Refinance Recapitalize and Redevelop Innovative Bond Structures in Affordable Housing for Housing Association of Nonprofit Developers HAND Peter Lawrence Director of Public Policy and Government Relations ID: 723776
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March 28, 2018
www.novoco.com
Refinance, Recapitalize and Redevelop: Innovative Bond Structures in Affordable Housing
for Housing Association of Nonprofit Developers (HAND)
Peter Lawrence
Director of Public Policy and Government Relations
peter.lawrence@nc-llp.com
Novogradac Consulting LLP
@NovocoPolicySlide2
Agenda
Tax Reform?
Key Changes to Impact the Low-Income Housing Tax CreditImpact on New Markets and Historic Tax
CreditsOpportunity ZonesLIHTC Legislation
FY 2018 Omnibus – LIHTC Expansion and Income Averaging
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March 28, 2018Slide3
Low-Income Housing Tax Credit
Private activity bonds
retained (over half of affordable housing production)
MORE THAN HALF
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March 28, 2018Slide4
Low-Income Housing Tax Credit
Inflation factor changed
to:
“CHAINED CPI”
W
ill
reduce future 9% LIHTC and private activity bond volume cap per-capita/small state minimum
amounts.
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Low-Income Housing Tax Credit
Lower
Corporate Rate
Interest Expense Limitation Most LIHTC partnerships expected to
elect out and shift to Alternative Depreciation System (ADS) for rental housing
100% Expensing through 2022 for:
Site improvements, and Furniture, Fixtures & Equipment
Likely negative impact of the
Base Erosion and Anti-abuse Tax (BEAT)www.novoco.comMarch 28, 2018Slide6
9 Percent Property
Assumes 4.5% – 5.0% investor level yield in all scenarios
Results may differ based on a change in underlying assumptions. Property not eligible for 30% basis bonus
35%
21%
$0.95
$0.95
$0.82 $1.00 $1.00
$0.87
$1.05
$1.05
$0.90
$1.10
$1.10
$0.95
Price per Credit
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4 Percent Tax Exempt Bond Property
35%
21%
$0.95
$0.95
$0.81
$1.00
$1.00
$0.86
$1.05
$1.05
$0.89
$1.10
$1.10
$0.93
Price per Credit
March 28, 2018Slide7
Effect of Tax Reform on LIHTC Equity Pricing
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Affordable housing community had already lost investment and production in 2017
March 28, 2018Slide8
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March 28, 2018Slide9
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blog
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March 28, 2018Slide10
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March 28, 2018Slide11
New Markets Tax Credit
No
statutory changes to section 45D2017, 2018 and 2019 rounds from the PATH Act in 2015 remain at
$3.5 billion eachHouse bill had originally eliminated 2018 and 2019 roundsEfforts to extend or make the NMTC an
indefinite part of the internal revenue code likely included in a future extenders package
Corporate AMT repealedUnlike LIHTC, lower corporate rate is a slight positive for NMTC because investors pay taxes on gains at exit
March 28, 2018
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Historic Rehabilitation Tax Credit
House
would have dropped the HTC entirely; Senate bill prevailedThe 10 percent non-certified rehabilitation credit (for pre-1936 buildings) is
repealed20 percent historic rehab credit is claimed ratably over 5 years
Pricing may drop 7% to 15% due to
changes
March 28, 2018
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Investing in Opportunity Act
Allows
investors with capital gains from sale of assets to defer those gainsSimilar in concept to Section 1031 “Like-Kind” exchangesCreates new incentive
to invest capital gains in low-income communitiesAuthorizes the designation of “opportunity zones”
Governors (and DC Mayor) responsible for designating these zones
Deadline to nominate or request a 30-day extension was March 21
Encourages investors to pool resources and risks in “Opportunity Funds” (O Funds). Investors can temporarily defer capital gains recognition if they reinvest in these zones
Incentivizes long-term investment by stepping up basis
10 percent step-up after 5-year hold, 15 percent step-up after 7-year holdProvides shallower subsidies per investment than the NMTC, but can be used on a greater scaleMarch 28, 2018www.novoco.comSlide14
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL
HATCH
TIBERI
NEAL
RETIRED
Curbelo
, R-FL-26
March 28, 2018
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More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL
HATCH
TIBERI
NEAL
Curbelo
, R-FL-26
RETIRED
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March 28, 2018Slide16
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL
HATCH
Curbelo
, R-FL-26
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TIBERI
NEAL
RETIRED
March 28, 2018Slide17
TIBERI
NEAL
More LIHTCs via
Affordable Housing Credit Improvement Act
CANTWELL
HATCH
Curbelo
, R-FL-26
RETIRED
Note these assumptions:
Assumed that states will increase their tax-exempt bond issuance for multifamily by 25%
Assumed the absolute amount of soft subsidies going to tax exempt bond properties would remain unchanged
To the extent that there is less deferred developer fee, that is offset with more taxable bond financing
Approximately 131,000 more units over 10 years
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March 28, 2018Slide18
More LIHTCs via
Affordable Housing Credit Improvement Act
Additional Resources
Give states discretion to provide 30% basis boost for bond-financed projects
Increase DDA designation from 20 to 30%
Repeal QCT population cap
Relocation costs included in eligible basis
No basis reduction for certain energy tax incentives
Indian areas generally treated as DDAs
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March 28, 2018Slide19
More LIHTCs via
Affordable Housing Credit Improvement Act
Financial Feasibility
50% basis boost for ELI units
Modify student occupancy rules
Codify increased tenant income guidance
Modify 10-year rule (limits apply to acquisition basis)
Adopt uniform income eligibility for rural projects
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March 28, 2018Slide20
More LIHTCs via
Affordable Housing Credit Improvement Act
Other
Modify voucher rent-setting rule in LIHTC
Clarify the community revitalization plan
Prohibit local approval or contribution requirements
Add selection criteria for Native American areas
Restriction of planned foreclosures
Clarify casualty loss rule
Convert ROFR to purchase option
Change the official name of the LIHTC to Affordable Housing Tax Credit
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March 28, 2018Slide21
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March 28, 2018Slide22
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March 22, 2018
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March 22, 2018Slide24
March 28, 2018
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March 28, 2018
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Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus
Rental
Homes
Jobs
Business
Income
Federal, State
and Local Taxes
Current Law
Tax Reform Bill
Lower Corporate Rate of 21%
Chained CPI
Amount Lost
Percentage Lost
Post-Tax Reform Law
FY18 Omnibus
12.5% allocation increase
Percentage gained
New Law
1,493,400
212,400
19,900
232,300
-16%
1,261,100
-
-
1,687,500
240,000
22,500
262,500
-16%
1,425,000
-
-
$142,005,642,600
$20,196,865,200
$1,892,267,500
$22,089,132,700
-16%
$119,916,509,900
-
-
$54,617,554,900
$7,768,025,100
$727,795,200
$8,495,820,300
-16%
$46,121,734,600
-
-
28,400
2%
1,289,500
+
32,100
2%
1,457,100
+
$2,700,522,500
2%
$122,617,032,400
+
$ 1,038,662,500
2%
$ $47,160,397,100
+Slide26
March 28, 2018
www.novoco.com
Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform
Bill and FY18 Omnibus
Rental
Homes
Jobs
Business
Income
Federal, State
and Local Taxes
Prior
Law
Tax Reform Bill
Lower Corporate Rate of 21%
Chained CPI
Amount Lost
Percentage Lost
Post-Tax Reform Law
FY18 Omnibus
12.5% allocation increase
Percentage gained
New Law
1,493,400
212,400
19,900
232,300
-16%
1,261,100
-
-
1,687,500
240,000
22,500
262,500
-16%
1,425,000
-
-
$142,005,642,600
$20,196,865,200
$1,892,267,500
$22,089,132,700
-16%
$119,916,509,900
-
-
$54,617,554,900
$7,768,025,100
$727,795,200
$8,495,820,300
-16%
$46,121,734,600
-
-
28,400
2%
1,289,500
+
32,100
2%
1,457,100
+
$2,700,522,500
2%
$122,617,032,400
+
$ 1,038,662,500
2%
$ $47,160,397,100
+
+19%Slide27
March 28, 2018
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Approximate Impact on Virginia, Maryland and DC Rental Homes
Rental Homes Gained
Maryland
Virginia
Washington, D.C.
524 rental homes
733 rental homes
100 rental homesSlide28
$3.00
$2.50
$2.00$1.50
$1.00$0.50
$0.00
March 28, 2018
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9% LIHTC Allocations with FY18 Omnibus Increase
PROJECTED
ACTUAL
Per capita credit set at $1.25
2002
$1.75
2017
$2.35
2022
$2.50
2008
$
2
.20
2007
$1.95
2010
$2.10
HERA
FY18 Omnibus
2009
$2.30
2018
$2.70
2028
$2.80Slide29
March 28, 2018
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LIHTC Income Averaging
Development types benefiting from this new option
High housing cost areas
Rural areas with very low incomes
Low-income community revitalization projects promoting income
diversity
Preservation projects
(e.g., RAD)
with some “over-income” residents
$Slide30
March 28, 2018
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Upcoming Income Averaging Blog Post
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blogSlide31
March 28, 2018
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FY16
Enacted
FY17
Enacted
FY18
Enacted
President’s FY19 Request
% Change
FY18 – FY17
% Change
FY19 Req. – FY18
Housing Choice Vouchers
$19,628
$20,292
$22,015
$20,550
8.5%
-6.7%
Project-Based Section 8
$10,620
$10,816
$11,515
$11,047
6.5%
-3.2%
Public Housing Operating Fund
$4,500
$4,400
$4,550
$3,279
3.4%
-27.9%
Public Housing Capital Fund
$1,900
$1,942
$2,750
$0
41.6%
-100%
Section 202
$433
$502
$678
$601
35.0%
-11.4%
Section 811
$150
$146
$230
$140
57.0%
-39.0%
HOPWA
$335
$356
$375
$330
5.3%
-12.0%
CDBG
$3,000
$3,000
$3,235
$0
7.8%
-100%
HOME
$950
$950
$1,362
$0
43.4%
-100%
Homeless Assistance
$2,250
$2,383
$2,513
$2,383
5.5%
-5.2%
Choice Neighborhood Initiative
$125
$138
$150
-$137
9.1%
-191.3%
Overall (gross)
$46,978
$48,055
$52,748
$41,240
9.8%
-21.8%
Note: amounts in millions
HUD BudgetSlide32
March 28, 2018
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March 28, 2018
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March 28, 2018
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Housing Trust Fund Update:
Top 20 Estimated State
Allocations (plus MD and DC)
California
New York
Texas
Florida
Illinois
Pennsylvania
Ohio
New Jersey
Michigan
Massachusetts
Georgia
Washington
North Carolina
Virginia
Wisconsin
Indiana
Missouri
Arizona
Minnesota
Colorado
$34,319,000
$21,942,000
$11,683,000
$10,902,000
$9,823,000
$7,919,000
$7,463,000
$7,094,000
$6,364,000
$6,027,000
$5,367,000
$5,094,000
$5,018,000
$4,531,000
$4,122,000
$3,957,000
$3,899,000
$3,791,000
$3,720,000
$3,648,000
District of Columbia
Maryland
$3,426,000
$3,000,000Slide35
March 28, 2018
www.novoco.com
Refinance, Recapitalize and Redevelop: Innovative Bond Structures in Affordable Housing
for Housing Association of Nonprofit Developers (HAND)
Peter Lawrence
Director of Public Policy and Government Relations
peter.lawrence@nc-llp.com
Novogradac Consulting LLP
@NovocoPolicy