Developer Bulletin 2018-3:
Inclusionary Policy
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Attention Developers:
This notice shall serve to clarify and refine the Agency’s policy with respect to the financing of inclusionary developments seeking Low Income Housing Tax Credits (LIHTC).
Section 19 of P.L. 2008, c. 46, N.J.S.A. 52:27D-321.1 (A500 ACS), stipulates, in part, that the affordable portion of any mixed-income or mixed-use development that is part of a fair share housing plan approved by the council, or a court-approved judgment of repose or compliance shall only be permitted to receive an allocation of Low Income Housing Tax Credits provided the applicant can
conclusively demonstrate
that the market-rate residential or commercial units are unable to internally subsidize the affordable units. This includes, but is not limited to, a development that has received a density bonus. Additionally, the affordable units must be developed contemporaneously with the commercial or market-rate residential units.
In order for an applicant to “conclusively demonstrate” the need for tax credits, an initial presumption shall be made that the municipally approved inclusionary zoning, in and of itself, creates a realistic opportunity for the affordable units to be built, and that such zoning is sufficient to internally subsidize the units required to be built under the Fair Share Plan/Judgment of Repose or Compliance. It is incumbent upon the applicant to demonstrate, to the satisfaction of the Agency, that tax credit equity is needed to subsidize any affordable units to be constructed in excess of the municipal obligation, or that economic conditions have changed so dramatically that the zoning, taking into account any density bonus received, no longer creates sufficient internal subsidy to construct the requisite affordable units, or that the municipally approved zoning erroneously determined that the internal subsidy would be sufficient to construct the affordable units. Suitable documentation is required for all of these analyses.
Economic changes notwithstanding, there should never be a scenario under which the market-rate units’ ability to internally subsidize the affordable units is completely negated. Further, any analysis submitted by the applicant to the Agency shall consider the possibility of a partial LIHTC award, taking into account the internal subsidy provided by the market-rate units.
All inclusionary developments seeking financing are required to submit the following information in order for the Agency to determine the need for tax credits, if any. The amount of credits to be awarded to the project, if any, shall be determined by the Agency as part of its needs analysis required under Section 42(m)(2) of the Internal Revenue Code and shall take into consideration the following:
Information Request
- Basic Development information, including but not limited to:
- Site plan for affordable and market-rate components
- Timetable for affordable and market-rate components, including timing of any phases and availability of units for rent/sale
- Description and documentation of financial ties or subsidies between the affordable and market rate components
- Including but not limited to: sale or transfer of land, shared infrastructure improvements, financing.
- Description and documentation of any business arrangement relevant to additional components of the market rate development.
- Include information on all market-rate components linked to the affordable component.
- Description and value of subsidy requests
- Including but not limited to: density bonus, PILOT agreement, affordable housing trust fund contribution, state or federal grants, LIHTC applications
- Form 10 submission for the affordable component
- Information on the terms and conditions of land purchase and on the current market value of land proposed to be utilized in the development, including but not limited to:
- Documentation of prior land purchase or current purchase agreement, including timing of sales, price, acreage and parcel boundaries, and any terms/conditions
- Estimate of the current market value of the land, and justification for how this estimate is derived (appraisal, recent sale, comparables, alternative uses, etc.)
- Documentation of Municipal Approvals, including but not limited to:
- Fair Share Plan and/or Judgment of Repose or Compliance
- Planning Board approvals for the affordable units and any associated market rate or commercial units
- Land Use Approvals for the affordable units and any associated market rate or commercial units
- Information on market conditions to support anticipated revenue levels
- Including (as applicable): comparable properties identified, market level pricing information, market studies
- Pro forma for the market rate component of the development, including but not limited to:
- Development costs
- Development financing (equity, borrowing amounts and anticipated rates)
- Operating/Sales costs
- Revenue (from rentals/sales, including ancillary sources and/or unit upgrades)
- All calculations to be provided electronically, with live Excel sheets
- Pro forma for the affordable component of the development, with the same information as for the market-rate component of the development
- Feasibility Analysis conducted by an independent third party skilled in market and financial analysis, and certified to the Agency, including but not limited to:
- Calculated Internal Rate of Return (IRR) for market-rate project and for combined project with and without the requested LIHTC
- Narrative explanation for the insufficiency of the combined project returns absent the requested LIHTC. The narrative should explain the basis for the insufficiency, linked to one or more of the reasons listed in the narrative above, and tie the explanation to the financial analysis. Include a discussion of why the IRR is not sufficient. The narrative should be signed by the applicant.
- Other financial analyses used to support the narrative explanation
- All calculations to be provided electronically, with live Excel sheets. Do not “paste values.”
- The Feasibility Analysis should reflect and be consistent with the assumptions in the proformas referenced above.
The Agency reserves the right to request additional information from the applicant as needed.
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For additional information on the terms of this financin
g
Please contact Anne H. Hamlin, Director of Tax Credit Services at
609-278-7629
, or
Tanya Hudson-Murray, Director of Multifamily Programs and Lending at 609-278-8884.
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New Jersey Housing and Mortgage Finance Agency | 609-278-7400 |
NJHousing.gov
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