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MFA 2016 Qualified Allocation Plan and Application Workshop November 12, 2015

MFA 2016 Qualified Allocation Plan and Application Workshop November 12, 2015. Presentation Overview. Page Tax Credit Program Overview 3 2016 Qualified Allocation Plan Review 18 Application Process 54 What Makes a Successful Application 67. TAX CREDIT PROGRAM OVERVIEW.

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MFA 2016 Qualified Allocation Plan and Application Workshop November 12, 2015

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  1. MFA 2016 Qualified Allocation Plan and Application Workshop November 12, 2015 New Mexico Mortgage Finance Authority

  2. Presentation Overview Page • Tax Credit Program Overview 3 • 2016 Qualified Allocation Plan Review 18 • Application Process 54 • What Makes a Successful Application 67 New Mexico Mortgage Finance Authority

  3. TAX CREDIT PROGRAM OVERVIEW New Mexico Mortgage Finance Authority

  4. Housing Priorities • Increase the supply of decent, affordable rental housing; • Expand housing opportunities and access for individuals with special needs; • Expand the supply of housing and services to assist the homeless; and • Preserve the State’s existing affordable housing stock. New Mexico Mortgage Finance Authority

  5. Background • LIHTC Program created by Tax Reform Act of 1986 as an incentive for individuals/ corporations to invest in the construction or rehabilitation of low income housing. • The Tax Credit provides a dollar-for-dollar reduction in personal or corporate federal income tax liability for a 10 year period. New Mexico Mortgage Finance Authority

  6. Internal Revenue Code §42 • IRC §42 sets forth the requirements and process for the Tax Credit program. • §42(m) states the housing credit agency must make Tax Credit allocations pursuant to a Qualified Allocation Plan, which: • Sets forth project selection criteria; • Gives preference to those serving lowest income tenants for the longest period of time; • Provides a procedure for monitoring compliance New Mexico Mortgage Finance Authority

  7. Background, continued • Credit Ceiling: $2.35 per capita allocation + any returned or unused credits + any National Pool credits – forward allocations • MFA allocated $6.267mm in 2015 • MFA will allocate about $5mm in 2016 • Tax Credits are the deepest Federal Subsidy that funds up to 70% of total development cost New Mexico Mortgage Finance Authority

  8. Affordable Use • Minimum set aside: • 20% of units for tenants earning no more than 50% of median income (20/50 election) - Requires that all restricted units be at 50% AMI or below to be eligible for credits OR • 40% of units for tenants earning no more than 60% of median income (40/60 election) • This election is irrevocable. • Use restriction for 30 years required (income and rent limits) New Mexico Mortgage Finance Authority

  9. Applicable Fraction • The percentage of the Project that is dedicated to Low Income use • Employee units excluded from calculation Applicable Fraction: 80.56% New Mexico Mortgage Finance Authority

  10. Eligible Basis • The sum of the eligible cost elements that are subject to depreciation. • 70% Eligible Basis (9% Tax Credits) for new construction or rehabilitation costs. • 30% Eligible Basis (4% Tax Credits) for acquisition costs and projects with federal subsidy. • Exclusions- federal grants, land acquisition cost, commercial, etc. • “Basis Boost” – Increases Eligible Basis 30% if project is in a HUD Defined QCT or DDA New Mexico Mortgage Finance Authority

  11. Basis Boost • Basis Boost – Up to 30% increase to Eligible • Basis for new construction and rehabilitation costs • only (acquisition costs not eligible) • For Projects in HUD designated QCT or DDA (30%) • MFA designation of need for Financially Feasibility (up to 30%) and: • 1. Not Financed with Tax Exempt Bonds; • 2. Must score at least 10 points under Projects that Benefit the Environment; and • 3. Serve a target population. New Mexico Mortgage Finance Authority

  12. Applicable Percentage • The amount of the low-income housing credit for any taxable year in the credit period shall be an amount equal to: (1) the applicable percentage of (2) the qualified basis of each qualified low-income building. IRC §42(a). • Determination of Applicable Percentage: Percentages which will yield over a ten-year period amounts of credit which have a present value equal to: • 1. 70% of the Qualified basis of non-federally subsidized new construction and rehab costs (9% fixed for projects that were placed in service before 1/1/2015); and • 30% of the Qualified basis of acquisition costs and/or projects that are federally subsidized. • Applicant may elect to lock Applicable (Tax Credit) Percentage at either Carryover or at PIS. New Mexico Mortgage Finance Authority

  13. Tax Credit Calculation Eligible Basis $2,250,000 x Basis Boost (if applicable) 130% $2,925,000 x Applicable Fraction 80.56% = Qualified Basis $2,356,380 Qualified Basis $2,356,380 x Applicable (Tax Credit) % 7.48%** = Annual Tax Credit $176,257.22 **Example only New Mexico Mortgage Finance Authority

  14. Equity Calculation Annual Tax Credit $176,257.22 x Years of Credit x 10 = Total Credit Amount $1,762,572 x Price per Credit Dollar x $ 0.87 = Equity to Project $1,533,437. New Mexico Mortgage Finance Authority

  15. Partnership Structure XYZ PROJECT GENERAL PARTNERSHIP General Partner .01% Limited Partner Investor 99.99% New Mexico Mortgage Finance Authority

  16. Partnership Structure • General partner has 0.01% ownership, provides guarantees and operates the project • General partner retains 0.01% of the tax credits, income and losses • Limited partner has 99.99% ownership • Limited partner receives 99.99% of the tax credits, income and losses • Investor equity reduces the need for other financing which reduces debt service, and enables rents to be affordable New Mexico Mortgage Finance Authority

  17. Apply for credits Receive a tax credit reservation Receive carryover allocation, indicate lock-in election Incur 10% of estimated project basis and start construction by August 31 of the following year Complete project and place in service within two years of carryover Apply for 8609’s Record extended use agreement Project Lease-up: Qualify Tenants Begin claiming credits: PIS year or following year Keep tax credit units in compliance ** See 2015-2016 LIHTC Calendar on website Tax Credit Timeline New Mexico Mortgage Finance Authority

  18. 2016 Qualified Allocation Plan Review New Mexico Mortgage Finance Authority

  19. Qualified Allocation Plan What is it? • The QAP is the State of NM’s plan for allocating its tax credits • It is prepared annually, consistent with IRC §42(m). Approval Process Where is it? http://www.housingnm.org/low-income-housing-tax-credits-lihtc-allocations New Mexico Mortgage Finance Authority

  20. Threshold Review All Applications must meet each of the following and include all required materials: • Site Control • Zoning • Minimum Project Score • Applicant Eligibility • Financial Feasibility • Fees New Mexico Mortgage Finance Authority

  21. Site Control • Fully executed purchase contract or option • Written governmental commitment to transfer property by deed or lease • Recorded deed or long term lease. New Mexico Mortgage Finance Authority

  22. Site Control, Continued • Transfer Commitment must: • Provide an initial term lasting until at least July 31, 2016. • Be binding on seller through initial term • Have names, legal description, and acquisition cost that matches application. • **Initial term must not be conditioned upon any extensions requiring seller consent, additional payments or financing approval. New Mexico Mortgage Finance Authority

  23. Zoning • Evidence that multifamily housing is not prohibited by the existing zoning and dated < 6 months before application deadline. • No pending litigation or unexpired appeal process relating to zoning for project. • Only exemption, a site that is not zoned or which is zoned agricultural. New Mexico Mortgage Finance Authority

  24. Fees • All fees owed to MFA for all Tax Credit Projects in which Principal(s) participate must be current. • Fees for 2016: Application Fee: $3,500 Deposit: $8,500 Processing Fee:** 8% (9% award) or 5.5% (4% award) **Applicable if a reservation is received New Mexico Mortgage Finance Authority

  25. Applicant Eligibility All members of the development team of the proposed Project must be in good standing with MFA and all other state and federal affordable housing agencies. New Mexico Mortgage Finance Authority

  26. Financial Feasibility • Applications must demonstrate, in MFA’s reasonable judgment, the Project’s financial feasibility. • QAP Section IV.C.2, Section IV.D, and Section IV.E. summarize MFA’s financial feasibility considerations. • Additional Underwriting Details in the Initial Application Underwriting Supplement New Mexico Mortgage Finance Authority

  27. Per Unit Costs Limits • Based on average per unit costs of new construction and adaptive re-use projects submitted in the round • Purchase price attributed to land, costs related to commercial space, and reserves will be excluded. • In 2015 the average was $191,211 and in 2014 it was $196,682 • Per project maximum Tax Credit award is $1,150,000 and any entity (including affiliates) may not receive more than 2 awards. New Mexico Mortgage Finance Authority

  28. Minimum Project Score • 130 points for competitive round; 80 points for bond projects • Partial points will not be awarded • Applicant self-scores application; MFA scores application • Scoring criteria and information needed to obtain points in QAP and checklist • Deficiency Correction used only to correct incomplete application or meet threshold – not scoring or Allocation Set Aside requirements New Mexico Mortgage Finance Authority

  29. Scoring Criteria Criterion 1: Nonprofit, New Mexico Housing Authority , or Tribally Designated Housing Entity (0-10 points) • Requirements in application and checklist must be provided for points • Requirement for points different than requirements for set-aside • Net worth/net assets must be substantiated by reviewed or audited financial statements • Document fee split agreement among parties • Entity required to attend training within 6 months prior to application • Indicate on checklist if submitting as a qualified nonprofit, NMHA, or TDHE New Mexico Mortgage Finance Authority

  30. Scoring Criteria Continued Criterion 2: Projects that Benefit the Environment (0-18 points) • Five options, two scoring tiers: • LEED, Enterprise Green Communities, National Green Building Standard, or Build Green NM – 18 points • MFA Green Criteria – 10 points • Building Performance Standard • Use composite wood only if free of urea formaldehyde New Mexico Mortgage Finance Authority

  31. Scoring Criteria Continued • Projects that Benefit the Environment, continued • Basic Application Requirements • Narrative description of features • Green professional • Criteria Checklist • Architect or green professional certification New Mexico Mortgage Finance Authority

  32. Scoring Criteria Continued Criterion 3: Locational Efficiency (0-2 points) Projects located in proximity and connected to: 1) services 2) public transportation New Mexico Mortgage Finance Authority

  33. Scoring Criteria Continued Criterion 4: Rehabilitation Projects (15 points) • Rehabilitation hard costs of $25,000/unit or more • Greater of at least 15 Units, or 25 percent of total Units • Can be combined with points for sustaining affordability New Mexico Mortgage Finance Authority

  34. Scoring Criteria Continued Criterion 5: Sustaining Affordability (0-15 points) • Use restrictions are to expire on or before December 31, 2020, or • Federal Rental Assistance Contract covering at least 75% of all Units, subject to a minimum of 30 units • 5 points for Projects that have/will have a federal rental assistance contract covering at least 20 percent of all Units, subject to a minimum of 5 units New Mexico Mortgage Finance Authority

  35. Scoring Criteria Continued Criterion 6: Average Gross Median Income (AGMI) (0-40 points) • Calculate a weighted average based on the number of units set aside at each income level • Market rate units treated as if they were set aside at 100% • Round to zero decimal points • Three tiers • Points differ for counties with AMI less than or equal to $54,100 New Mexico Mortgage Finance Authority

  36. AGMI Calculation Percent of Set Aside Income Level Weighted Total Units (As a % of Median) Average 6.94% X 30% = 2% 20.83% X 50% = 10% 55.56% X 60% = 33% 16.67% X 100% = 17% Total AGMI: AGMI for Scoring 62% New Mexico Mortgage Finance Authority

  37. Scoring Criteria Continued Criterion 7: Average Gross Median Rent (AGMR) (0-30 points) • Weighted Average based on the number of units set aside at each rent level • A project can restrict rents at a lower level than the targeted income level for any given units • Market rate treated as if they were set aside at 100% • Round to zero decimal points • Three tiers New Mexico Mortgage Finance Authority

  38. AGMR Calculation Percent of Set Aside Rent Level Weighted Total Units(As a % of Median) Average 6.94% X 30% = 2% 62.50% X 50% = 31% 13.89% X 60% = 8% 16.67% X 100% = 17% Total AGMR: AGMR for Scoring 58% New Mexico Mortgage Finance Authority

  39. Scoring Criteria Continued Criterion 8: Market rate units (10 points) • Minimum 15% of the total Units • Maximum points for AGMI, AGMR and market rate units combined is 65. Criterion 9: Extended Use Period (0-15 points) • Maximum points for 45 year Extended Use Period New Mexico Mortgage Finance Authority

  40. Scoring Criteria Continued Criterion 10: Special Needs (0-15 points) • 20% of the total units reserved and 50% of reserved units rent restricted at 30% AMI or 30% of tenant income for 15 points • 5% of units reserved and rent restricted at 30% AMI for 5 points (only available for Projects Financed with Tax Exempt Bonds) • Signed commitment to set aside units and execute agreement with Local Lead Agency • Section 811 Project Rental Assistance may be available. See MFA website for more info. New Mexico Mortgage Finance Authority

  41. Scoring Criteria Continued Criteria 11 & 12: Senior Housing, Individuals with Children (0-15 points) • 100% of total units reserved for Senior Housing • 25% of the total units reserved for Individuals with Children • Points range from 7 to 15 based on services provided • Design requirements – mandatory for points • On-site service coordinator – required for service points • The proposed Project annual operating budget must include at least $2,500 for the provision of enrichment services. New Mexico Mortgage Finance Authority

  42. Scoring Criteria Continued • Individuals with Children – Unit Mix Calculations Total Units 68 Units with 3/3+ bdrms and 1.75 bathrooms 10 Units with 2 bdrms and 1.75 bathrooms 50 3 bedroom percentage of total Units 14.7% 2 bedroom percentage of total Units 73.5% **See QAP definition of Unit New Mexico Mortgage Finance Authority

  43. Scoring Criteria Continued Criterion 13: Contribution from state, local or tribal government entity (0-10 points) • Cash flow or residual receipts loans eligible contributions but cannot have hard payments • The value of the contribution must be listed as a source on Schedule A-1 and, when not a cash contribution, as a cost on Schedule A. New Mexico Mortgage Finance Authority

  44. Scoring Criteria Continued Criterion 14: Complete Application (5 points) Applications that do not require any deficiency corrections. See Section IV.A.4 in the QAP: • Original Signatures in blue ink from all General Partners • Don’t forget the CD, DVD or flash drive! • Brown Classification Folder • All Attachments, Current MFA forms • Architectural Submissions must demonstrate compliance New Mexico Mortgage Finance Authority

  45. Scoring Criteria Continued Criterion 15: Commitment to market units to public housing authority waiting lists (2 points) Criterion 16: QCT/Concerted Community Revitalization Plan (0-5 points) • Projects that contribute to a Concerted Community Revitalization Plan or are located within ½ mile of a New Mexico designated Main Street are eligible for 3 points. • If the Project meets one of the above criteria and is located in a QCT, it is eligible for 5 points. New Mexico Mortgage Finance Authority

  46. Scoring Criteria Continued Criterion 17: Projects with Units Intended for Eventual Tenant Ownership (5 points) • Cannot be combined with Extended Use Period Points Criterion 18: Financial Literacy Programs (2 points) • The proposed Project annual operating budget must include at least $1,500 for the provision of the financial literacy classes Criterion 19: Historic Significance (5 points) Criterion 20: Blighted Buildings or Reuse of Brownfield Site (5 points) New Mexico Mortgage Finance Authority

  47. Scoring Criteria Continued Criterion 21: Projects Located in Areas of Statistically Demonstrated Need (0-15) • Tier 1 Areas (15 points) • Chaves, Cibola, Curry, Eddy, Lea, Sandoval, Santa Fe and Taos. All Projects on Native American Trust Lands or Native American-owned lands within the tribe’s jurisdictional boundaries. • Tier 2 Areas (10 points) • Bernalillo, Colfax, Grant, Lincoln, Luna, McKinley, Rio Arriba, San Juan, and Torrance. New Mexico Mortgage Finance Authority

  48. Scoring Criteria Continued Criterion 22: Efficient Use of Credits • Projects that request less than $15,000 Tax Credits per Low Income Unit and less than $15.50 Tax Credits per Low Income square foot are eligible for 5 points. • Projects that request 1) less than $16,500 Tax Credits per Low Income Unit and less than $17.00 Tax Credits per Low Income square foot or 2) less than $15,000 Tax Credits per Low Income Unit or$15.50 Tax Credits per Low Income square foot are eligible for 3 points. • Projects that involve Rehabilitation or Adaptive Reuse are not eligible even if they involve new construction. New Mexico Mortgage Finance Authority

  49. Scoring Criteria Continued Criterion 23: Non-Smoking Properties (2 points) • Projects which will be non-smoking properties and participate in the American Lung Association in New Mexico Smoke Free @ Home program are eligible for 2 points. Criterion 24: Adaptive Reuse Projects (5 points) • In combined new construction and Adaptive Reuse Projects, converted space must account for at least 20 percent of the sum of each Building’s Gross Square Feet. New Mexico Mortgage Finance Authority

  50. Additional 2016 QAP Changes • Tax Credit Design Competition- eliminated • 2016 Mandatory Design Standards- see website; • Design Review: -Minimum of 4 design reviews; -Shall not commence construction prior to MFA approval of complete construction documents • MFA’s Tax Exempt Bond Volume Cap $10mm limit- eliminated New Mexico Mortgage Finance Authority

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