Converting from 9% to 4% Credits
If you originally planned to use 9% tax credits to finance a project and are now switching to 4% credits with tax exempt bonds, be sure to check the following assumptions in your Proforma and development plans when converting from 9% to 4% credits.
Source: California Housing Partnership Corporation for LISC's 2003 California Statewide Advanced Rental Finance Training.
Rents:
Are 30% of the units < 50% AMI (CDLAC Rule)?___
Are 100% of the units < 60% AMI (TCAC Rule)?___
If using CalHFA, are 20% of the units < 50% AMI? ___
Are all rents set at least 10% below market rents (required)? ___
Do rents still meet the requirements of the project's public
funding source? ___
Operating Budget:
Check your vacancy rate assumptions.
Market amenities and need for supportive services costs
Annual reserve deposits remain appropriate for the project
Bond Financing Summary:
Bonds must finance at least 50% of the project basis (50% test)
Check bond interest rates
Lender fees/expenses, LTV and DSCR
Add capitalization and annual bond issuance costs
Add bond counsel costs
If a public sale bond, add underwriter fee and counsel costs, rating
agency fee, printing costs, trustee costs, and CDLAC
fee (.035% of bond)
Development Budget:
Construction costs (unit mix, additional amenities)
Rent-Up (length of time, carrying interest, marketing)
Professional fees (legal and consulting costs)
Bond issuance costs
TCAC fees (1% to 4% of TCAC annual allocation)
Developer fee (15% of basis up to $2.5M for 4% deal)
Tax Credit Equity
Credit rate (change tax credit factor from 9% to 4% rate on
construction/rehabilitation basis)
Exclude any market rate units from qualified credit basis
Adjust pricing up to 4% tax credit levels
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