Low-Income Housing Tax Credits & Preservation in Massachusetts, 2017

The 2017 Massachusetts Qualified Action Plan (QAP) prioritizes projects with low income residents, preservation developments, and projects in need of community revitalization. The QAP lists specific thresholds projects are required to adhere to, as well as particular factors that qualify for basis boosts and point incentives.

Set-Asides

  • Preservation set-aside: 30% of the available credit

Thresholds

To be eligible to apply for 9% tax credits, a preservation projects must demonstrate that the project is infeasible with 4% tax credits and tax-exempt financing.

In any 2017 competition, preservation projects seeking 4% credit and DHCD subsidy will be considered under the preservation set-aside only if they qualify under at least one of the subsections below- sponsors should evaluate proposed preservation projects in accordance with these subsections:

  1. The housing is at risk of loss due to market conversion. Typically, projects qualifying under this subsection will be existing affordable housing projects whose owners are able either to opt out of the Section 8 subsidy contract or prepay the existing mortgage financed through HUD, MassHousing or Rural Development. In addition, some projects are reaching the end of their 30 or 40 year governmentally financed mortgages, or governmental use restrictions. If these projects are converted to market, the units will continue to exist, but will be lost from the Commonwealth’s inventory of affordable housing. In some cases, this will result in the displacement of existing residents through steep rent increases. Many of these projects are too valuable to lose. The replacement costs would far outweigh the cost to the state of preserving the existing stock. In general, projects will not be considered for funding under this set-aside unless they can be converted to market within 36 months. Rare exceptions may be made for particularly valuable projects in the strongest market areas.
  2. The housing is at risk of loss due to physical condition or financial distress. A project in poor physical condition may be at risk of condemnation or other governmental action to close the property. A property in financial distress has experienced serious cash flow problems that will likely lead to foreclosure. DHCD will evaluate an application to preserve a project in poor physical condition based on a capital needs assessment included in the OneStop+ submission. The assessment must describe how all the major capital needs of the project will be addressed. Applications to assist projects in financial difficulty must demonstrate that the financing, property management, and asset management plans will be sufficient to ensure the project’s ongoing financial stability. In general, projects will not qualify for funding under this set-aside unless the capital needs assessment indicates a minimum rehabilitation expenditure of $30,000 per housing unit.
  3. The application represents a time-limited opportunity to purchase existing affordable housing. In some cases, a preservation sponsor may have the opportunity to purchase a property due to a seller’s need or desire to sell at a particular time. A purchase under Chapter 40T would also qualify under this subsection. While they may represent desirable transactions, projects qualifying as preservation projects under this subsection generally will rank lower than projects qualifying pursuant to subsections a and b above, and only rarely will qualify for competitively allocated 9% tax credits or for 4% credits with DHCD subsidy.

Conformance with set-aside categories: Within the preservation set-aside, the minimum project size will be twelve units, although the Department expects that most or all applications in this category will represent fairly large-scale projects. At least 65% of the units in a proposed production project must have two or more bedrooms, and at least 10% of the units must have three bedrooms. DHCD will permit exceptions on the number of bedrooms only if efficiency or one-bedroom units are appropriate for the intended residents.

The Department recognizes that certain preservation transactions are too large to fit within the normal funding limits yet represent projects of scale well worth preserving. From time to time, if resources are available, DHCD is prepared to accept very large-scale preservation applications on a rolling basis. Such applications typically must represent projects that will include more than 500 units.

Extended Use

All applications must commit to a thirty-year term of affordability (45 years if applying for Massachusetts State Low Income Housing Tax Credits). With respect to affordability, the sponsor/owner must commit:

  • To maintain the tax credit project as low income rental housing for at least 30 years (45 years if applying for Massachusetts State Low Income Housing Tax Credits); and
  • To offer to the state an opportunity to present a “qualified contract” for the purchase of the project after expiration of the term of the Agreement. According to the Tax Credit Regulatory Agreement, the owner will be required to submit to the DHCD a written request one year before expiration of the term of the Agreement for DHCD to procure such a qualified contract.

DHCD will award three points to applications whose sponsors commit to a term of affordability of 50 or more years.

Basis-Boost

The Department will determine the extent of the basis boost (up to 130%) in the communities based on a given project’s financial feasibility. The Department’s decision to permit a basis boost will not necessarily apply to other projects or buildings in the same community if the basis boost is not needed for financial feasibility. Projects eligible include:

  • DDA’s
  • QCT’s
  • Tax-exempt projects, subject to the determination of least amount of credit necessary for feasibility, only if the project is located in a qualified census tract or difficult-to-develop area as identified by the U.S. Department of Housing and Urban Development.

Projects located in qualified census tracts or difficult-to-develop areas as identified by the U.S. Department of Housing and Urban Development and/or by the Department of Housing and Community Development may seek up to 130% of the rehabilitation credit basis amount for which they are eligible. The 130% factor may not be applied to the acquisition basis. DHCD will award up to 130% of the rehabilitation credit at its discretion and only if necessary for project feasibility. 

Community Revitalization Plan

In its 2017 QAP, Massachusetts DHCD awards up to six points for inclusion in a Comprehensive Neighborhood Revitalization Effort:

  • 2 points for projects to be developed in locations included in formal neighborhood plans, with revitalization components enhancing access to jobs, education, and/or health care that either have been approved by the chief elected official of the host municipality or have been developed with significant, demonstrated community input, with identified resources for revitalization. The formal written plan must delineate the neighborhood; should identify properties to be demolished or rehabilitated and sites to be redeveloped; and must provide information on current and proposed access to mass transit, retail and commercial opportunities, and necessary services; and must describe in detail the nonhousing revitalization components, including a timeline and plan for completion.
  • 2 additional points if the project described above is sponsored by a community-based non-profit entity certified by DHCD as a Community Development Corporation under the provisions of Chapter 40H.
  • 2 points for a project to be developed in a location included in a housing production plan approved by DHCD’s Division of Community Services; or two points for projects to be developed in approved “Priority Development Areas” as determined by state agencies including MassDOT and the Executive Office of Housing & Economic Development.

Please note that projects will not be eligible for points for the “inclusion in a comprehensive revitalization effort” section unless the sponsor consents to enter into a written agreement with DHCD to evaluate on a regular basis the effects of the development on the surrounding neighborhood. These reports will include income demographics of the property’s tenants as well as reports on other community revitalization investments in the limited geographic area, concentrating on the investments potentially generated in part or in whole by the presence of the tax credit project.

DHCD will also award up to 3 points to a project located in a qualified census tract under the Conformance with Section 42 Code preferences category. This development would contribute to a concerted community revitalization plan, including investment in jobs, education, and/or health care. “Qualified Census Tract” is defined as any census tract designated by the Secretary of HUD in which 50 percent or more of the households have an income less than 60 percent of area median gross income or, in certain instances, there is a poverty rate of at least 25 percent.

Contributed By: 
National Housing Trust

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