
1530B
3
3
3
3
1524B
1526B
1528B
1530B
3
3
3
3
Lundy- Brabham (2)
Lundy- Brabham (2)
5
4
2
2
1516B
1518B
1520B
1522B
3
3
2
2
Vacant
Vacant
Vacant
Vacant
1516B
1518B
1520B
1522B
Parsons (1)
Smalls (2)
Henry (3)
1
2
4
1508B
1510B
1512B
1514B
1
1
3
3
Vacant
Vacant
Vacant
Vacant
Green (2)
Bolvin (2)
3
2
Haynes (1)
1
1500B
1502B
1504B
1506B
2
2
1
1
Green (2)
Bolvin (2)
Parsons (1)
Haynes (1)
2
2
2
2
Jackson (2)
Burgess (2)
Griffin (2)
McClain (2)
4
2
2
2
1508S
1510S
1512S
1514S
2
2
2
2
Jackson (2)
Burgess (2)
Griffin (2)
McClain (2)
1516S
1518S
1520S
1522S
2
2
3
3
Coleman (2)
White (1)
Muniz (3)
Allen (3)
2
1
3
4
1516S
1518S
1520S
1522S
2
2
3
3
Vacant
White (1)
Muniz (3)
Allen (3)
1524S
1526S
1528S
1530S
3
3
3
3
Vacant
Vacant
Vacant
Vacant
1524S
1526S
1528S
1530S
Daniels (3)
Darby (3)
Smalls (2)
Construction Period 4
Move 4
Current Tenant # of HH
(size needed) Members
Unit
Final Move
Current Tenant # of HH
# of BR (size needed) Members
# of BR
1524B
1526B
1528B
1530B
3
3
3
3
Lundy- Brabham (2)
4
5
2
2
Lundy- Brabham (2)
4
5
2
2
1524B
1526B
1528B
1530B
3
3
3
3
Lundy- Brabham (2)
4
5
2
2
3
3
2
2
Burgess (2)
Muniz (3)
White (1)
McClain (2)
2
3
1
2
1516B
1518B
1520B
1522B
3
3
2
2
Burgess (2)
Muniz (3)
White (1)
Bolvin (2)
2
3
1
2
1516B
1518B
1520B
1522B
3
3
2
2
Vacant
Vacant
White (1)
Bolvin (2)
1
2
1508B
1510B
1512B
1514B
1
1
3
3
Haynes (1)
Parsons (1)
Griffin (2)
Jackson (2)
1
1
2
4
1508B
1510B
1512B
1514B
1
1
3
3
Haynes (1)
Parsons (1)
Griffin (2)
Jackson (2)
1
1
2
4
1508B
1510B
1512B
1514B
1
1
3
3
Haynes (1)
Parsons (1)
Griffin (2)
Jackson (2)
1
1
2
4
3
2
1
1
1500B
1502B
1504B
1506B
2
2
1
1
Green (2)
Bolvin (2)
Vacant
Vacant
3
2
1
1
1500B
1502B
1504B
1506B
2
2
1
1
Vacant
Vacant
Vacant
Vacant
1500B
1502B
1504B
1506B
2
2
1
1
Green (2)
Vacant
Burgess (2)
Vacant
3
4
2
2
2
1508S
1510S
1512S
1514S
2
2
2
2
Vacant
Vacant
Vacant
Vacant
1508S
1510S
1512S
1514S
2
2
2
2
Vacant
Vacant
Vacant
McClain (2)
1508S
1510S
1512S
1514S
2
2
2
2
Vacant
Vacant
Vacant
McClain (2)
1
3
4
1516S
1518S
1520S
1522S
2
2
3
3
Vacant
Vacant
Vacant
Vacant
1516S
1518S
1520S
1522S
2
2
3
3
Green (2)
Vacant
Vacant
Vacant
1516S
1518S
1520S
1522S
2
2
3
3
Vacant
Vacant
Muniz (3)
Vacant
3
Henry (3)
4
3
Cromwell (2)
2
3 Donald (Mt. Vernon) 5
3
Vacant
1524S
1526S
1528S
1530S
3
Henry (3)
3
Cromwell (2)
3 Donald (Mt. Vernon)
3
Allen (3)
1524S
1526S
1528S
1530S
3
Henry (3)
3
Cromwell (2)
3 Donald (Mt. Vernon)
3
Allen (3)
1524S
1526S
1528S
1530S
3
Henry (3)
3
Cromwell (2)
3 Donald (Mt. Vernon)
3
Allen (3)
4
2
5
4
Daniels (3)
Darby (3)
Smalls (2)
Current Tenant # of HH
(size needed) Members
Unit
2
3
4
2
5
4
Daniels (3)
Darby (3)
Smalls (2)
2
2
3
4
2
5
4
Creative Preservation with
Residents in Place
Property Manager – Planning in advance of construction
• Meet with Tenants –Information is key. Address tenant concerns
about rehab, relocation, etc.
• Tenant Income Certification-Advise tenants of need for income
certification.
• Will tenants need to relocate during construction, and if so, is the
project subject to the Uniform Relocation Act?
• Date of acquisition – Important that the property manager be
advised of the date of acquisition of the property by the new tax
credit partnership. Date of acquisition is the TIC effective date for all
tenants currently residing in the property.
• Property Manager has 120 days from date of acquisition to complete
income certification. So long as certification is completed within this
120 day period tenants are protected by the IRS Safe Harbor set
forth in IRS Rev. Procedure 2003-82.
Creative Preservation with
Residents in Place
IRS Rev. Proc. 2003-82
Provides a safe harbor for tenants (allows them to reside in the
property) when the following occurs (example)
• The owner (new LP) acquires the property On October 15, 2015
• The first credit year for the project is planned for 2016.
• Tenant household is income qualified in August , 2015 (total
household income is below the applicable income limit)
• Tenant household is retested for income in March, 2016 and it s
income now exceeds the applicable income limit .
Safe harbor rule allows the tenant household to remain income
qualified.
Creative Preservation with
Residents in Place
IRS 8823 Audit Guide , Chapter 4
Tenants who reside in a project governed by a LIHTC extended
use agreement, and who were determined to be income
qualified by the previous owner (ex. Hyatt Development
Company) during that owner’s 15 year compliance period and
whom remained compliant, are concurrently determined to be
recognized income qualified household during the extended use
period. Therefore any household determined to be income
qualified at the time of move-in for purposes of the extended
use agreement, is a qualified low-income household for any
subsequent allocation of tax credits .
Creative Preservation with
Residents in Place
HUD Assisted Households –HUD Memo of January 12, 2015
Occupancy Protections for HUD-Assisted Households in Properties with
Low-Income Housing tax Credits
• Memo provides guidance on tenancy protections for households
when the project owner participates in both a HUD assisted program
(e.g. PBV, Section 236, Section 202 etc.) and is now (upon acquisition
by the LP), also participating in the LIHTC program.
• Tenant households occupancy may not be terminated because
household income exceeds tax credit limits.
• Project owner may only terminate occupancy as prescribed by HUD
regulations and state/local law and procedure
• Owner may provide incentives to over income household to relocate
but Owner must make clear to the tenant household, that the
tenant has the right to continue occupying the unit.
Creative Preservation with
Residents in Place
Investor – Issues to consider in advance of closing on acquisition and
commencement of construction
• Developer/Sponsor ‘s lack of experience. (Other members of the
development team need to compensate by being experienced with
occupied/ acquisition rehab issues. )
• Review and approve the scope of construction for long term viability
• What if any existing debt is being assumed by the acquiring
partnership?
• Terms of this debt
• When does this debt come due
• What approvals are needed and by whom to allow for the
assumption of debt by the acquiring partnership
• Does any of this debt need to be amortized or paid out of cash flow
during the upcoming tax credit compliance period
• What if any regulatory agreements affect the project ? Is there an
existing deed restriction, regulatory agreement or LIHTC extended
use agreement for the project?
Creative Preservation with
Residents in Place
Investor – Issues to consider in advance of closing on acquisition and
commencement of construction
• Determine first year of tax credit delivery
• Determine tax credit delivery schedule for each building in the project
(Summit Apartments has 4 building, each with a separate BIN). Need
assurances from, developer, contractor and property manager that
credit delivery will be timely.
• Confirm what reserves, if any are being transferred with the transfer of
ownership of the project.
• Determine what reserves are necessary for the operation of the project.
• Determine operating expenses post rehabilitation. (Assumption is that
costs should go down). How much should the investor rely on past
operation expenses versus projected post rehab expenses.
Creative Preservation with
Residents in Place
Contractor-Construction Related issues
• Temporary Protection- Contractor needs to protect residents from
construction hazards and protect contractors from resident hazards. Be
aware of possible conflicts between residents and construction crew,
report all incidences to the developer and general contractor.
• Communication –Communication-Communication- Between (i) the
contractor and property manager and maintenance staff (ii) contractor
and residents (iii) property manager and residents. Communication
must be timely, routine and thorough.
• Scope Changes-Unforeseen conditions are common in existing buildings.
Impact on these scope changes may affect how long a resident is
removed from his/her home.
• Punchlisting and Acceptance of Work -Must be done prior to tenant
returning to the unit. This requires coordinating time between the
architect, contractor ,property manager and owner.
• Post Construction-Training for residents, maintenance staff and
property managers on new systems, thermostats etc.
Creative Preservation with
Residents in Place
Property Manager- issues for occupying units post construction
• Tracking Unit Qualifications for Purposes of Credit Delivery .
This is a very complex issue , especially where there is more
than one building to be delivered and households are moving
between buildings either temporarily or on a permanent
basis.
• Basic Rule- If an income qualified household is out of the unit
for even one day because the unit is “not suited for
occupancy,” that unit cannot deliver credits for that month.
• IRS 8823 Audit Guide Chapter 4 -28, provides a good example
of units that can and cannot be counted as tax credit eligible
during rehab and the first year of credit delivery.
Creative Preservation with
Residents in Place
Sum Up: Acquisition rehab (occupied rehab) is complex and
requires careful planning and skilled and timely execution.
Make sure the development team is experienced and
understands the issues, and what is at stake for the developer,
owner, investor and most importantly, the residents of the
project .
Creative Preservation with
Residents in Place
Thank you for your attendance from:
Dina Schlossberg, Regional Housing Legal Services
dina.schlossberg@rhls.org
Julia Blackett, Consultant
jjjbbcg@gmail.com
Vaughan Piccolo , Innova Services Corporation
vpiccolo@innovaservices.com
Bryan Kilbane, Redstone Equity
bryan.kilbane@RedstoneEquity.com
Chris McNerney, Multifamily Management Services
cmcnerney@multifamilymgt.com
QUESTIONS?