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The Real Estate Services Blog is published by RubinBrown's Real Estate Services Group as a value-added approach keeping clients and contacts informed about current, relevant topics affecting the real estate industry.



07/17/2019

Housing Credit Connect Recap


RubinBrown Partner, Amy Broadwater, Recaps Key Learnings from the NCSHA Conference


Recently, I had the pleasure of participating on The Impact of Tax Reform on Deal Structuring panel at NCSHA’s Housing Credit Connect. My fellow panelists and I delved into how various components of tax reform have impacted the low-income housing tax credit community. These components included such items as the decrease in the corporate tax rate, changes in depreciation rules and the interest expense limitation.


The components of tax reform that we discussed have had real effects on low-income housing tax credit deals, some positive and some negative. The combination of these changes impact the yield to the investors, which then impacts equity pricing. Investors in low-income housing tax credit deals receive tax benefits from the low-income housing tax credits, but they also receive tax benefits from the taxable losses allocated to them. For example, with the drop in corporate tax rate from 35% to 21%, the tax benefits derived from the losses have less value to investors, and thus decreases the yield to an investor. On the other hand, the increase in the bonus depreciation percentage from 50% to 100% has allowed some deals to deliver losses to investors earlier, which increases the yield to the investor.


Overall, tax reform has led to lower equity pricing for low-income housing tax credit deals. Tax reform also led to more importance being placed upon the upfront financial projections that are prepared prior to the closing on a low-income housing tax credit partnership. Because of the complexities that came from tax reform, there are more issues than ever that need to be addressed prior to closing on a low-income housing tax credit transaction. All of the panelists agreed that it is never too early to get your tax advisor involved in your deal to start sorting through those issues.


 

 

 

 


07/02/2019

AICPA ENGAGE Conference Recap


On June 11th, Maureen Reichert, Real Estate Tax Partner, presented with Steve Meyer, JVM Realty Corp Chief Investments Officer, at the AICPA ENGAGE Conference in Las Vegas, NV.


The session focused on key differences in investing in general private equity real estate funds vs. qualified opportunity zone funds, which have had much attention since they were created under the Tax Cuts and Job Act of 2017. Namely, it is important that potential investors perform proper due diligence before determining which investment option is best for their needs regardless of the tax benefits involved with each.


 

 

06/19/2019

New Rules: State Historic Tax Credit Summit


Our own Bill Gawrych will speak at a panel on June 21 at the State Historic Tax Credit Summit in Missouri.

Take an in-depth look at the changes to the Missouri State Historic Preservation Tax Credit Program. You'll hear more about the current state of affairs on the MO Historic Tax Credit, learn about changes to the cost certification guidelines and hear how the new guidelines will affect future projects.


 

 

 

 

06/05/2019

The Impact of Tax Reform on Deal Structuring


Our own Amy Broadwater will speak on a panel at the National Council of State Housing Agencies Housing Credit Connect event on June 13.


Hear more about how tax advisors analyze various provisions of the Tax Cuts and Jobs Act and the impact on Housing Credit deal structuring. Get insider perspectives on the reduced corporate tax rate, depreciation change rules, interest deduction limitations and how these topics have affected investor interest.

 


 

 

 

 

 

05/30/2019

Spotlight On Income Averaging: Asset Management & Compliance


Our own Tim Anderson will speak on a panel at the National Housing & Rehabilitation Association on June 3.

Explore the in’s and out’s of the new average income election. An expert panel of developers, investors and housing finance agency representatives will discuss asset management and compliance best practices for projects utilizing the income averaging election as well as business strategies, marketing opportunities and approaches to structuring income averaging.

 

 

 

04/26/2019

Questions Finally Answered…
IRS Issues Regulations Related To Opportunity Zones


Last week, the IRS issued a second round of regulations related to the Qualified Opportunity Zone Program.  This follows a first round of regulations that were released in October 2018.  The new regulations provide more clarity and help answer some persisting questions.

Here are a few of the common questions:oppzones_792x800

  • What is a “trade or business” for purposes of the opportunity zone incentive?
  • How do we decide when and how we can defer Section 1231 gains?
  • What is the definition of “substantially all” for purposes of qualified opportunity zone stock, partnership interest, and property?
  • Is raw land considered QOZBP?
  • Can a QOF or QOZB lease property and have it meet the definition of QOZBP?
  • What types of events will trigger deferred gain during an investors holding period in a QOF?
  • Does an investor have to sell the equity interest in a QOF after ten years, or can the QOF sell its assets with the gain still being tax-free to the investor?
  • What happens to an investor if a QOF sells some of its QOZBP during the ten-year holding period? 
  • How does an operating business pass the "more than 50% test?"
  • How does the "original use" test work if you purchase a yet-to-be completed building or a building that has been vacant for years?

The answers to these questions are provided by RubinBrown’s own Tony Nitti.  Tony authors a column in Forbes, as well as provides training on the tax laws to practitioners across the country.

Click here to read Tony Nitti’s recent article in Forbes.

Click here to listen to Tony Nitti’s podcast that was posted on OpportunityDb.com.


RubinBrown was also honored to be a part of a panel discussion on opportunity zones at the Impact Investing Symposium at Washington University on April 25.  Click here to check out the agenda.

 

 

 

 

04/10/2019

IRS Says Bond Financing Can Be Used for Housing for Vets, Farmworkers and Other Populations


RubinBrown Partner, Tim Anderson, was quoted in Affordable Housing Finance discussing recent IRS guidance that private-activity bonds can be used for veteran housing and others.


The IRS has recently clarified that tax-exempt private-activity bonds can be used to finance affordable housing developments for veterans as well as other populations.

This clarification was necessary after IRS officials noted that such housing was potentially a violation of public-use requirements in bond regulations last year.

Anderson was quoted saying, “Many people in the industry were asking for this ruling to help link Sec. 142 with Sec. 42 on this issue. This guidance says yes, you can build homes for veterans and qualify for the credit and still take advantage of tax-exempt bond financing that’s available.”

Read the full article in Affordable Housing Finance.

 

 

 

 

03/14/2019

Tax Savings Related To Opportunity Zones

 

RubinBrown Partner Tony Nitti authored an article on the tax ramifications related to opportunity zones. This article appeared in The Tax Adviser.


In summary, the article details that the newly created qualified opportunity zones offer an intriguing tax planning option for investors and a potential boon for distressed communities.


The Tax Adviser article discusses the tax rules regarding investing in qualified opportunity zones through qualified opportunity funds, including:

  • The Tax Cuts and Jobs Act enacted new Sec. 1400Z-2, which provides a number of benefits designed to encourage investment in areas in low-income communities that are designated as qualified opportunity zones (QOZs).
  • Under Sec. 1400Z-2, taxpayers may be able defer realized capital gains by reinvesting them in qualified opportunity funds (QOFs) that conduct or own trades or businesses with property and business activity within the QOZs. These deferred gains may then be partially excluded from gross income if certain holding requirements are met.
  • Taxpayers eligible to defer gains under Sec. 1400Z-2 include individuals, C corporations, passthrough entities, and trusts and estates. Gain that is eligible to be deferred is gain that is “treated as capital,” would be recognized for federal income tax purposes before 2027, and does not arise from a sale or exchange with a related party.
  • Generally, within 180 days of a sale or exchange generating eligible gain, an eligible taxpayer may elect to reinvest all or a portion of the gain into a QOF, deferring its recognition until Dec. 31, 2026, or, if earlier, the date the taxpayer sells or exchanges the QOF interest.
  • Once the taxpayer holds the QOF interest for a five-year period, 10% of the deferred gain is permanently excluded. Once the holding period reaches seven years, an additional 5% of the gain is excluded. If the holding period reaches 10 years, the gain arising after the 2026 recognition date is entirely excluded.
  • QOFs must hold at least 90% of their assets as QOZ property, which includes QOZ business property (QOZBP), QOZ stock, or QOZ partnership interests.
  • Even with the release of proposed regulations under 1400Z-2, many practical questions remain for taxpayers who are considering an investment in a QOF.


For more information about the Tax Cuts & Jobs Act, or the related opportunity zones, please contact one of RubinBrown’s Real Estate Services Group professionals.

 

 

 

 

Focus on Taxation & Real Estate: Tax Savings Related To Opportunity Zones

02/27/2019

Hear the latest about Opportunity Zones at AHF Live Housing Developers Forum

modern-residential-houses
RubinBrown Partner Amy Broadwater will be presenting on an opportunity zone panel at the upcoming AHF Live Housing Developers Forum. The conference attracts developers, investors, financial experts, and other stakeholders from across the country to network and learn about trends in the affordable housing industry. This year’s conference is April 1-3 in Las Vegas, Nevada.

Amy has deep experience in the affordable housing industry, including deal structuring, tax consulting, and partnership taxation and has accepted speaking invitations at many different industry conferences across the country. Amy has been helping lead RubinBrown’s Opportunity Zone Initiative and has been involved with researching and consulting on opportunity zones since the program’s creation by the Tax Cuts & Jobs Act in December 2017. 

Click here to view Amy’s biography.

Click here to visit the AHF conference link.

 

 

 

 

02/20/2019

The Multi-Family Industry Grows Throughout 2017


REBlog-Condominium-Roofs.jpgThe multi-family industry continued to experience above-average performance in 2017.


There were 336,000 multi-family units completed in 2017, an increase over the 321,000 units completed in 2016. According to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook, most new supply over the past few years has been focused in high-rent segments.


 Interestingly, there has been little growth in stock of affordable multifamily housing. Strong demand for multi-family rentals has prompted developers to renovate more affordable housing to higher-rent units.


The impact of the two trends has been that while the number of Class A units have grown by an estimated 1.1 million to 5.0 million total units since the end of the recession, the number of Class B/C units remained virtually unchanged at an estimated 5.7 million units (Reis, Inc.) We expect to see this trend continue as information on 2018 becomes available.


According to the Joint Center for Housing Studies of Harvard University, the number of multi-family units declined slightly over the past year and expanding supplies of new luxury apartments pushed up rental rates.


According to data from the National Council of Real Estate Investment Fiduciaries, net operating income for investment-grade multi-family properties in 2017 grew 3.4% from 2016.


In addition, the annual rate of return on rental property investments was 6.4% for 2017. Rental property prices and sales remain strong. Real Capital Analytics (a commercial real estate database which tracks prices for rental properties and portfolios of at least $2.5 million), reports that nominal apartment property prices rose at a 12% annual rate averaged in 2014 – 2017.


As a result, apartment prices now stand 30% above the mid-2000s peak in real terms.


 

 

 

 

02/13/2019

Vacancy Rates For Rentals On The Rise


According to the Joint Center for Housing Studies of Harvard University, the national vacancy rate for all rental units averaged 7.2% in 2017, an increase from 6.9% in 2016.


Meanwhile, according to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook, vacancies for rent-restricted affordable housing properties remains historically low.


At the close of 2017, Reis, Inc. estimates a 1.9% vacancy rate for rent-restricted properties, which consist of multi-family rental properties assisted with federal Low Income Housing Tax Credits (LIHTC) and Section 8 project-based vouchers, reflecting the demand for all types of affordable multi-family rentals.

 

 

 

 

02/06/2019

New Tax Law & Affordable Housing


REBlog-Tax-Cuts-and-Jobs-Act.jpgThe Tax Cuts & Jobs Act (the Act) was signed into law at the end of 2017 and certainly has an impact on the affordable housing industry.


While tax reform left LIHTC intact; the decline in the corporate tax rate from 35% to 21% is expected to have negative consequences for new rent-restricted supply.


Tax credits are now less valuable and prices have declined since discussions on implementing a corporate tax cut began in 2017. Developers may struggle with new projects to fill the financing gap resulting from lower proceeds from investment in LIHTC due to this decline.


The Act allows investors to defer paying tax, up to nine years, on gains if those gains are invested in Qualified Opportunity Funds that in turn invest in economically distressed communities (known as opportunity zones) designated by the governor of each state.

 

 

 

 

01/30/2019

Millennials & Housing Trends


Demand for housing is driven primarily by an increase in household growth, which is expected to remain strong based on aging millennials and the overall population.


According to the Joint Center for Housing Studies of Harvard University, with a large portion of the millennial population now in its early 30s, adults under age 35 formed 10.5 million new households in 2012 – 2017, which is 1.5 million more than in the previous five-year period.


The millennial generation will continue to lift household growth for years to come.

 

 

 

 

01/16/2019

Senior Citizens & Housing Trends

 

REBlog-Elder-Couple-Just-Moved.jpgWhile the number of young adults impacting the housing demand will continue to grow, the older population is growing faster.


According to projections by the Census Bureau, the total U.S. population age 65 and older will reach 79 million in 2035. This represents an increase of 31 million over the same statistic in 2015.


The largest increase in the housing demand of older adults is expected to come from single-person households. A 2014 survey conducted by AARP indicated 88% of adults 65 and over want to remain in their homes as they age.


The decision of older households to age in place will require additional accessible housing with supportive services.

 

 

 

 

01/02/2019

Affordability of Housing

 

The strong demand for units is coupled with an affordability crisis.


According to the State of the Nation’s Housing 2017, only 31% of renters are able to afford the $1,550 median asking rent for a new apartment in 2017.


By comparison, in 1990 41% of renters could afford the $1,064 real median asking rent for new units. Supply of low-cost units has also decreased.


A Hudson Institute analysis found that 60% of low-cost units in 1985 were lost by 2013. As a result of the supply and demand imbalance, the affordable housing industry is expected to remain strong.


According to the Joint Center for Housing Studies of Harvard University, the long-term outlook for rental housing demand is positive as increasing numbers of millennials form new households and older households switch from owning to renting.


A 2016 National Low Income Housing Coalition study found that for every 100 extremely low-income renters, only 35 rental units were affordable and available which is a nationwide shortfall of more than 7.2 million units.


Conditions for very-low income renter households improved slightly with 56 affordable and available rentals per 100 households.


Additionally, there is tremendous demand for affordable housing among the nation’s 15.5 million very low and extremely low-income households. Conditions in the affordable market will continue to remain strong with strong demand and diminishing supply.