Property Management & Tax Credit Compliance

1. Property Management & Tax Credit Compliance LIHTC NUTS & BOLTS III Tera L. Lockley Virginia Community Development Corporation Linda Moss Virginia Community Development Corporation

2. Presentation Goal • To provide an overview of property management, compliance and asset management activities for life after the allocation of the tax credits: • Property Management Expectations • Asset Management definition and expectations and • Compliance from the Beginning to End

3. Property Management Requirement • In completion of the tax credit application, VHDA has a section that applies to the plans for the property management of the property. • VHDA mandates that every property that receives a tax credit allocation must obtain their Certified Property Management Agent designation. • If awarded their designation, VHDA awards terms from 1 year to a maximum of 3 years. The terms are renewable and require completion of an application each time. • All management entities must have this designation. So need to decide whether to self-manage or to acquire a 3rd party management company off of VHDA’s approved management list.

4. Property Management Basics:Self-manage or 3rd party management agent • On-site property manager needs to have tax credit experience • Or have extensive tax credit training(Basic, Income/Assets, Intermediate, Fair Housing, etc.) • Developing a Marketing Plan • Model Lease & Resident Selection Criteria • Lease-up activities • Rent Collections • Financial Reporting • Operating Budget process • Preventive Maintenance

5. Marketing Plan(requested/reviewed by VHDA) Should Include • Property Description • Lease-up Goals • Targeted Geographic Area • Marketing Strategy • Newspaper/Internet Advertising, Flyers, Brochures, etc. • Community Outreach • Resident Referrals • Open Houses • Lease-up Specials • Property Signage

6. Model Lease & Resident Selection Criteria Lease Form • Conform With State LTA Requirements • Should Be Workable, Lawful, Enforceable • Have Attorney Review Typical Resident Selection Criteria* • Employment History • Prior Landlord History • Credit Review • Criminal Background Check *Other criteria may apply depending upon project financing (ex: LIHTC, Section 8, HOME, Bond Program Financing)

7. Lease-up Activities • Implement Marketing plan and review periodically for what’s working and what’s not • Track Lease-up goals to ensure that on target • Meet often during the process to discuss the above bulleted items

8. Rent Collections • Develop Rent Collection Policy & Forms, if self-managing or • Review Management Agent’s Rent Collection Policy & Forms • Enforce!

9. Financial Reporting • Should develop or receive monthly financial reports to monitor the performance of the property • Reports should include: Profit & Loss statement/Income statement, Balance Sheet, Rent Roll, Accounts Payable and Accounts Receivable reports • Should understand or be able to explain any variances

10. Operating Budget Process • Who Should Be Involved? • Should Include A Budget Narrative • Includes: Income, Expenses & Debt Svc, Reserves, Capital Improvements • Information To Consider • Current YTD Performance compared to Development pro forma • Market Conditions • Maintenance needs

11. Preventive Maintenance Plan Benefits • Enhances Marketability & Resident Retention • Increases Cost Effectiveness • Extends Useful Life Of Equipment • Cost Savings To Resident (ex: lower utility costs) Frequency • Monthly, Quarterly, Semi-Annually, Annually

12. Fair Housing & Uniform Residential LTA • Fair Housing Amendments Act laws provide a critical way to deter and counteract housing discrimination (ex: family composition, discrimination based on race, religion, steering, etc.) • VRLTA Landlord Tenant Actgoverns the rental of residential property. It is composed primarily of state statutory and common law which spells out common rights and obligations of the landlord and resident. • Section 504 Rehabilitation Act of 1973 & ADA of 1990 • Need For Continuing Education • Who Needs It? Property Management Staff Maintenance Staff

13. Asset Management definition and activities • Asset management involves monitoring the financial, physical, and compliance performance of a property • The Equity Partner/Syndicator you choose to work with will be involved in the approval of the management agent and may request additional information or trainings for the staff • They will also work with the management staff on tracking the lease-up goals and activities to ensure timely delivery of tax credits • Will review the financial reports on a monthly/quarterly basis to monitor the property’s performance and will ask periodic questions concerning any change in property performance, such as decrease in rental income, increase in vacancies, increase in expenses, etc.

14. Asset Management activities contd. • Will review and in most cases, approve the annual budget • Will inspect the property on a scheduled basis and will ask questions about maintenance activities, plans and long range maintenance needs • Asset management is an ongoing process for the next 15 years of operations of the property • This ongoing process enables the Developer and Equity Partner/Syndicator to establish a solid working relationship that prepares the parties for a discussion about the status of the property after year 15, i.e. continue to operate as an affordable housing property or a candidate for re-syndication

15. Low Income Housing Tax Credit Program Basics--Compliance • Minimum Set Asides(Federal & Owner’s contract with State) • Rent & Income Limits • LIHTC Compliance Period • Original Resident Record Retention • Utility Allowances • Subsidy Layering Restrictions • Approval of Lease Agreement and Verification forms

16. Minimum Set Asides Federal Minimum Set Aside Requirements • 20% of units @ 50% of AMI • 40% of units @ 60% of AMI Stricter Occupancy Requirements • Subject To Owner’s Contract With State Agency (Ex: 100% @ 60%)

17. Rent & Income Limits • Must Adhere To LIHTC Program Rent & Income Limits • Hold Harmless/HERA Income Limits • Available For Each Virginia Locality At www.vhda.com.

18. Sample Rent Table

19. Sample Income Table

20. LIHTC Program Compliance Period • Time Frame For Complying With LIHTC Program Requirements • Minimum Term Of 15 Years • Can Be Extended Beyond 15 Years

21. Importance of Original Resident Files Record Retention • First Year Original Resident Files Kept 6 Years Beyond Compliance Period • Maintain Secure Storage for Original Resident Files along with Electronic Back-Up

22. Utility Allowances • 6 available options in Virginia • HUD rent schedule • RD approved budget • PHA(Public Housing Authority) • Utility Company • HUD Utility Model • Engineer

23. Utility Allowances • Evaluated annually • 90 days to implement, after publish date • Utility allowance figure is subtracted from the gross rent

24. Subsidy Layering Restrictions • Other Program Restrictions Project Based Section 8 HOME Program Funding Bond Financing Rural Development • Must Meet All Program Regulations

25. Approved Lease Agreement and Verification Forms • Lease Agreement and Application Documents • Should be approved by the Equity Partner/Syndicator • Verification Forms • Approved Forms available on VHDA Website or • Submitted to Equity Partner/Syndicator for approval

26. Overview of Project Lease-Up Phase • Pre-Lease-Up Planning • Approval of Original Resident Files • Lease-Up Phase for a New Construction Project • Additional Compliance Challenges for an Acquisition/Rehab Project

27. Pre-Lease-Up Plan • Management and Equity Partner/Syndicator will meet to discuss the pertinent aspects of Lease-Up, including timely credit delivery • Identify projected timing for completion of the lease-up and the beginning of credit flow for the project • Identify the number of BINs(Buildings) and best strategy for occupying the buildings • Market and Qualify applicants prior to completion of the construction

28. Approval of Original Resident Files • The move-in of a tax credit eligible household is what allows tax credits to begin to flow for that unit. • The Equity Partner/Syndicator will normally require approval of all original resident files prior to their move-in to a unit

29. Lease-Up Phase – New Construction Project • Beginning of Lease-Up • Tax Credit Documentation is valid for 120 days • Application processing can begin when construction for a building is projected to be complete within that timeframe • Qualified Occupancy – New construction • Each household has been approved as a tax credit eligible household prior to move-in • A unit is qualified on the date the household signs the certification of their total income/assets at move-in

30. Acquisition/Rehab: Additional Compliance Challenges for Management • If a project has existing residents, a Relocation Plan is required • During Rehab, Tracking of Relocation of current residents within the project may be necessary • Strategic Planning is involved for the timing of qualifying the existing residents

31. Ongoing Compliance During the 15 years • VHDA will conduct a File Audit and Physical Inspection within the 1st year after Lease-Up completion, and then every 3 years thereafter • Equity Partner/Syndicator will conduct a File Audit and Physical Inspection Annually

32. LIHTC Compliance Training Options • A.J. Johnson Consulting – 757.599.3964 • Elizabeth Moreland Consulting – 1.800.644.0390 • TheoPro Compliance & Consulting Inc. 1.877.783.1133 • Quadel Consulting – 1.800.987.2581 • Spectrum Consulting – 207.767.8000 • National Center For Housing Mgt. – 1.800.368.5625

33. Helpful Resources • VHDA –www.vhda.com • Institute of Real Estate Management –www.irem.org • Mid-Atlantic AHMA – www.midatlanticahma.org • Novogradic – www.novogradic.com