ESTIMATING THE MAXIMUM ELIGIBLE ANNUAL TAX CREDIT ALLOCATION AND NET SYNDICATION PROCEEDS

Transcription

1 GSD 5490/HKS SUP-666 ASSIGNMENT FOR CLASS 8 FEBRUARY 22 (TUESDAY) LOW INCOME HOUSING TAX CREDIT (LIHTC): CALCULATING THE LIKELY AMOUNT OF EQUITY THAT CAN BE RAISED THROUGH THE SALE OF LOW INCOME HOUSING TAX CREDITS THE LIHTC SYNDICATION PROCESS GUEST SPEAKER: Bernard P. Husser Executive Vice President The Richman Group Affordable Housing Corporation Boston, MA (See attached bio) Preparation 1. Estimate the Maximum Eligible Annual Tax Credit and the Net LIHTC Syndication Proceeds for a rehabilitation project located in the City of Boston based upon the assumptions listed on the attached worksheet. You will need to complete simple calculations for each of the shaded cells in the worksheet. Sample annotated calculations using different project assumptions are included on pages four and five of this assignment. 2. My exercise is a very simple hypothetical illustration of how the value of tax credits is determined. Mr. Husser has prepared a real case that illustrates the actual complexity of a LIHTC deal. You should review it generally. Mr. Husser will then use his case to walk the class through the LIHTC syndication process. Mr. Husser s case, appropriately titled ASCAP (A Small Complicated Affordable Housing Project), has been posted to the course isite. Please be sure to bring a copy of Mr. Husser s case to class. Marchant/GSD/Spring

2 AND NET SYNDICATION PROCEEDS I. Maximum Eligible Annual Tax Credit Allocation Assumptions 9% Tax Credit (Rehab/New Construction) Note: Tax Credit on Building Acquisition Cost is Limited to 4% Total Building Acquisition Cost N/A $1,600,000 Less: Land Cost Component of Acquisition Cost N/A $600,000 Equals: Acquisition Eligible Basis (4% Credit) Total Development Cost (including Developer s $10,400,000 N/A Fee and excluding Acquisition Cost) Less: Non-Depreciable Expenses $400,000 N/A Less: Grants $0 N/A Equals: Rehab/New Construction Eligible Basis Is Project Eligible for 130% Basis Boost for Rehab Eligible Basis? (Project Must be located in a Difficult to Develop Area or Qualified Census Tract) Eligible Basis after "Basis Boost" Total Number of Units in Project Number of LIHTC Eligible Units in Project Applicable Fraction Qualified Basis N/A Yes 100-2BR Units 60-2BR Units N/A Basis Boost Not Allowed on Acquisition Costs Applicable Tax Credit Percentage 9% 4% Maximum Eligible Annual Tax Credit for Rehab/New Construction and Acquisition Costs Sum of Rehab/New Construction and Acquisition Maximum Eligible Annual Tax Credit 2

3 AND NET SYNDICATION RAISE II. Estimating the Net LIHTC Syndication Yield Sum of Rehab/New Construction and Acquisition Maximum Annual Tax Credit Maximum Eligible Tax Credit Over 10 Year Period Estimated Net LIHTC Syndication Yield Per Dollar of Total Maximum Eligible Tax Credit* Estimated Net LIHTC Syndication Yield Available cents ($0.62-$0.80) Net Syndication Yield per LIHTC Unit Total Development and Acquisition Cost per LIHTC Unit (Assume all unit costs are similar) % of Total Development and Acquisition Cost "funded" by LIHTC *Note: The Yield per Dollar of Tax Credit varies based upon actual market conditions. Yields have increased significantly from the cent estimate listed above. Mr. Husser will discuss current market conditions. 3

4 AND NET SYNDICATION RAISE (Sample Calculations) I. Maximum Eligible Annual Tax Credit Allocation Assumptions 9% Tax Credit (Rehab/New Construction) Note: Tax Credit on Building Acquisition Cost is Limited to 4% Total Building Acquisition Cost N/A $700,000 Less: Land Cost Component of Acquisition Cost N/A $400,000 Equals: Acquisition Eligible Basis (4% Credit) N/A $700,000-$400,000 = $300,000 Total Development Cost (including Developer s $9,300,000 N/A Fee and excluding Acquisition Cost) Less: Non-Depreciable Expenses $300,000 N/A Less: Grants $0 N/A Equals: Rehab/New Construction Eligible Basis $9,300,000-$300,000- $0 = $9,000,000 Is Project Eligible for 130% Basis Boost for Yes Rehab Eligible Basis? (Project Must Be Located in Difficult to Develop Area or Qualified Census Tract) Eligible Basis after "130% Basis Boost" for Eligible Rehab/New Construction Costs Total Number of Units in Project Number of LIHTC Eligible Units in Project N/A Basis Boost Not Allowed on Acquisition Costs $9,000,000 times 1.30 $300,000 = $11,700, BR Units 40-2BR Units Applicable Fraction 40 LIHTC Units divided by 100 Total Units = 40% Qualified Basis $11,700,000 times 40% = $4,680,000 $300,000 times 40% = $120,000 Applicable Tax Credit Percentage 9% 4% Maximum Eligible Annual Tax Credit for Rehab/New Construction and Acquisition Costs Sum of Rehab/New Construction and Acquisition Maximum Eligible Annual Tax Credit $4,680,000 times 9% = $120,000 times 4% = $421,200 $4,800 $421,200 + $4,800 = $426,000 4

5 AND NET SYNDICATION PROCEEDS (Sample Calculations) II. Estimating Net LIHTC Syndication Proceeds Sum of Rehab/New Construction and Acquisition $426,000 Maximum Eligible Annual Tax Credit Maximum Eligible Tax Credit Over 10 Year Period $426,000 times 10 years = $4,260,000 Estimated Net LIHTC Syndication Yield Per cents Dollar of Total Maximum Eligible Tax Credit* ($0.62-$0.80) Estimated Net LIHTC Syndication Yield Available $4,260,000 times $0.62= $2,641,200 $4,260,000 times $0.80 = $3,408,000 Net Syndication Yield per LIHTC Unit $2,641,200 divided by 40 units = $66,030 $3,408,000 divided by 40 units = $85,200 Total Development and Acquisition Cost per LIHTC Unit (Assume all unit costs are similar) % of Total Development and Acquisition Cost "funded" by LIHTC $9,300,000 + $700,000 = $10,000,000 $10,000,000 divided by 100 units = $100,000 $66,030 divided by $100,000 = 66.03% $85,200 divided by $100,000 = 85.20% *Note: The Yield per Dollar of Tax Credit varies based upon actual market conditions. Yields have increased significantly from the cent estimate listed above. Mr. Husser will discuss current market conditions. 5

6 Bernard P. Husser Bernard P. Husser, Executive Vice President of The Richman Group Affordable Housing Corporation, is a graduate of Boston College (B.S., Accounting) and the Wharton School of Business, University of Pennsylvania (M.B.A., Finance and Real Estate). Prior to entering the syndication business in 1992, Mr. Husser worked for a Boston-based developer as a project manager responsible for development, financing, and equity syndication of projects including those utilizing low-income and historic tax credits. Mr. Husser joined Richman Group in 2009 after 17 years at Boston Financial Investment Management and its predecessors where he was responsible for over $1 billion of tax credit equity invested. He manages Richman s Boston office and is responsible for identifying transactions for The Richman Group s corporate investors, coordinating due diligence, and structuring and closing the equity investments. He has a significant focus on public housing revitalization and subsidized housing. Mr. Husser is a Director and Vice President of the National Housing & Rehabilitation Association (NH&RA) and was a founding board member and former President of the Council for HOPE VI and Mixed Finance. Mr. Husser also served as an Executive Associate of the Boston College Center for Asset Management. husserb@richmancapital.com 6