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Everything involved in your proposed project is rated, and only those projects with at least the specified threshold minimum number of points can be considered.
For example, the QAP might specify that your HFA gives a proposal additional points if:
- The project includes an on-site child-care facility
- The project targets a niche group such as the disabled
- The project is on a site in an area that the local jurisdiction prioritizes for redevelopment
- The site chosen has the right zoning, public water and sewer service
Of course, the more points you can include beyond the minimum, the more attractive your proposal will be.
Sometimes HFAs give points for proposals that promise to continue to manage the project as an affordable property far beyond the 15-year IRS minimum. After 15 years, the IRS allows developers to refinance and convert the property to market-rate.
In addition to special features, services and conditions, developers get points for experience. Developers with a successful track record are more likely to receive credits to help finance a new project. A lack of tax-credit experience may be a slight disadvantage, but it certainly doesn’t eliminate a company from consideration. New developers enter this system every year.
Many non-profit groups with absolutely no experience apply because the program often provides that 10% of the credits are set aside for non-profits. Some non-profits that have no experience will partner with a company that does in order to learn how it’s done so they can go it alone in the future.
Political and Community Savvy Helps, Too
Beyond the willingness to deal with regulations, the awards system and the complex funding required, a successful tax credit developer will have a certain amount of political savvy and a willingness to build a relationship with the community and its residents.
These programs don’t work in isolation. Your best chance for a successful award of credits comes if your project is one that the community knows about and wants. Do the legwork to educate community stakeholders to the benefits of your proposal. If local politicians sense grassroots support for your project, they understand that it’s in their best interest to lend support to the project as well.
It’s also important to stay on top of legislative and regulatory changes that affect tax-credit development. Groups such as the Multifamily Council’s Housing Credit Group keep developers informed and lobby for improvements to the program.
In market-rate development, there’s always the possibility that you can build a project that may become more financially successful than originally anticipated. That doesn’t happen in tax-credit development.
Success in tax-credit development is based upon fixed underwriting limitations and is a result of careful and thorough preparation, making a workable plan, and ensuring that everyone involved follows the plan for the long term.
The end result? Steady, if modest, profits for a successful company, and the knowledge that hundreds of your fellow citizens are significantly better off because of your efforts. It’s worth it.
Earlier Articles in This Series
- To read “Affordable Housing Demand Fuels Tax Credit Projects,” Part 1 of this series published on March 31, click here.
- To read “Tax Credit Projects Require Stick-to-it-iveness,” Part 2 of this series published on April 7, click here.
Robert Greer is president of Michaels Development Company, Inc. in Marlton, NJ, and has 25 years of experience in tax-credit development, both as a director of the Pennsylvania Housing Finance Agency and as a developer. He is the chair of the NAHB Multifamily Housing Credit Group. Greer can be reached at 856-596-3008 or via e-mail. To visit the Michaels Development Company Web site, click here.
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The third in a three-part series.
