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Trouble Signs and How to Address Them in Tax Credit Housing

Learn about the danger signals in tax credit housing projects and the consequences they can have. Discover strategies for responding to these signals and preventing potential issues.

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Trouble Signs and How to Address Them in Tax Credit Housing

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  1. What Can Go Wrong: Some Trouble Signs and How to Address Them by Brad Elphick, CPA, Novogradac & Company LLP

  2. Danger Signals Consequences of Danger Signals Responding to Danger Signals The Players and Value over Time Overview

  3. Danger Signals • Delays in Reporting • Lower Rental Income • Slow Lease-up • Lower Rental Rates • High Turnover Rates • High Vacancy Rates

  4. Danger Signals • Higher Operating Expenses • Larger Operating Expenses • Missing Operating Expenses • Lower Operating Expenses? • Balance Sheet Items • Unexpected GP Loans or Capital Contributions • Unidentified Accounts • Suspense/Other/Unlocated Differences • Large Payables and Accrued Expenses

  5. Danger Signals • Receiving Forms 8823 • Poor Communication • Unavailable for Site Visits • Other Projects Have Problems • The Rumor Mill

  6. Consequences of Danger Signals • Slow Lease-Up • Tax Credit Adjusters • 1st Year • Year 10 to 15 • State Tax Credit Delay • Higher Interest Costs • Delay in lower permanent loan rate • Delay in LP take-out equity • Tax-Exempt Bonds – Negative Arbitrage • GP Loans / Capital Contributions • Interest? • Credit for Amounts Advanced?

  7. Consequences of Danger Signals • Negative Cash Flow • Overall Financial Viability • Cash Shortfall Funding • State Mandated Lower Rents? • LIHC – Minimum Gain / 704(b) Issues • Reviewing the Numbers

  8. Consequences of Danger Signals • Negative Cash Flow (cont.) • Reviewing the Numbers • The Original Projections • Basic Assumptions • Net Operating Income • Taxable Income/(Loss) and Credits • Minimum Gain Calculations

  9. Consequences of Danger Signals • Negative Cash Flow (cont.) • The Revised Projections • The Income Tax Effect of the Negative Cash Flow • Quicker to Negative Capital Accounts • Larger GP Loans • Minimum Gain Problems

  10. Consequences of Danger Signals • Forms 8823 • Responding to State Housing Agencies • Responding to the Internal Revenue Service • Mail Notices • Field Audits

  11. Responding to Danger Signals • What is Causing the Problem • Real Estate Market? • Location • New Competition • Changes in AMGI • Expense Cost Spikes • Property Manager? • Corporate • Site Manager

  12. Responding to Danger Signals • What is Causing the Problem • Construction • Design Flaw • Construction Flaw

  13. Responding to Danger Signals • The Players and Value over Time • Who will lead the response? • Developer/Asset Manager • Equity Investor • Lender

  14. Danger Signals Consequences of Danger Signals Responding to Danger Signals Additional Questions? Conclusion www.taxcredithousing.com

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