Our firm is well-versed in all aspects of affordable housing finance including low income housing tax credits (“LIHTCs”) and multifamily housing bonds.
The LIHTC Program is a federal tax credit program that is administered at the discretion of the state housing finance agency under its Qualified Allocation Plan (“QAP”). The program creates an incentive for private developers to participate in affordable rental housing by awarding dollar-for-dollar tax credits to qualified projects. These tax credits are sold by developers to investors, generating equity for their developments. This equity injection allows the developer to offer “affordable” rents to residents.
LIHTC credits are either acquired through an annual competitive process (resulting in tax credits equal to 9% of a development’s eligible basis) or through the non-competitive process (resulting in tax credits equal to 4% of a development’s eligible basis). Projects seeking 4% credits may be financed using tax-exempt bonds, whereas 9% credit projects may not. A development’s eligible basis is calculated as the cost of acquiring the improved structure plus construction costs. Finance costs and land costs are not included in calculating a project’s eligible basis. The credits are divided and distributed equally over a ten year period. The State of South Carolina also enacted legislation providing a State LIHTC in May 2020. See “Low Income Housing Tax Credits.”
Howell Linkous & Nettles have participated in LIHTC program for decades. We represent non-profit developers, private developers, and housing authorities, as well as investors, lenders and syndicators through application preparation, partnership agreement creation, and through shepherding the development in all stages of acquisition, syndication, compliance, and disposition.
As a complement to our affordable housing finance practice, the firm has an active multi-family housing bond practice. Our bond lawyers serve as bond counsel and borrower’s counsel for many multi-family housing bond deals. This experience includes developer driven transactions for apartment projects, as well as transactions sponsored by local housing authorities. Often these transactions involve funding from a variety of sources, including bonds, federal, state, and local governmental grants, and equity raised with federal and state low income housing tax credits. For example, the attorneys at Howell Linkous & Nettles served as bond counsel and borrower’s counsel in the two largest HOPE VI revitalization projects funded with bonds in South Carolina. These projects, directed by local housing authorities, replaced traditional public housing projects with mixed use communities, including both affordable housing and market rate units.
Tax exempt bonds for these programs can be issued by either the local authority or the State authority: we have experience with both structures. In addition, we have served as bond counsel and borrower’s counsel for more typically structured apartment projects that include a set-aside affordable component, thereby qualifying for low interest bond financing. Acquisition and rehab federal and state tax credits may also be available to raise equity funds in these types of deals.
On the other hand, Howell Linkous & Nettles has served as bond counsel for some of the more innovative housing finance structures seen in the market. Our firm served as bond counsel for a pooled bond transaction that financed the simultaneous acquisition and subsequent rehabilitation by our client of 23 different multifamily affordable housing projects located in 15 different counties in South Carolina (a total of 830 affordable housing units). The properties had been originally financed with USDA RD 515 loans some 15 to 20 years prior, and were in desperate need of rehabilitation like thousands of similar properties nationwide. For many reasons, the obstacles to a successful transaction seemed insurmountable. With the help of the South Carolina State Housing Finance and Development Authority, USDA RD, and a dedicated working group, we designed a transaction structure that accomplished the goal by pooling the financing, and therefore spreading the transaction costs over the many projects, and which raised 4% LIHTC Tax Credits, commercial bank construction financing, and permanent financing that was provided by USDA RD. Since closing, this transaction has won two national awards for innovative financing, including an award to the South Carolina State Housing Finance and Development Authority, the issuer of the bonds, by the National Council of State Housing Agencies, and another award by the Novogradac Journal of Tax Credit Housing.
Building on this success, we served as bond counsel and developer’s counsel in a second transaction, based on a similar but slightly different model, in which our client simultaneously acquired and rehabilitated 45 different multifamily affordable housing projects located in 23 different counties in South Carolina (a total of 1,547 affordable housing units). More recently, we served as developer’s counsel in transactions in which bond financing by the North Carolina Housing Finance Agency and Virginia Housing Development Agency provided funding for the acquisition and rehabilitation of multifamily affordable housing projects in North Carolina and Virginia. This innovative model is now being to put to use on similar transactions of varying sizes throughout the country.
If bonds are a smart component for your multi-family housing development, the bond lawyers at Howell Linkous & Nettles can provide the experienced guidance the development team needs to obtain the optimum result for the deal.