For tax credit properties ripe for a rehab, the Sec. 223(f) program may be your best bet, according to panelists at the recent AHF Live conference.
Interest rates are at an all-time low for the program—often south of 4 percent all in, which certainly makes it attractive. But it’s how the program has evolved that makes it so attractive to affordable housing owners.
The Department of Housing and Urban Development (HUD) made some substantial changes to the Sec. 223(f) program this year to make it a more seamless and powerful execution.
One of the biggest changes is the amount of per-unit rehab that is now allowed. Borrowers can go up to $40,000 per unit in rehab costs, which will allow many to sidestep the Sec. 221(d)(4) program. In the past, developers looking to do such substantial rehabs would be sent to the Sec. 221(d)(4) program, which takes much longer, sometimes twice or three times as long, to process compared with a Sec. 223(f) deal.
Another very welcome change is the waiver of Davis-Bacon wage requirements. In the past, the requirement to use prevailing wages, or union wages, bumped up the cost of substantial rehab projects to the point where many didn’t pan out, even given the low interest rates. But HUD has now waived that requirement for low-income housing tax credit (LIHTC) deals for a year, a waiver that most lenders expect to be renewed next year as well.
“With the current administration in place, that waiver isn’t going to go anywhere anytime soon,” said Carolyn McMullen, vice president of FHA finance at Walker & Dunlop.
The turnaround times on such deals are also much faster than they have been in the past, thanks to HUD’s Tax Credit Pilot Program, which began life by focusing only on the Sec. 223(f) program. Tom Booher, who runs PNC Real Estate’s multifamily division, said the company recently received a firm commitment on a LIHTC 223(f) deal in just 22 days from HUD’s San Francisco office. “If we can get the full application in 30 days, we can turn it around quickly,” he said.