Presented by Sammy Ehtisham Midwest Housing Equity Group, Inc. - PowerPoint PPT Presentation

Presented by Sammy Ehtisham Midwest Housing Equity Group, Inc.

About Me:  Sammy Ehtisham  Acqusitions Manager for MHEG’s Oklahoma Operations  Work only with Low Income Housing Tax Credit financed developments  6 years  Current territory includes Oklahoma, Arkansas, and North Texas

Today’s Discussion  We are going to talk about something much more exciting than a way to combine a financing source with tax credits.  So….let’s talk about:

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Our Discussion Will Include  General Overview of LIHTC  LIHTC with HOME  LIHTC with RD 515  LIHTC with RD 538  LIHTC with AHP  LIHTC with Tax Exempt Bonds

What is the LIHTC Program?  The Federal Low Income Housing Tax Credit program was created under the Tax Reform Act of 1986, as amended.  This program creates affordable rental housing through a partnership of public and private partners.  The program is responsible for the creation of more than 2.5 million units of affordable housing since inception.

How many credits are available?  Each year population figures for each state are estimated and each state receives their allocation of credits based on a predetermined formula.  In 2012, the Oklahoma allocation of credits was $8.3 million, as determined by population.

So what’s the benefit of LIHTCs?  Owner Structure  0.01% to the General Partner (or Managing Member in an LLC)  99.99% to the Limited Partner (or Investor Member in an LLC)  The resulting ownership structure is how the benefits flow to the partners.

What we’ll look at for each financing combination  General Program Information  Advantages  Disadvantages  Layering complexities

HOME – General Information  Funds are administered by HUD, through Participating Jurisdictions  There are 6 PJs in Oklahoma  What is the HOME Program?

LIHTC w/ HOME Advantages  Awards in the form of grants to Non Profits  Now available to for profits  38% of HOME funds set aside for LIHTC  Minimum 1% Debt Service

LIHTC w/ HOME Disadvantages  Can only apply in 2 nd Round of LIHTC  Separate lengthy application  Subject to federal appropriation  Cross cutting federal regulations

HOME Layering Issues  Must have Low HOME and High HOME rents  New construction period of affordability not equivalent to LIHTC compliance period.

RD 515 – General Information  Loans available direct from USDA-RD.  Administered through each state office.  What is the 515 program?

LIHTC w/ RD 515 Advantages  30 year term and 50 year amortization  1% effective interest rate  Units generally have some type of rental assistance through RD  Rents can be in excess of the LIHTC limits

LIHTC w/ RD 515 Disadvantages  Limited cash flow allowed – Return to Owner  Rural Areas  Must request rental increases through RD.

LIHTC w/ RD 515 Layering Issues  Restrictions on the terms of additional debt, if needed.  Generally require much higher per unit per year replacement reserve deposits

RD 538 – General Information  What is it?  Lender based loans

LIHTC w/ RD 538 Advantages  No Return to Owner limitations like the RD 515 program.  Lender gets a 90% guaranteed loan  Terms – Minimum 25 years and a maximum of 40 years. Amort. up to 40 years.

LIHTC w/ RD 538 Disadvantages  Limited eligibility  Loan fees are expensive  Is the benefit of the loan really worth the extra expenses?

RD 538 Layering Issues  Additional Reserve Requirements  Annual fee adds to operation expenses.  Otherwise meshes very well with LIHTCs.

AHP – General Information  FHLB  Topeka  What is the AHP program?

LIHTC w/ AHP Advantages  Grants  Works very well with LIHTC

LIHTC w/ AHP Disadvantages  Limited funds  Very competitive  Max per project

AHP Layering Issues  Grant funds into LIHTC deal  Keep to promises in Tax Application

The Greatest Advantage of All of These Financing Combinations?  Leverage Points in the LIHTC Application!

Tax Exempt Bonds – General Information  How much is available?  OHFA

LIHTC w/ Tax Exempt Bonds Advantages  Plenty of bond cap available.  Allows access to non-competitive 4% LIHTCs  Deep skewing of rents not required  Great for larger deals

LIHTC w/ Tax Exempt Bonds Disadvantages  Significant additional fees  More debt risk  More parties involved, slower to get through process  No 9% credits

Tax Exempt Bonds Layering Issues  50% of the basis for the project must be financed with Tax Exempt Bond financing  Use 4% rate….not fixed.  Works very well with LIHTC’s

Questions about LIHTC: Sammy Ehtisham Darcy Green Midwest Housing Equity Group Oklahoma Housing Finance Agency 405-278-7909 405-419-8145 sehtisham@mheginc.com darcy.green@ohfa.org Questions about HOME: Darcy Green Oklahoma Housing Finance Agency 405-419-8145 darcy.green@ohfa.org Questions about RD 515: Debora Phillips USDA RD 580-726-3347 Debora.phillips@ok.usda.gov

Questions about RD 538: Tammi Miller USDA RD 580-889-2554 ext 114 Tammi.miller@ok.usda.gov Questions about AHP: Jeff Ragsdale FHLB Topeka 785-438-6034 Jeff.ragsdale@FHLBTopeka.com Questions about Tax Exempt Bonds: Darrell Beavers Oklahoma Housing Finance Agency 405-419-8261 darrell.beavers@ohfa.org