Senate Tax Reform Preserves LIHTC, PABs, NMTC; Historic Preserved but Diminished

Updated November 10: Senate Finance Chairman Orrin Hatch (R-UT) has released his chamber’s draft tax reform legislation and estimated budget score, which are far more favorable than its counterpart in the House of Representatives towards affordable housing and community development tax credits.  Highlights of the legislation impacting our membership include:

  • The 9% LIHTC program is retained without any changes.
  • Private Activity Bonds (PABs) are retained, preserving the 4% LIHTC tax exempt bond program.
  • The New Markets Tax Credit is retained without any changes.
  • The Historic Tax Credit is retained but in a diminished form – the 10% credit for pre-1936 structures would be repealed and the 20% credit is reduced to 10%. Transition rule would apply to buildings owned as of January 1, 2018.
  • The depreciation period for all residential and nonresidential real property is reduced to 25 years.
  • The corporate tax rate is reduced to 20% but delayed until 2019 (the HR 1 would implement a 20% corporate tax rate starting in 2018)

Notably, while the LIHTC and PABs are retained in the Senate mark, none of the proposed changes in the Cantwell-Hatch legislation have been incorporated, nor are there any modifications to address the impact of lower corporate tax rates on the LIHTC.

We are pleased that the Senate legislation takes a more favorable view towards affordable housing, new markets tax credits and the historic tax credit; however, our work is not done.  The Senate Finance Committee plans to begin its consideration of the bill on Monday, November 13.   It is likely that Chairman Hatch will introduce a revised Chairman’s mark on or before Monday and it is our hope to work with our industry partners to incorporate additional improvements to the LIHTC and to retain the Historic Credit, undiminished.

On November 9 the House Ways and Means Committee has completed its mark up to the Tax Cuts and Jobs Act (H.R. 1) and reported the measure out of committee on November 9.  An additional manager’s amendment was adopted on party line votes.  In its current form, the tax reform bill still preserves the 9% Low Income Housing Tax Credit (LIHTC) but eliminates Tax-Exempt Private Activity Bonds as well as the 4% side of the LIHTC. This change would cut affordable housing production in half and the Republican leadership in the House of Representatives shows no sign of altering this portion of the bill. The bill also terminates the NMTC which would deprive our most distressed rural and urban communities of billions in financing for healthcare centers, manufacturing facilities, schools, community facilities, and business expansions. The rollback of the federal Historic Tax Credit would endanger the essential funding required to put our historic buildings back to productive reuse.  The measure must still be considered in the House Rules Committee before an expected vote on the floor the week of November 13.*


Multifamily Vacancy Rate to Remain Steady as Completions Bring More Supply to Markets

Commercial prices will plateau and may fall in large markets, but secondary markets will experience sustained demand and stable real estate prices, according to Lawrence Yun, National Association of Realtors chief economist.  

During a commercial real estate forecast session at the 2017 REALTORS Conference & Expo, Yun and JLL Chief Economist Ryan Severino both expressed confidence that the commercial sector should remain on an upward trajectory, but buyers and sellers could be at odds over price.  

"The commercial market should expect a standoff between buyers and sellers over price in the next year which could lead to fewer transactions. Buyers cannot offer low cap rates because of rising interest rates and sellers cite the strong economic climate as a reason for high prices. Furthermore, vacancy is falling, yet construction has been lagging because of worker shortages," Yun said.

Yun went on to say that overall, the market is healthy; commercial property prices rose 90 percent in the last seven years, but recent headwinds are developing some ambiguity. "The economy is quite impressive and gross domestic product has grown 3 percent in the last quarter, despite hurricanes and other economic factors," he said. "The consumer confidence index is also growing, and the nation's net worth and consumer spending are at historic levels."

Yun expects GDP to come in around 2.2 percent for the year and to expand to 2.8 percent overall in 2018 as long as job growth remains solid and construction picks up in both residential and commercial sectors. National office vacancy rates are forecast to remain fixed over the coming year with rent rising at 2.5 percent per year. The vacancy rate for industrial and retail space are expected to also remain stable with rent rising slowly at 4 percent and 2 percent, respectively.

Even as new apartment completions bring more supply to markets, the multifamily sector will likely see a vacancy rate remain steady, with rent rising slowly at 3 percent per year. Supported by the ongoing stretch of outstanding job creation since 2010, commercial real estate and vacancy rates, in particular, are expected to be stable across the country. Warehouse vacancy will continue to decrease because of a strong appetite for industrial space, specifically ecommerce and trade.

Yun went on to say that high-tech company expansions, such as Amazon, will have a large effect on regions across the country. "Depending on where these secondary headquarters land, nearby property owners will experience robust growth and property prices, but renters will indirectly feel a pinch of much higher rent payments," Yun said.

Severino joined Yun onstage and delved into the global economy and the performance of major property types. "Global economic growth is accelerating, and 2018 sees the world's economic trains running strongly together. Interest rates are also going up but remain low by historic standards," Severino said.  

He anticipates a strong performance from all sectors of commercial real estate with supply starting to catch up with demand. "It is important to note that commercial practitioners may be getting too comfortable with the large demand for construction and the great performance of the industrial sector. Furthermore, the suburban market is seeing more activity compared to downtown," he said.

Yun also highlighted the current tax reform plan in front of Congress and the impact it may have on the commercial market. "The industry holds the 1031 like-kind exchange sacred and, currently, it is included in the tax code plan for commercial real estate. This is great news for commercial practitioners and for the industry at large," he said.**


HUD Releases Section 8 Annual Adjustment Factors for FY 2018

The U.S. Department of Housing and Urban Development has published Annual Adjustment Factors (AAFs) for 2018. AAFs are used to adjust contract rents for units assisted in certain Section 8 housing assistance payment programs during the initial term of the HAP contract.

There are three categories of programs that use AAFs:

  • Section 8 New Construction, Substantial Rehabilitation, and Moderate Rehabilitation programs
  • Section 8 Loan Management and Property Disposition programs
  • Section 8 Project-Based Certificate program, which is essentially discontinued since the PBC program merged with the Housing Choice Voucher program in February 2016

Each category uses the AAFs differently. AAFs are not used for renewal rents after expiration of the original Sec. 8 HAP contract, budget-based rents, tenant-based certificate programs, or voucher programs.

HUD’s published AAFs are shown in two schedules--one for adjusting the rent of units where the highest-cost utility (usually heating) is included in the contract rent (termed “Highest Utility Included” in the tables) and the other for units where the tenant pays for the highest-cost utility (“Highest Utility Excluded”). Separate AAF schedules are published for a total of about 123 areas: (a) about 119 separate metropolitan areas, including counties that are currently designated as non-metropolitan, but are part of the metropolitan area defined in the local Bureau of Labor Statistics Consumer Price Index (CPI) survey; and (b) the four Census Regions for those metropolitan and non-metropolitan areas that are not covered by the local CPI surveys.*


Senior Housing Investments and Transactions Update

Griffin-American REIT IV Acquires 9-Property Portfolio

A portfolio of nine properties throughout the greater Tampa and Orlando areas sold for $109.5 million in early November. Griffin-American Healthcare REIT IV acquired the 1,140-unit portfolio from New Senior Investment Group (NYSE: SNR). Griffin-American Healthcare REIT IV is co-sponsored by American Healthcare Investors and Griffin Capital Company LLC.

Meridian Senior Living, LLC, will manage the portfolio in a RIDEA joint venture with Griffin-American. The REIT owns about 98% of the joint venture. The portfolio is 54% assisted living, 34% independent living, 12% memory care, and was approximately 84% occupied at the end of September 2017.

“This gives us a good foothold in a geographic location that we think is important and gives us some concentration as well,” said Stefan Oh, EVP of acquisitions for American Healthcare Investors and the REIT.

Westminster Communities of Florida Acquires 217-Unit Facility for $24.6 million

Westminster Communities of Florida has acquired the Glenmoor Senior Living Community in St. Augustine, Fla., renaming it Westminster St. Augustine. Purchase price is $24.6 million along with a commitment to honor all existing resident contracts.

The 217-unit facility — previously owned by Life Care St. Johns — comprises 157 independent living residences, 30 assisted living residences, and 30 memory care residences. Westminster St. Augustine is located in World Golf Village, giving residents reduced greens fees and access to a fitness center, clubhouse, tennis courts and swimming pools, along with the St. Augustine on-site amenities.

“From our perspective, this is really about strengthening our mission of service to seniors,” said Wes Meltzer, Director of Communications for Westminster Communities of Florida.

Bloom Senior Living Enters Florida with $5.55 Million Acquisition

Real estate investment and management firm Kandu Capital, LLC, and its operating company, Bloom Senior Living, announced the acquisition of assisted living and memory care facility Osprey Health Care Center, renaming it Bloom at St. Petersburg. The 96-unit community in St. Petersburg, Florida, sold for $5.55 million at $58,000 per unit, the companies announced.

This marks the fifth state that Bloom has expanded into, following South Carolina, Louisiana, Ohio and Indiana. They are not planning for expansions to specific states, but will be looking for new acquisitions in Florida near the St. Petersburg property, Bradley Dubin, Bloom’s director of acquisitions, told Senior Housing News.

“We’re as opportunity-driven as we are geography-driven, so we’ll go wherever the next deal will take us,” Dubin said.

“Our family continues to acquire exceptional assets at reasonable valuations – below replacement costs – which permits us to create long-term value while providing best-in-class care and service to our residents at intentionally affordable pricing,” added Bloom Director of Finance Tony Cantor, in a press release.

SHA Capital Acquires Wisconsin AL Community

Chicago-based SHA Capital Partners has purchased Clifden Courts, a 92-unit CBRF in Milwaukee County, with Evans Senior Investments (ESI) representing an independent seller. Due to a confidentiality agreement between the parties, the purchase price is not being disclosed. Per SHA managing partner David Watkins, the sale was below replacement cost.

The new ownership plans renovations for the three-building assisted living facility, including the creation of additional common spaces. While not marketed as memory care, the facility’s Community-Based Residential Facilities non-ambulatory license will make it suitable for residents in need of memory care services.

“The acquisition is consistent with our overall strategy of buying value-add fixer-uppers that we can syndicate to investors who understand the industry and are looking for a value-add investment opportunity,” Watkins told Senior Housing News.

SHA Capital made the purchase in partnership with 41 Management and TH Associates. Under its Matthews Senior Living brand, 41 Management will assume facility operations. The company has a portfolio of 19 communities in Wisconsin.

“What a great value-add opportunity to acquire a CBRF asset with close proximity to Milwaukee, Madison, and Chicago,” said Jeremy Stroiman, CEO of ESI, in a press release.

Debt financing came from National Exchange Bank and Trust of Fond du Lac, Wisconsin. SHA Capital raised equity from friends, family and senior housing executives.***




Events (2017)

  • Gill Group plans to attend AHF Live’s Annual Conference and Tradeshow November 14th – 16th in Chicago, IL.
  • Gill Group attended NH&RA’s Fall Forum November 6th – 7th in Boston, MA.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting September 19th – 20th in Jefferson City, MO.
  • Gill Group attended NH&RA’s Summer Institute July 19th – 23rd in Quebec City, Canada.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting June 12th – 13th in Jefferson City, MO.
  • Gill Group attended CARH’s Annual Meeting June 19 - 21st in Washington, DC.
  • Gill Group attended NCSHA’s Housing Credit Connect Conference and Tradeshow June 21st – 23rd in Atlanta, GA.
    • Cash Gill, of Gill Group, spoke on a panel June 22nd entitled Using Market Studies for Site Selection
  • Gill Group attended the 2017 PK Management Trade Show and Awards Dinner May 16th – 17th in Cleveland, OH.
  • Gill Group attended AHF Live’s Housing Developer’s Forum April 26th – 28th in New Orleans, LA.
  • Cash Gill, of Gill Group, gave a training session to the staff at MFA (New Mexico’s HFA) to further their knowledge on appraisal and market study processes April 20th in Albuquerque, NM.
  • Gill Group attended MHC’s Annual Meeting April 11th – 13th in Biloxi, MS.
  • Gill Group attended the Crittenden Multifamily Conference March 15th – 17th in Dallas, TX.
  • Gill Group attended the MACO Companies’ Annual Meeting March 16th – 19th in Biloxi, MS.
  • Gill Group attended the Bank of Advance’s Annual Meeting March 16th – 19th in Norfork, AR.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting March 7th in Jefferson City, MO.
  • Gill Group attended National Housing & Rehabilitation Association’s Annual Meeting February 22nd – 26th in Bonita Springs, FL.
  • Gill Group attended the National Leased Housing Associations’ Mid-Year Meeting February 1st – 3rd in Naples, FL.
  • Gill Group and National Title & Escrow attended the Council for Affordable Rural Housing’s (CARH’s) Midyear Meeting (Strengthening Rural Housing with Valued Partnerships) January 23rd – 25th in Sarasota, FL.

Events (2016)

  • In 2016, Gill Group attended over 75 meetings and conferences across the entire United States.

GROWTH (2016 - Highlights):

  • Gill Group added over 20 staff members throughout our 15 national and regional offices including MAIs, General Certified Appraisers, PE Engineers and AIA Architects.
  • Gill Group’s subsidiary, National Title & Escrow (NTE), added two new underwriters: Fidelity National Title Insurance Company and Stewart Title Guaranty Company.
  • NTE also added a new sales representative, Jimmy Crace, bringing 20+ years of experience and well over 100 national relationships in commercial and multifamily title.

Events (2015)

  • In 2015, Gill Group attended over 50 meetings and conferences from California to New York, and just about everyone in between.

GROWTH (2015 - Highlights):

  • Gill Group added two offices in Michigan and one in Wisconsin, further expanding our staff of architects and engineers.
  • Gill Group and Greystone formed a Joint Venture to provide a full line of consulting and development services for Rental Assistance Demonstration (RAD) transactions. Gill Group and Greystone are utilizing each of our areas of expertise in a collaborative effort, with a mission to partner with PHAs across the nation in preserving and expanding the affordable housing inventory under the HUD RAD program. Our team fully understands the intricacies of the real estate and affordable housing industries, and our services are provided by professionals who are fully immersed in LIHTC executions, construction management, project accounting, regulatory compliance, real estate transactions, and opportunity development. We sit on national and state boards and have in-depth knowledge of industry trends and best practices. As a developer team, we operate as three individual entities, each with a unique set of previous transaction experiences that add value to the project at hand. As a collaborative unit, we draw upon those experiences to bring to the table creativity, fresh ideas and unsurpassable development advisory services.
  • Gill Group’s subsidiary, National Title & Escrow, added two new offices in Missouri and Arkansas, further expanding our ability to service our nationwide base of customers.

Events (2014)

  • Gill Group attended 40+ meetings and conferences throughout the United States in 2014.

GROWTH (2014 - Highlights):

  • Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
  • Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
    • Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff. 

  Gill Group has published the following:

  • New York Real Estate Journal - How can low-income housing facilities translate into high profits?
  • New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
  • Tax Credit Advisor - Boston MSA Market Snapshot
  • Tax Credit Advisor - Seattle MSA Market Snapshot
  • Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
  • Affordable Housing Finance – Urban and Rural Market Studies.
  • Tax Credit Advisor – LIHTC Appraisals 101
  • Affordable Housing Finance – Five Ways to Optimize a Market Study

Cash Gill, MAI has had the opportunity to speak on the following topics:

  • (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
  • (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
  • (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
  • (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
  • (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
  • (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
  • (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
  • (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
  • (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
  • (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
  • (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
  • (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
  • (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
  • (Chicago, IL) AHF Live – Strategies for Rural Deals.
  • (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
  • (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
  • (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
  • (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
  • (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
  • (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
  • (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
  •  (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
  • (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
  • (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
  • (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
  • (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2014)
  • (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities
  • (Nashville, TN) TAHRA – Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for LIHTC and RAD Transactions
  • (Los Angeles, CA) NCSHA – Successful Development in Challenging Markets
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
  • (Seattle, WA) NCSHA – Rural and Native American Development Strategies
  • (French Lick, IN) AHAIN – Appraisals and CNAs
  • (French Lick, IN) AHAIN – Pulling it All Together
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Albuquerque, NM) MFA – Appraisals 101 (personal training for HFA staff)
  • (Atlanta, GA) NCSHA – Using Market Studies to Inform Site Selection
  • (Napa, CA) – CARH – Finding Equity in a Haystack (upcoming)

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