The Affordable Housing Report

Internet Email Edition April 17, 1998

Volume 1, No. 2


The Affordable Housing Report is a periodic newsletter containing news and views about the growing affordable housing industry.

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News Briefs

Affordable Assisted Living Project in Malden Closes on Financing

The Newton Group, LLC, one of New England's leading developers and managers of assisted living residences for senior citizens, announced financing for Maplewood Place in Malden, MA. The 98-unit project is scheduled for completion in December of this year and will have at least 20% of the units reserved as affordable to low and moderate income elderly. The project is financed by a $9.8 million first mortgage through Massachusetts Housing Finance Agency's Elder Choice program, the syndication of low income housing tax credits and $1 million in financing from the Massachusetts Department of Housing and Community Development and the Malden Redevelopment Authority. We completed the financing and permitting for the project.


Owner Sues HUD Over Change in Section 8 Contract

On behalf of a client with an existing project-based Section 8 contract, we recently brought suit against HUD challenging HUD's conversion of the rent calculation factor for their annual rental subsidy contract. The owner had an existing Section 8 contract, with annual rents being adjusted based on HUD's annual adjustment factor (AAF). The existing property, though, was in need of some repairs and renovations, and the local HUD office recommended that the owner convert the Section 8 rent calculation from AAF to the budget-based method. This conversion would have resulted in an additional $1.2 million in rent collection over the 12 month period in which the budget-based method would be in effect. These additional funds were to be used for rehabilitation and renovations to the property. As a result of this conversion, the owner made arrangements for and began the property's rehabilitation. Five months into the 12 month payment period, however, HUD changed course and converted the contract back to the AAF method for rent calculation. HUD alleges that the conversion was illegal from the beginning, and claims local HUD officials had no authorization to enter into such a conversion. Motions for summary judgment were recently argued in the Court of Federal Claims.


Proposed Cut in HUD Budget Could Impact Section 8 Program

The House of Representatives recently passed a bill which would take $2.2 billion from the HUD budget to offset emergency spending for military operations in the Persian Gulf and Bosnia and for El Nino-related disaster relief. These funds have already been designated by the Clinton administration for use in 1999 for the Section 8 rental assistance program. Republicans have said that the $2.2 billion cut from HUD's Section 8 housing program comes from reserve funds that will be replaced by money from other cuts. These HUD funds were designated to bolster HUD reserve funds that were to be used for renewing Section 8 certificates this fall. If the legislation emerging from the conference committee continues to use the housing money for these emergency purposes, HUD Secretary Andrew Cuomo said he would urge President Clinton to veto the bill. According to HUD, in Massachusetts, over 36,000 people living in over 15,000 apartments would be affected by such a cut.


Affordable Housing Real Estate Tax Reductions

We recently worked with two local nonprofit organizations to help them obtain significant real estate tax reductions. The first property was a Boston SRO project operated by a nonprofit organization. Residents of the project were clients of the Dept. of Mental Health and other social service agencies. The project also provided direct services and referrals to a wide range of economic, medical and rental assistance agencies. We successfully argued that the provision of these extensive services to, and supervision of, the residents was evidence of requisite nonprofit control over the property, entitling the property to a tax refund on the basis of a charitable exemption. The other real estate tax reduction involved a Boston housing cooperative for low-income residents. The cooperative, which had an existing Section 8 contract, was able to obtain a reduction in the property's assessed value and taxes by 40% from the City. The City was persuaded to recognize the property's lower subsidized rental rates instead of higher market-rate rents in assessing the property's value.


MHFA Signs Demonstration Contract

The Massachusetts Housing Finance Agency was one of six state housing finance agencies to recently execute a contract to participate in HUD's Section 8 mark-to-market demonstration program. Only FHA-insured developments with rents in excess of 120 percent of fair market and with housing assistance payments (HAP) contracts that have expired or will expire in fiscal year 1998 are eligible for the demonstration program. Uncertainty over the manner in which the IRS will treat the proposed soft second mortgages as a part of any restructuring is causing hesitation about entering the demonstration program. The IRS has listed this issue as one of its priorities and will reportedly published guidance on the treatment of restructured loans later in the year.


THE FY 98 HOPE VI NOFA IS OUT. It was published in the Federal Register March 31, 1998. The application deadline date is June 29, 1998. The Application Kit will be done at the end of April. This year applicants can apply for one or two Revitalization Grants not to exceed a total of $35 million and up to $5 million for elderly/disabled housing.


HUD published the fiscal 1998 annual adjustment factors for Section 8 contract rents in the March 11 Federal Register. Recent Federal Register publications are posted on the HUDCLIPS Web site http://www.hudclips.org.


Tax credit percentages for buildings placed in service during April 1998: Percentage for the 70% present value LIHC: 8.37% Percentage for the 30% present value LIHC: 3.59%


Upcoming Affordable Housing Funding Rounds Federal Home Loan Bank of Boston: due 5/1/98

Commonwealth of Massachusetts Homeownership Funding (NOFA's end of April/early May): due 6/15/98


For more information about the Affordable Housing Group, please contact Bill Grogan, Legal Assistant (574-4035) or any of the following lawyers at (617) 574-(XXXX):

David Abromowitz (4016); dabromowitz@housinglawyer.com

Deborah Horwitz (4123); dhorwitz@housinglawyer.com

Harry Dannenberg (4073); hdannenberg@housinglawyer.com


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Copyright © 1998, Alan S. Goldberg, Boston, MA, All Rights Reserved

Last Updated: 6/8/98

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