Multifamily housing projects face delays related to coronavirus
At least 350 multifamily housing projects using private activity bonds for part of their financing are facing problems with time-sensitive deadlines because of the coronavirus pandemic.
The Internal Revenue Service is considering requests for emergency guidance that would give projects more time to comply.
IRS General Counsel Michael Desmond said Wednesday during a video conference sponsored by Tax Analysts that his office has received “a number of requests” for extending deadlines.
“With many disasters there are unique attributes of Low Income Housing [Tax] Credits with timing deadlines and placed in service deadlines,” Desmond said, citing mobility issues and reduced incomes related to the pandemic.
In recent years about half of the multifamily housing units either built or rehabilitated using the federal 4% Low Income Housing Tax Credit are financed with tax-exempt private activity bonds. The other half use a 9% federal tax credit that does not allow PAB financing.
“Obviously it is difficult right now to get projects built,” Desmond said. “We have some projects underway to consider what can be done due to COVID-19.”
“Hearing that is great,” said Jennifer Schwartz, director of tax and housing advocacy for the National Council of State Housing Agencies. “It will be extremely useful for them to issue this guidance.”
Other federal agencies have issued emergency guidance for housing projects and the IRS has been the sole exception, Schwartz said.
The National Council of State Housing Agencies wrote to the IRS and Treasury March 23 requesting a 12-month extension for several deadlines related to the Low Income Tax Credit.
The deadlines include minimum rehabilitation expenditures, placed in service limits, tenant income recertification requirements, physical inspections and tenant file reviews.
“We’ve been talking to the IRS since before we sent this letter and we’ve heard from them that they are basically waiting for the Treasury to give them the go ahead,” Schwartz said.
A recent, informal survey by two affordable housing organizations found 350 multifamily housing projects that are stalled or at risk of not moving forward because of the impact of the coronavirus health emergency. Additional projects are expected to also face obstacles as the crisis continues.
“Some of them are delays, for example, missing the placed in service deadline or other deadlines,” said Emily Cadik, executive director of the Affordable Housing Tax Credit Coalition.
Many involve the precipitous drop in the effective rate of the 4% Low Income Tax Credit that’s used as part of financing packages, which creates funding gaps.
“The real gist of it is that many of these properties are not facing just one issue, but many issues,” Cadik said, citing as examples the delays in the delivery of construction materials, stay-at-home orders that prevent families from being temporarily relocated while their apartments are renovated, and financing gaps.
One example is a PAB financed rehabilitation project in Aurora, Colo., for a 68-unit affordable housing project that is expected to miss by at least two months a Dec. 31 placed in service deadline under the 4% Low Income Tax Credit. Kitchens, bathrooms, and flooring are scheduled to be replaced, but families were unable to be temporarily relocated under Colorado’s stay-at-home order.
Two other examples involve a $1.6 million gap in the financing package for a new 135-unit affordable rental project in Los Angeles and a $1.5 million gap in financing the development of 167 units of housing in Buffalo, N.Y., from the transformation of a historic, industrial warehouse.
In both cases, the financing gap occurred because the effective tax credit of the 4% Low Income Tax Credit has dropped to a record low of 3.08% for May from 3.19% in February. The lower interest rate, which is linked to applicable federal borrowing rates, is producing less equity for the financing packages.
“For investors buying the credit, it’s cheaper for them, but it means less equity going into the project,” Cadik said.
Cadik, Schwartz and other affordable housing advocates are lobbying Congress to include legislation called the Affordable Housing Credit Improvement Act in the next round of emergency legislation to address the coronavirus pandemic.
The bipartisan bill, which has 221 sponsors in the House and 39 in the Senate, would enhance the 4% Low-Income Tax Credit by making its effective rate truly 4%.
It also would allow so-called “bond recycling” to be used in conjunction with financing that includes the 4% housing tax credit. Bond recycling allows repayments to be used for financing new projects without being subjected to state volume caps for PAB issuance.
The lead sponsors of the bill are Washington state Democrats Suzan DelBene in the House and Maria Cantwell in the Senate.