In recent decades, seniors in the Minneapolis suburbs

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1 News, Analysis and Commentary On Affordable Housing, Community Development and Renewable Energy Tax Credits May 2015 Volume VI Issue V Published by Novogradac & Company LLP Tax Credits Expand Senior Housing Options in Minnesota TERESA GARCIA, SENIOR WRITER NOVOGRADAC & COMPANY LLP In recent decades, seniors in the Minneapolis suburbs of St. Anthony and Crystal had few housing options. Although there are some senior care homes in the area, choices were limited for active seniors who don t need fulltime care at an assisted living facility. We don t have a lot of options for our older population, said John Sutter, Crystal s city planner. There s no new, high-quality, independent living [developments] that are affordable. Others also recognized this housing shortfall. If there s independent senior housing, it s usually a small portion of a larger continuum of care [facility], said Ron Mehl, senior developer for Minnesota-based housing provider continued on page 2 Rendering: Courtesy of BKV Architects The Legends at Silver Lake Village, a 170-unit affordable housing property for seniors in St. Anthony, Minn., is expected to open for occupancy in May.

2 LOW-INCOME HOUSING TAX CREDIT Photo: Courtesy of BKV Architects The Legends at Silver Lake Village in St. Anthony, Minn., features a community room with a fireplace and full kitchen. May 2015 continued from page 1 Dominium. We re not seeing a truly stand-alone, independent senior development with all the amenities. That is set to change this summer when Dominium opens two new independent senior living properties: The Legends at Silver Lake Village (The Legends) and The Cavanagh. The Legends will offer 170 units of affordable senior housing in St. Anthony, with a mix of one-bedroom and two-bedroom units. The nearly $28.8 million development will be 100 percent rent-restricted, with 136 units at 60 percent area median income (AMI) rental limit and 34 units at the fair-market rent limit. The Cavanagh in Crystal, which cost about $24.4 million to develop, will offer 130 affordable senior housing units, with 104 units at 60 percent AMI rental limit and 26 units at the fairmarket rent limit. The Legends and The Cavanagh each has a community room with a kitchen, private dining rooms, a card room, a theater room, a fitness facility, a library, a barber shop/beauty salon, heated underground parking, walking trails and picnic areas. Housing experts say that many seniors in the area have little choice but to age in place, even if their own homes no longer meet their needs. This means that younger families who might be better suited for those homes don t have the opportunity to buy them. The Legends and The Cavanagh are expected to provide relief in the tight market. As seniors move in from their single-family homes, it frees up those single-family homes for younger families, said Stacie Kvilvang, senior financial adviser and director at Ehlers, who worked on The Legends and The Cavanagh transactions. Crystal and St. Anthony s municipal leaders were strongly supportive of the developments. Mehl said Crystal and St. Anthony issued tax-exempt bonds, provided tax-increment financing and sold land to Dominium at reasonable prices. [The municipalities] were very accommodating because they see a need for affordable senior housing, said Mehl. Both sites had existing buildings on the property. Mehl said the St. Anthony site had a vacant, deteriorating bank that needed to be demolished. The Cavanagh sits on the site of a former school that was about to be vacated because it was no longer meeting the school district s needs. The school property also included a park, which the city of Crystal will preserve. Kvilvang said that The Cavanagh allowed the city to preserve the park space, while turning 2 continued on page 3

3 Photo: Courtesy of BKV Architects The Cavanagh in Crystal, Minn., features a community room with a fireplace. continued from page 2 a formerly tax-exempt property into one that generates revenue and houses an underserved segment of the population. Residents are expected to begin moving into The Legends in May and into The Cavanagh in August. Financing The financing structures were pretty straightforward, said Frank Hogan, senior vice president of Dougherty & Company LLC, which acted as the investment banker and underwriter for both deals. Given Dominium s goals, we decided to use long-term, fixed-rate bonds. Along with the bonds, both transactions involved 4 percent low-income housing tax credits (LIHTCs), which Mehl described as an invaluable resource for developing senior housing in Minnesota. The 4 percent credit has an open pipeline and is undersubscribed, said Mehl. He said that the Minnesota qualified allocation plan (QAP) for 9 percent credits does not award extra points for senior housing, making it difficult for senior developments to compete with multifamily deals. Providing the highquality, new-construction developments that Dominium is known for, [and] with limited resources, is difficult, said Mehl. The 4 percent tax credits are a great tool. Partners agreed. The deals wouldn t have been economically feasible without the tax credits, said Scott Kotick, executive vice president of The Alliant Company, which invested LIHTC equity in both transactions. The Cavanagh used $13.4 million in tax-exempt bonds issued by the city of Crystal, $6.5 million in LIHTC equity from the Alliant Company, $3.6 million in general partner cash and $950,000 in tax increment financing from the city of Crystal. The Legends used $16 million in tax-exempt bonds issued by the city of St. Anthony, $7.8 million in LIHTC equity from the Alliant Company, $3.4 million in general partner cash, $893,000 in tax increment financing from the city of St. Anthony and $650,000 in HOME funds from Ramsey County. ; HOUSING TAX CREDIT Novogradac Journal of Tax Credits April LOW-INCOME continued on page 4

4 LOW-INCOME HOUSING TAX CREDIT continued from page 3 THE CAVANAGH AND THE LEGENDS AT SILVER LAKE VILLAGE FINANCING The Cavanagh $13.4 million in tax-exempt bonds issued by the city of Crystal $6.5 million in LIHTC equity from The Alliant Company $3.6 million in general partner cash $950,000 in tax increment financing from the city of Crystal The Legends at Silver Lake Village $16 million in tax-exempt bonds issued by the city of St. Anthony $7.8 million in LIHTC equity from The Alliant Company $3.4 million in general partner cash $893,000 in tax increment financing from the city of St. Anthony $650,000 in HOME funds from Ramsey County This article first appeared in the May 2015 issue of the Novogradac Journal of Tax Credits. Novogradac & Company LLP All Rights Reserved Notice pursuant to IRS regulations: Any U.S. federal tax advice contained in this article is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties under the Internal Revenue Code; nor is any such advice intended to be used to support the promotion or marketing of a transaction. Any advice expressed in this article is limited to the federal tax issues addressed in it. Additional issues may exist outside the limited scope of any advice provided any such advice does not consider or provide a conclusion with respect to any additional issues. Taxpayers contemplating undertaking a transaction should seek advice based on their particular circumstances. This editorial material is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding property compliance or any other material covered in this article can only be obtained from your tax advisor. For further information visit May

5 EDITORIAL BOARD PUBLISHER Michael J. Novogradac, CPA EDITORIAL DIRECTOR Alex Ruiz TECHNICAL EDITORS Michael G. Morrison, CPA James R. Kroger, CPA Owen P. Gray, CPA COPY ASSIGNMENT EDITOR Brad Stanhope SENIOR WRITER Teresa Garcia EDITORIAL ASSISTANT Elizabeth Orfin CONTRIBUTING WRITERS Forrest Milder Mark Shelburne Thomas Stagg ART CARTOGRAPHER David R. Grubman PRODUCTION Alexandra Louie CONTACT CORRESPONDENCE AND EDITORIAL SUBMISSIONS Alex Ruiz Thomas Boccia, CPA Daniel J. Smith, CPA STAFF WRITER Mark O Meara Annette Stevenson Emila Sutton John M. Tess Jesse Barredo ADVERTISING INQUIRIES Carol Hough [email protected] EDITORIAL MATERIAL IN THIS PUBLICATION IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED OTHERWISE. ADVICE AND INTERPRETATION REGARDING THE LOW-INCOME HOUSING TAX CREDIT OR ANY OTHER MATERIAL COVERED IN THIS PUBLICATION CAN ONLY BE OBTAINED FROM YOUR TAX ADVISOR. ADVISORY BOARD LOW-INCOME HOUSING TAX CREDITS Bud Clarke Jana Cohen Barbe Tom Dixon Rick Edson Richard Gerwitz Rochelle Lento John Lisella Philip Melton Thomas Morton Mary Tingerthal Rob Wasserman PROPERTY COMPLIANCE Michael Kotin Michael Snowdon Gianna Solari Kimberly Taylor BOSTON FINANCIAL INVESTMENT MANAGEMENT DENTONS BOSTON CAPITAL HOUSING CAPITAL ADVISORS INC. CITI COMMUNITY CAPITAL DYKEMA GOSSETT PLLC BELLWETHER ENTERPRISE PILLSBURY WINTHROP SHAW PITTMAN LLP MINNESOTA HOUSING FINANCE AGENCY KAY KAY REALTY HIGHRIDGE COSTA HOUSING PARTNERS SOLARI ENTERPRISES INC. HOUSING DEVELOPMENT CENTER HOUSING AND URBAN DEVELOPMENT Flynann Janisse Ray Landry Denise Muha Monica Sussman NEW MARKETS TAX CREDITS Frank Altman Merrill Hoopengardner Scott Lindquist Matthew Philpott Matthew Reilein Ruth Sparrow Elaine DiPietro HISTORIC TAX CREDITS Jason Korb John Leith-Tetrault Bill MacRostie John Tess Novogradac & Company LLP 2015 All rights reserved. ISSN X RAINBOW HOUSING DAVIS-PENN MORTGAGE CO. NATIONAL LEASED HOUSING ASSOCIATION NIXON PEABODY LLP COMMUNITY REINVESTMENT FUND ADVANTAGE CAPITAL DENTONS JPMORGAN CHASE BANK NA FUTURES UNLIMITED LAW PC ENTERPRISE COMMUNITY INVESTMENT INC. CAPSTONE COMMUNITIES RENEWABLE ENERGY TAX CREDITS Bill Bush Ben Cook Jim Howard Forrest Milder NATIONAL TRUST COMM. INVESTMENT CORP. MACROSTIE HISTORIC ADVISORS LLC HERITAGE CONSULTING GROUP BORREGO SOLAR SOLARCITY CORPORATION DUDLEY VENTURES NIXON PEABODY LLP Novogradac Journal of Tax Credits April CREDITS Reproduction of this publication in whole or in part in any form without written permission from the publisher is prohibited by law.