Seniors Housing Business

APR 2018

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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34 www.seniorshousingbusiness.com Seniors Housing Business n April 2018 ACQUISITIONS – DEVELOPMENT – ASSET MANGEMENT Capitol Seniors Housing is a real estate private equity firm with an exclusive focus on the senior housing sector. Since 2003, CSH has acquired and developed senior housing communities in every major MSA, investing over $1.7 Billion of assets on behalf of its joint venture partners. FOR MORE INFORMATION (202) 469-8400 info@capitolseniorshousing.com www.capitolseniorshousing.com 1275 Pennsylvania Avenue, N.W., Washington, DC 20004 CSH Development – Maple Lawn, Maryland Welbrook South Bay – Torrance, California ACTIVE ADULT INDEPENDENT LIVING ASSISTED LIVING MEMORY CARE lihood that they would not need as many tax benefits by cutting the price they were willing to pay. Immediately after the Novem- ber 2016 election of President Trump, the prices investors pay for LIHTCs dropped from an aver- age rate of close to a dollar for a dollar of tax credit down to the mid-90-cent range. These investors guessed, rightly, that with Repub- lican control of the presidency and both houses of Congress, tax reform was likely to finally move forward. "There was another drop in LIHTC prices after tax reform passed," says Scott Hoekman, senior vice president for Enterprise Community Partners, an LIHTC syndicator based in Columbia, Md. This time prices sagged as low as the high-80-cent range in some cases. "There was a five-cent drop in pricing, and then another five-cent drop," says Norris. "Everyone had to recalibrate their financing plans twice." Lower tax credit prices have a direct effect on how much money developers have to build afford- able housing projects. For exam- ple, a developer who won $10 mil- lion in LIHTCs might have sold them at a rate of roughly a dollar per dollar of tax credit before tax reform, raising about $10 million. After tax reform, the same proj- ect might only raise $9 million by selling the same credits at lower prices. Many developers now find themselves in this position. They won reservations of LIHTC by promising to build affordable housing, but they now have less money to complete the projects they planned. Construction start struggles Developers who face holes in their development budgets only have a few options. They can either scramble to raise more money to pay for their projects, reduce costs, or simultaneously pursue both options. Most developers carefully plan their projects to provide the most housing for the least amount of money. To win LIHTCs, develop- ers typically specify a long list of features for a planned develop- ment. After they win credits, the developers can't change anything that earned them points in the competition. Developers can reduce the cost of construction by chang- ing smaller details of their plans, though. Reducing the ceiling height of a planned project from 10 feet to 8 feet can shave thousands of dollars off the cost per unit to build. Switching the grade of car- pet or other materials also makes a difference. Developers can also look for new sources of funding. How- ever, many of the biggest funding sources have less money to distrib- ute than in the past. Federal pro- grams like HOME Funds and the Community Development Block Grant program have been sharply cut in recent years. The president's proposed bud- get for the fiscal year 2019, which begins Oct. 1, 2018, has no money allocated for HOME, although thus far Congress has declined to totally remove these programs. "It's not that every single bit of HOME and CDBG is gone… there is still some money left over," says Norris. This little bit of funding is not nearly enough for all the developments with budget gaps. Berkeley Point Capital has completed a $20 million refinancing for Sand Lake Pointe Apartments, a 312-unit affordable housing complex in Orlando. Units at the property are reserved for families and seniors earning 60 percent or less of the area median income. The undisclosed, Orlando-based owner-operator specializes in LIHTC-funded developments.

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