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The TDHCA convened its board meeting at 10am, June 16, 2022 at the John H. Regan Building, JHR 140 1400 Congress Ave Austin, Texas 78701

June 16th Meeting Summary

TAAHP Staff attended the board meeting and have summarized its main takeaways. TDHCA has uploaded the video recording if you would like to watch the meeting.

CONSENT AGENDA

  • Force Majeures

    • The Department received 17 requests from Development Owners to extend the placement in service deadline under the provisions of 10 TAC §11.6(5) related to Credits Returns Resulting from Force Majeure Events. Staff determined that an extension of the 10% Test deadline was appropriate under these circumstances.
    • The Development Owners have communicated to staff that rising construction costs, labor shortages, supply chain issues, inflation, and interest rate increases have impacted the construction timelines.
    • Board-approved request – Development Owners will return the awarded credits and execution of a 2022 Carryover Allocation Agreement will result in a new award and a new placed in service deadline of December 31, 2024, for the Developments, with a new 10% Test deadline of July 1, 2023. The 2021 Qualified Allocation Plan and Uniform Multifamily Rules will be applicable to the Developments for the purposes of the force majeure event.

 

CONSENT AGENDA REPORTS

  • Update QAP Development Plan – TDHCA has released an update on the QAP development plan. See attached document.

EXECUTIVE DIRECTOR’S REPORT

Bobby Wilkinson, Executive Director

  • Homeowners’ assistance fund – currently has served 5600 households, $43.5 million paid, and another 2.7 million in process. There’s an additional $20 million that’s reserved for loan modification.
    • TDHCA in the process of contracting with physical intake centers. Right now, you have to go to the website or call the 800 number for assistance.
    • 11,000 applications in review totaling approximately $132 million. Application intake increased about 4% last week – biggest increases from the coastal bend and the valley
  • Rent relief – Over $2 billion spent on rental assistance to over 310,000 households. That’s more than 700,000 Texans, subset of that 21,000 households were eviction diversion. 82% of the households served were at or below 50% area median income. Texas Supreme Court order establishing the eviction diversion program is scheduled to end on July 2nd they’ve extended this before not sure it’s going to happen this time.
  • One of TDHCA’s subrecipients of the community service block grant at the community council of South-Central Texas continues to provide needed services to the school shooting tragedy. So far they’ve helped 93 households which is 375 individuals with gas cards, cards for groceries and other personal expenses and as needed as needed basis they’ve done some rental assistance some hotel rooms for family members to support the families they’ve spent about $70,000 in CSPG so far they’re having staff reach out to those families already served to see if they can be helped again. TDHCA has approximately $100,000 still available to those that qualify.

 

MULTIFAMILY FINANCE

TERESA MORALES; DIRECTOR OF MULTIFAMILY BONDS

2021 Year-End Summary

There are still a few 2021 applications that have not closed; assuming they all close the 4% HTC program will produce 16,373 total units in 2021, which results in approximately $141 million in annual 4% Housing Tax Credits.

2022 4% HTC Program Update

The 2022 Private Activity Bond (PAB) Program has an annual ceiling amount of approximately $3.2 billion and as of June 3, 2022, eligible requests total approximately $6.79 billion, with much of the requests coming from multifamily issuers that participated in the 2022 PAB Lottery. All of the bond reservations that were issued in January 2022 resulted in 4% HTC application submissions which can be seen in Exhibit C on the 2022 4% Application Log. There are 20 applications currently under review that total 4,709 total units. When considering what has closed, been approved, and is currently active, the total units are 9,958 units. Also reflected on the log are the pre-applications that continue to be submitted for the TDHCA set-aside for a bond reservation. It’s worth noting that the TDHCA set-aside is only $170 million and the waiting list (including the pre-applications noted on this log) total $597,920,000, over three times oversubscribed.

Public Comment

Multiple TAAHP members provided testimony during the public comment period concerning the need for supplemental tax credits for the 2021 9% tax credit deals.

TAAHP Executive Director Roger Arriaga testified the following:

Good afternoon, Mr. Chairman, board members, Mr. Wilkinson and staff. TAAHP’s 600 members across the state and U.S., represent all the disciplines in affordable housing. First, I’d like to thank the TDHCA staff for their work and diligence on the 2023 QAP roundtables and working groups.  They certainly covered a lot of ground and gave our industry participants much to consider.  It was time well spent for all of us.

I’m here representing TAAHP and its board president, Chris Akbari to request that you consider approving supplemental tax credit requests for 2021 award developments as an agenda item in your upcoming July meeting. As an industry, we are sensitive about coming to the well again for troubled deals, but there are new and different dynamics from what drove last year’s request, which was, at the time, expected to be a one-time request. Last year’s request to assist 2019/2020 deals was based primarily on unprecedented lumber pricing which could not have been anticipated at the time of award.  But it was enough to make many deals infeasible.  Between then and now, though, the situation has quickly become much more difficult because of:

  • Labor – with the demand for skilled and unskilled labor skyrocketing across all industries, the resulting shortage has driven labor costs beyond expectations
  • Supply chain breaks have gotten worse and, of course, add a premium to materials and supplies; and
  • Interest rate increases, which not only raise the cost of debt, but also limit loan eligibility.

Given the needed support 2019/2020 deals, applicants in 2021 made adjustments given what they knew at the time.  But yet again, the economic environment went well beyond what could have been reasonably expected.

We understand that there may be questions about how real and pervasive today’s issue is.  For now, we can only point to indicators that show how unprecedented the current situation is.

How real is it? Indicators of how just how unprecedented the current situation. Virtually 90% of the 2021 deals have not closed and Force Majeure requests continue to grow. My understanding is that requests will continue. Today’s action brings us to, by my estimate, 22 of the 71 awards issued in 2021.

While Force Majeures certainly mitigate for time so that developers can scramble to find other sources to fill gaps, those options are limited; and many times, only take away from financial feasibility by adding more debt. So, what would happen if all, or a good number, of these developments fail? Given the current indicators, we do see this as a distinct possibility. While those corresponding units may ultimately get built by those next in line, they will be on a much more drawn-out and delayed schedule at a time when we’ve never been more inundated with demand.  And many of those deals next in line would be starting from scratch since the dynamics would have definitely changed with land options and financing commitments.

As you consider our request, we are actively working to provide your staff with the most up-to-date expectations of our member developers who have 2021 awards. Last year, we provided survey results about 2020 award recipient expectations then. At that time, 100% experienced significant cost increases, primarily in materials pricing, delivery delays, and labor costs.  Interest rates were only marginally concerning then. This past March, we surveyed 2021 recipients and found only a couple of them had closed, with most expecting to push more than 4 months to be ready and needing to request Force Majeure’s to accommodate this.

At that time, the majority were experiencing cost increases from 15% to over 35%. The majority also believed they would need support from a supplemental allocation to reach closing. We also saw the beginning of concerns for equity pricing. So, this week, we just launched a new survey since these dynamics have gotten worse and the economy is now adding to the mix unforeseen significant interest rate increases—and what were once delays are now becoming true breaks to supply chains. All of this, of course, raises the premium on available supplies and overall development costs, thereby driving additional problems with financial feasibility. Although we’re still receiving results from the survey, so far, we see that 90% of the survey respondents still have not closed.

Among those not closed, they all state the need for supplemental support in order to get there. Many of these 2021 developments are doing all they can to keep moving. We know that many are working to obtain permits and development plans and are essentially shovel-ready except for the financing gaps. We know that these issues are not specific to Texas. So, we’re working with our national partners, like AHTCC, to determine how other states are responding to these same issues. For example, we already know that Florida is offering supplemental credits on an application basis and that Louisiana has also provided a blanket $100K to all 2021 deals.  We’ll continue documenting this for your staff to consider.

Thank you for your consideration.

 

 

The next TDHCA board meeting is on June 16, 2022.

 

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