Enterprise Closes Its First Syndication With Income Averaging
Enterprise Housing Credit Investments (EHCI) is pleased to announce that the recent closing of its first Low-Income Housing Tax Credit (Housing Credit) deal utilizing the “income averaging” provision enacted in the omnibus spending bill of early 2018. Located in Brooklyn Center, Minnesota, the Unity Place development includes 112 affordable homes.
About Income Averaging for Housing Credits
The Consolidated Appropriations Act of 2018, passed by Congress in March 2018, permanently established income averaging as a third minimum set-aside election for new Housing Credit developments. Owners can now choose between:
- The “40/60” election, where a minimum of 40 percent of units are for households at 60 percent or less of AMI;
- The “20/50” election, where a minimum of 20 percent of units are for households at 50 percent of less of AMI; or
- Income averaging, where the average income/rent limit in the Housing Credit property is 60 percent or less of AMI.
Income averaging allows Housing Credit units to serve households 80 percent of AMI or less, offset by deeper targeting in other units to maintain average affordability in the development at 60 percent AMI. Owners electing income averaging must commit to having at least 40 percent of the units in the property affordable to eligible households.
About the Unity Place Development
The development, Unity Place, involves the preservation and rehabilitation of two-bedroom apartments and two- and three-bedroom townhomes for families in Brooklyn Center, Minnesota, a suburb of Minneapolis. Built in 1979, the project had not previously been financed with Housing Credits and will undergo capital improvements totaling more than $51,000 per home.
The property’s owner is Community Housing Development Corporation (CHDC), a very experienced nonprofit developer in Minnesota. CHDC operates 45 multifamily properties throughout the state totaling over 3,500 homes.
Unity Place has a Section 8 Project-Based Rental Assistance contract for all 112 units in the property, making it deeply affordable. However, approximately 15 families have incomes exceeding the 60 percent of area median income (AMI) threshold for Housing Credits (the Section 8 program allows family income to be up to 80 percent of AMI). Prior to income averaging, apartments occupied by these “over-income” families wouldn’t be eligible for Housing Credits unless those families were relocated.
Another complication was that the project received HOME funding in 2013, which restricts 98 units to 50 percent of AMI. Tenants are required to meet this income limit at initial move-in and currently 99 applicants meet this criterion. In addition, the current recapitalization is utilizing tax-exempt Housing Bonds, triggering the 4 percent Housing Credit. Since the federal Housing Bond statute still requires a 40/60 or 20/50 election—it does not yet have income averaging as an additional set-aside election—bond deals must be structured to meet both tests.
CHDC navigated these various restrictions by setting 52 units at 50 percent AMI, 40 units at 60 percent of AMI, and 10 units each at 70 percent and 80 percent of AMI. The result is an average of 58 percent of AMI, creating a 7-unit “cushion” to the 60 percent average required under income averaging (7 units could inadvertently be leased at above 60 percent before the property would violate the income averaging election). This affordability structure also falls within the 40/60 election for Housing Bonds.
More importantly, income averaging allows the project to maximize Housing Credits for its much-needed rehabilitation without displacing current residents who earn up to 80 percent of AMI, as well as allowing greater income diversity into the future. In this way, income averaging will become an important tool for the preservation of affordable housing.
“Unity Place has it all—preservation and improvements,” said Dan Walsh, vice president of CHDC Housing Development. “We are dramatically improving the community life at the property and ensuring the assets remain strong for decades. Enterprise understood and believed in the vision from day one, and CHDC is so thankful for their leadership.”
Unity Place is EHCI’s first Housing Credit closing, and the first in Minnesota, that successfully utilized the new income averaging option, allowing the development to avoid displacing low-income residents and to fully maximize the Housing Credit as a critical tool for preserving affordable housing. EHCI has numerous additional income averaging deals in its syndication pipeline.
Learn more about EHCI.