P.O. Box 7511, Atlanta, GA 30357-0511 404 509 7177

Georgia Affordable Housing Coalition, Inc.

October 26, 2011

Ms. Laurel Hart

Director

Office of Affordable Housing

GA Department of Community Affairs

60 Executive Park, South, NE

Atlanta, GA 30329

Dear Laurel,

Thank you for the opportunity to submit comments/recommendations on the 2012 QAP. The Coalition has met with its membership, and the Board submits the following thoughts for your consideration.

Market Studies: Laurel, you mentioned that DCA wascontemplating changing the market study process, where two market studies would be required (one ordered by the developer and one ordered by DCA). The estimated cost of this change, at least $300,000 and perhaps $400,000, does not seem sensible. DCA has the right to either reject or accept any market study. Alternative market studies should be ordered on a case by case basis. Through the MITAS system, DCA now has access to more occupancy data than ever, and maybe even more than market analysts. Recommendation: 1) The present method of obtaining market studies should remain unchanged, where developers select an analyst from the DCA list and DCA has the right to either accept or reject the study, and 2) DCA should share summary geographical occupancy data gathered through MITAS with the affordable housing development community. (not property specific data)
Developer Fee and Hard Cost Cap: DCA currently limits developer fee to 15% of total project cost, with a maximum per project developer fee of $1.8 million. DCA rules provide hard construction cost caps with no waivers. If a project has sources other than low income housing tax credit equity available to pay for either a developer fee over $1.8 million or construction costs over the DCA stated cap, they should be able to be used for these purposes. Recommendation: 1) Developer fee should remain at 15% of actual project costs, but should not have a maximum dollar amount if there are sources other the tax credit equity available to pay it, and 2) Hard construction cost caps can be exceeded when there are sources other than low income housing tax credit equity available to pay the costs.
Boost: HERA allows state agencies to designate particular areas/projects to be eligible for a 30% basis boost. Project characteristics/location criteria for consideration for eligibility in the 30% boost is listed in the QAP. This boost allows for projects that might need some enhancement to qualify for it. The boost creates more equity for theproject; hence the determination affects the project’s underwriting. Developers typically learn of DCA’s determination of their projects eligibility later than is desirable. Recommendation: 1) DCA should make its boost determination of a project’s early on in the process, to allow for underwriting, and 2) DCA should include elderly projects and preservation projects as possible qualifying criteria for the boost.
HOME: The question was asked whether DCA should be awarding points for the use of DCA HOME funds in tax credit projects. The Coalition’s stance on DCA HOME is that the funds should be used by those projects that really need it; i.e. developers should not be enticed to use DCA HOME with points. Recommendation: DCA should eliminate the points for using DCA HOME funds. However, under the leverage section, DCA should award points for projects that use HOME funds from sources other than DCA, as these funds are not easy to obtain.
Troubled Properties: In the Compliance/Performance section of the QAP, under Major Project/General Partner Failure, DCA states that 5 points will be deducted for each instance of failure—the section lists examples of failure. There are instances where the developer does everything in his/her power to avoid failure, but due to circumstances outside of his/her control, was unable to avoid the incident that results in failure under the QAP. Recommendation: DCA should exercise discretion/flexibility in deducting the full 5 points, i.e. DCA could deduct a lesser number of points, where the developer/owner has made every effort to avoid failure and/or cure problems.

Preservation

The GAHC Preservation Committee, chaired by Mike Smith of Signature Management, has been in discussion with DCA since early this year on preservation. Both GAHC and DCA acknowledge that this is a significant issue now and will continue to be one for many years. Hundreds of tax credit properties are already at or will be soon reaching the 15 year mark and many of these properties have an extended use requirement, where they are obligated to continue operating for an additional period of time, up to another 15 years. Most of these properties will be facing a recapitalization event on or before the 18th year, when the existing permanent loan matures and need or will need an infusion of capital--some require or will require a very significant infusion of capital. A significant number of these properties are currently operating at a loss or barely breaking even, making any kind of re-financing (without great penalties) very unlikely if not impossible. The possibility of rehabbing/recapitalizing some projects through the tax credit program exists, is desirable by many owners, and is a route that the Coalition advocates. However, DCA is constrained by its allocation cap on low income housing tax credits, and would be able to award credits to a very small percentage of the older projects that need recapitalization, based on some system of prioritization.

We have made some suggestions to DCA regarding possible steps DCA might takeboth inside and outside thescope of the QAP, to help deal with this significant issue and Mike Smith’s paper on preservation, which includes ideas both inside and outside of the scope of the QAP, is attached. As was stated above, the Coalition believes DCA should award credits to certain 15+ year old projects, and we propose DCA consider categorizing/prioritizing projects that might be considered for credits.

Priority for preservation credits might include:

High Profile deals – this would include the HOPE VI deals, along with deals that were and are an important element of an overall area redevelopment plan developed and supported by the local government authority.
Rural Deals – not all rural deals are critical, but some may be. Politically, the state credit was based on the underlying support of rural development and wholesale failure of these deals could damage the support for the state credit. Some rural deals are in areas where they are the only clean and safe affordable housing option available, and these deals may be critical to support.
Unique Location --affordable housing properties in areas where political opposition to affordable housing might prevent future development if an existing property is lost from the affordable housing stock. Also, properties in areas with high land cost where replacement affordable housing could not be constructed if the existing affordable housing stock is lost.
PBRA deals – The forced relocation of Section 8 tenants which might result from a foreclosure could be a public relations nightmare for the overall LIHTC program.

In addition, the Coalition suggests that DCA consider the following:

DCA should provide a priority for low income housing tax credit properties when considering applications for preservation tax credits
DCA should consider preservation projects as eligible for 30 % boost
DCA should institute a maximum cap of 40% on preservation. (DCA may want to retain the flexibility to exceed this maximum cap in certain years where there is a specific need to retain multiple high priority deals, but this should be the exception rather than the rule).

We are looking forward to continuing the preservation discussion with you and know that it will take some collective creative problem solving to effectively deal with older properties that are not awarded tax credits.

Thank you, Laurel. Please do not hesitate to contact Maureen or me if you have any questions. I look forward to seeing you at the Atlanta public hearing next month.

Sincerely,

Dave Loeffel

Chair, QAP Committee