The following is a short synopsis of the process for developing and operating an HTC project.
Summit Housing Group (SHG) first identifies a community that will support an HTC project. The community should have a low vacancy rate and a stable to rising employment rate. After a suitable community has been identified, the development team commissions a market study, and researches local zoning and development rules and regulations. The cost of potential land parcels, operating costs, and development costs are analyzed as well. The team will prepare site and basic building plans, along with projected budgets for construction and operation of the project. If the project passes this vetting process, the land is placed under contract or optioned, and the project is submitted to the state housing agency for an award of tax credits.
If the state housing agency awards tax credits for the project, the development team will shop the project to equity investors and lenders. Both entities have extensive due diligence requirements (title, appraisal, financial feasibility, environmental, market studies, architectural review, legal review, etc.). Assuming the equity investor will purchase the tax credits at a level equal to or greater than projected in the application, and a lender will provide financing within the parameters of the application, the project advances to the construction phase. When construction has been completed, the equity investors require compliance with a lease-up period and/or a break-even period before they will provide the final installment of equity.
Highland Property Management (HTC) then hires a property manager (if necessary) and begins lease-up activities prior to the completion of construction. This process involves advertising and receiving applications from prospective tenants. The application process is a nine-page written application and requires extensive income and asset verification by the property manager. Compliance with various IRS, HUD, and state requirements is important as the project can lose tax credits for non-compliance. Tenants begin the certification and move-in process upon completion of construction, and normally must recertify their income eligibility on an annual basis.
HTC projects are owned by a limited partnership. The limited partner is the tax credit investor who receives 99.99% of the tax credits and tax deductions (depreciation, amortization, etc.). The general partner receives any excess cash flows after payment of operating expenses, debt service, and a small project management fee to the investor.
However, the general partner is also responsible for any operating deficits. If the project is sold, the general partner normally receives between 80-90% of the sales proceeds at the end of the 15-year credit compliance period. Accordingly, our goal is to build and operate our projects so that the general partner will have a valuable asset at the end of the initial 15-year compliance period.
SHG will supervise the development and construction teams throughout the development process. The project will then move to Project Managers who oversee the HTC application process and the closing process once HTCs are awarded.
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