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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.



05/20/2021

Closing the Gap on Affordable Housing


According to the National Low Income Housing Coalition, there is a shortage of affordable rental homes, especially for the lowest income renters. In January 2021, more than 20% of all renters were behind on rent payments.  Evictions were placed on hold and may possibly be extended until households are able to pay rents again.

To fix the shortage of affordable and available housing, government funding will be needed for different states. During 2021, the government allocated funds to the Housing Trust Fund Program (HTF) and awarded funds to public housing authorities in hopes of improving the shortage of affordable housing.

The Housing Trust Fund Program is an annual block grant to states for the creation, preservation, or rehabilitation of rental housing for the lowest-income renters. The U.S. Department of Housing and Urban Development (HUD) announced on April 6, 2021, the allocation of nearly $700 million through the national Housing Trust Fund. This is an increase of approximately 47% from last year’s allocation. This funding will help states produce more affordable housing for extremely low-income households. All HTF-assisted units will be required to have a minimum affordability period of 30 years. This year’s funding, according to HUD, is expected to produce more than 5,400 additional affordable units.

In addition, in February 2021, HUD awarded more than $2.7 billion in funding to 2,900 public housing authorities (PHAs) to make capital investments in their public housing units. These grants are provided through HUD’s Capital Fund Program and allow the PHAs to build, renovate, and/or modernize public housing in their communities. Funds can also be used to complete large improvements.

HUD has delivered on urgent housing needs and laid the foundations to tackle longer-term housing challenges.  Besides the accomplishments listed above, there are many more which can be located on HUD.gov. If you need assistance with matters related to affordable housing, contact your RubinBrown team.

 

 

 

 

 


10/13/2020

Missouri Workforce Housing Association Panel


On Thursday, October 15, the Missouri Workforce Housing Association Panel (MOWHA) will host a panel titled, “The Credit Acceleration Pilot and the Broader Credit Climate.” The panel will discuss the new pilot program allowing developers to apply for faster delivery of credits during the 10-year credit period. 

The panel will feature Missouri-based experts with national experience, including RubinBrown Partner, Tim Anderson.

When: Oct 15, 2020 12:00 PM Central Time (US and Canada) Register here.

 

 

 

 

10/02/2020

An Update on Opportunity Zones


Opportunity Zones, which were first introduced in December 2017 as part of the Tax Cuts and Jobs Act, were created to focus on investing in underserved communities by providing substantial tax benefits to investors.

Information and statistics on how Opportunity Zones have helped those communities was recently issued by the White House in a report dated August 2020. It is estimated $75 billion in private capital in Qualified Opportunity Funds has been invested in Opportunity Zones through 2019, of which $52 billion is considered new investments. Additionally, there was a 29% increase in equity investments in businesses who were located in an Opportunity Zone, as compared to those who were not. This increase in invested capital is expected to decrease poverty by 11%, lifting roughly 1 million from poverty.

While Opportunity Zones have helped underserved communities, there are still some areas that aren’t attracting the attention of investors. The roughly 8,700 Opportunity Zones were state designated using different criteria from 2010 census data. Because of this, Opportunity Zones that are seeing a trend towards becoming more middle class in terms of socioeconomics before any additional incentives were enacted are more appealing to investors. To combat this problem, some are looking to work with local banks and/or corporations who are also wanting to take advantage of the tax benefits of the Tax Cuts and Jobs Act and meet certain obligations under the Community Reinvestment Act. Overall, the designation and investment in Opportunity Zones has made people optimistic about the upturn in underserved communities.

 

 

 

 

 

09/28/2020

Approval of 2020 Qualified Allocation Plan to Bring Back Missouri Low-Income Housing Tax Credits


Missouri’s Low-Income Housing Tax Credit (LIHTC) awards have been frozen since 2017. The approval of the MHDC 2020 Final Qualified Action Plan (QAP) reinstates LIHTC awards under a more transparent and refined program.

Before the halt of state issued LIHTCs in 2017, Missouri matched up to 100% of federal funds for approved LIHTC projects. Since then, Missouri lawmakers have lobbied back and forth with changes to legislature in order for the LIHTC program to be revived successfully. After two years of deliberation, the 2020 QAP awards Missouri LIHTCs up to 70% of the available and authorized Federal LIHTC allocations.  With the 2020 QAP, MHDC created a pilot program to speed up construction and create more appeal for investors. The pilot program allows developers to redeem Missouri tax credits at the allocated, Federal LIHTC amount for the first 5 years of the redemption period, and redeem the remaining balance equally over the last 5 years.  To be considered for the pilot program, two financial models must be submitted.

To more fairly allocate the 9% credits between Missouri borders, the 2020 QAP separates the “out state region” into two categories: the MSA-Rural Region and the Rural Region. The MSA-Rural Region accounts for 20% of 9% credits, and the Rural Region accounts for 28%. The 2020 QAP also caps the amount of 4% credits to $3 million per fiscal year.

In addition to the fundamental changes in legislature of the Missouri LIHTC program, the 2020 QAP changes the way Missouri LIHTC applications are scored, and requires applicants to self-score their applications in an exhibit to the application. Qualifying applicants now need 100 points during phases II and III to qualify for underwriting phase IV. New scoring categories include special needs/vulnerable population, economic development, and HOME CHDO, and majority of the existing score categories have increased point maximums from previous years.

Furthermore, the application’s “Economic Impact to Missouri” section has been updated. The 2020 QAP now requires applicants to provide a detailed description of the project’s supporting economic activity, and describe how the project supports the need for affordable housing and economically impacts Missouri. The applicant provides these descriptions directly on the application, as opposed to in an exhibit as was previously done.

In conjunction with the 2020 QAP, the 2020 developer’s guide will see changes from prior years, which include establishing a minimum construction inspection fee of $13,500 and a requirement for all applicants to have an infectious disease management plan in accordance with the CDC.

While the Missouri LIHTC program has been at the mercy of state leaders, Missouri has experienced a serious deficiency in the availability of affordable housing units. With the reinstated program, developers and potential tenants are excited for the new push in LIHTC projects.

The application deadline is October 31, 2020 and rolling applications for 4% credit deals will be accepted October 1, 2020 through August 31, 2021. For more information on the changes to be implemented with the approval of the MHDC 2020 QAP, go to mhdc.com.

 

 

 

 

 

08/31/2020

COVID-19 and the Future of Office and Retail Space


Without a doubt, the past months have been a turbulent and uncertain time, complimented by a volatility that has not been seen since the Great Depression.

 

If one thing is true, it is that the pandemic caused by COVID-19 has either accelerated the retirement of industries or triggered the genesis of new business models. In the past, commercial real estate had been a strong and reliable investment with a sustainable supply of new properties, low vacancy rates, and low leverage. While a majority of these spaces maintain long-term leases (which are a useful tool to mitigate against uncertain times), the small business sector of the United States has been devastated by prolonged closures in states across the country, as the virus has rapidly spread. With these variables in mind, it’s important to analyze two areas of commercial real estate that could experience large-scale changes as a result of the pandemic. Those areas are retail and office space.

Over the past decade, brick and mortar retail has been steadily declining with the exponential growth and convenience of e-commerce. Now with the full halt that COVID-19 has inflicted on the brick and mortar sector, it appears that stores may be driven out of the “in-person” business model and forced to fight for an e-commerce presence. This will have an adverse effect on commercial real estate portfolios that have large investments in retail properties. Just to provide an idea of how devastating COVID-19 has been for the retail sector and more specifically small businesses, it is being reported that approximately one-third of small businesses in New York could be closed permanently, as federal and local assistance packages have all but run out. It should be noted that while a large portion of the retail space is being devastated by the pandemic, other segments such as warehouse distributors, grocers, hardware stores, etc., have had a growing demand and may look to expand operational space or locations. While we are likely to see a large contraction in the retail segment of commercial real estate, projects with space that can service those profitable retail spaces mentioned above will be able to mitigate the pandemic volatility.

As is the case for approximately 42% of the American workforce, working remotely has become a new way of life. In the past, the remote workspace was seen as a perk but not widely embraced, as it was seen as a potential hindrance to productivity and culture. Many employers were forced to clear out their office space and shift immediately into a fully remote workspace for their employees; what was once seen as an impracticality is now the new normal. As we have navigated through the pandemic, it appears that a large portion of employers are now considering hybrid working models that allow employees to come into the office at will or for a set number of days during the week. This has led companies to reconsider the amount of office space that they will need to occupy. Although office space has been profitable for commercial portfolios, the pandemic has inserted a fair amount of volatility. Even though long-term leases are mitigating changes to occupied space, the relief will not be perpetual. To remain competitive in the changing real estate economy, property owners may lower prices to maintain as many tenants as possible. While the office space segment will not see a contraction like retail, it is likely that there will be some shrinkage. Unlike retail, this market segment appears to have far more tools at its disposal to combat a decline.

Although the pandemic has exposed weaknesses in the once bulletproof commercial real estate segment, it is important to remember that this industry is built on long-term expectations. It is undeniable that the effects of COVID-19 have been devastating, but they are not unmanageable. Much like other industries, these challenging times will force innovation in both business models and development, which will help maintain the long-term stability of the commercial real estate industry.

 

 

 

 

 


08/27/2020

IRS Issues Notice 2020-58 Extending Deadline to Meet Rehabilitation Test for Historic Tax Credit Projects


On July 31, 2020, the IRS issued Notice 2020-58 that provides additional relief to taxpayers developing projects utilizing Historic Tax Credits (HTC). Similar to other COVID-19 relief guidance, there has been an extension to meet certain timelines. The notice extends the measuring period used in satisfying the substantial rehabilitation test requirement. Projects that have a substantial rehabilitation measuring period ending between April 1, 2020 and March 31, 2021 now have until March 31, 2021 to incur enough qualified rehabilitation expenditures to satisfy the test.


This would allow projects to have measuring periods longer than the typical 24 or 60 months if they fall within the above window. This relief helps HTC transactions, and it particularly benefits projects that are experiencing delays and trying to meet the substantial rehabilitation test window of June 20, 2020 to remain eligible under the transition rule, which would allow the HTC to be claimed in the year of placement in service as opposed to claiming over five years.


To remain eligible under the transition rule, projects can now be in service as late as December 31, 2021 as long as the project meets the substantial rehabilitation test by March 31, 2021. This significantly extends the window to complete the project, pass the substantial rehabilitation test, and still qualify under the transition rule.


RubinBrown’s Real Estate Services Group specializes in HTC and other tax credits and incentives. Please reach out to a member of the team for guidance on this and other topics, as the rules for meeting the substantial rehabilitation test are complicated, and our team has experience calculating and advising in this area.

Learn more about Notice 2020-58 here.

 

 

 

 

 


12/17/2019

Opportunity Zones and the Deferred Recognition of Capital Gains


Over the past two years, Opportunity Zones have generated a lot of buzz due to the ability to defer recognition of capital gains.


As a reminder, the recognition of capital gains from the sale of any property can be deferred if invested within 180 days of the transaction. The gains invested into an opportunity fund are deferred until the investment is sold or December 31, 2026, whichever is earlier. If the investment is held for five years, the original, invested gain is reduced by 10% and if it is held for seven years, the invested gain is reduced by an additional 5%.


In the first round of proposed regulations, the IRS clarified that the gains that could be invested into an opportunity fund include any gain treated as capital gain for federal income tax purposes, short-term capital gain, long-term capital gain, section 1231 gains and unrecaptured 1250 gains. A problem arises in that section 1231 gains and losses must be netted together to determine the tax treatment. Net section 1231 gains are treated as capital, while net section 1231 losses are treated as ordinary. If a potential investor has section 1231 gains and losses throughout the year, they must wait until at least the last day of the year to complete the netting process. Once this is complete, there is a 180 day window for these gains to be invested into an opportunity fund.


As it happens, December 31, 2019 has become a very important date for those looking to invest gains into an opportunity fund. In order to receive the maximum, 15% reduction in gain through an opportunity fund investment, the cash from the gain must be transferred no later than the last day of 2019. Investments made after this date will not be able to meet the seven year holding period requirement. December 31, 2019 also happens to be the first day that potential investors can calculate their net section 1231 gain and when the 180 day investment window begins.


Also in anticipation of the end of the year, the industry has been eagerly awaiting final regulations from the IRS. Many were hoping they would be issued by December 31, 2019, which is still possible. If not issued by the end of the year, it appears that they will be available in early 2020. The Treasury Department has submitted their version of the final regulations to the Office of Information and Regulatory Affairs, which is the last step before finalization of the regulations. The regulations will combine and update temporary regulations issued in October 2018 and April 2019.


If you need any help understanding the requirements to invest in a qualified opportunity fund, reach out to your RubinBrown advisor.

 

 

 

 


12/04/2019

Missouri Housing Development Commission LIHTC Awards Announcement Postponed


The Missouri Housing Development Commission (MHDC) met on December 2 and voted unanimously with 9 votes on a motion to postpone voting on the annual credit awards until the week of December 9. At this meeting, the commission is slated to vote on the federal low-income housing tax credit awards for Missouri.

Developers in Missouri are anxious to hear the results of the vote and many were surprised with the delay. Also, many traveled from across the state to hear the meeting which lasted only a few minutes.
 

We’ll share the results of this meeting once it is complete.

 

 

 

 

 

11/11/2019

Housing Colorado Now Conference Recap


On October 9-11, the annual Housing Colorado Now conference took place in Keystone, Colorado. Many prominent professionals in the affordable housing space gave presentations on issues affecting the industry.

RubinBrown Partner, Amy Broadwater, sat on a panel around current legislation updates in Washington. The panelists discussed several issues in the capitol affecting affordable housing from the government shutdown, to legislation such as AHCIA, and the quality of the affordable housing platforms of presidential candidates.

The legislation discussed could have profound positive effects for the affordable housing industry. Key provisions include the establishment of a minimum 4% floor for low-income housing tax credits generated by tax-exempt bonds issued for multifamily housing. This could lead to an increase in an additional 1,200 affordable homes in Colorado and 65,000 homes nationwide in the coming decade.

Additionally, the AHCIA could expand the practice of bond recycling. The bill would give states 12 months (doubling the current rule of six months) to recycle multifamily bond proceeds. The legislation would also make these bonds eligible for 4% housing credits. The panel projected that this would result in the construction of an additional 100,000 affordable houses in the next ten years.

The progress of the legislation in Congress is optimistic with bi-partisan support in both the House and Senate. However, there was also concern about the Announced Notice of Proposed Rulemaking released by the Office of the Comptroller of Currency in August of 2018 in regards to the Community Reinvestment Act (CRA). The CRA drives as much as 85% of LIHTC equity investment. Because of this, the affordable housing industry is very sensitive to changes in the rules and LIHTC stakeholders should follow this process closely. The panel projected that new regulations could come into law in late 2020 or early 2021.

If you need any help understanding current or proposed legislation related to affordable housing, reach out to your RubinBrown advisor.

 

 

 

 

 

10/09/2019

Look Before You Leap Into Opportunity Zones


After a careful review of the national stimulus program, some investors might conclude there are better destinations for their dollars, according to Steve Meyer of JVM Realty Corp. and Maureen Reichert of Rubin Brown's Real Estate Services Group. It seems you can hardly go a day without seeing a headline or two about Opportunity Zones.


Created by the federal Tax Cuts and Jobs Act of 2017 to spur long-term private investment in economically distressed communities, the Opportunity Zone program has been the subject of a tremendous amount of press coverage and investor interest. The program allows investors to reinvest capital gains into the creation or expansion of businesses and into the development or renovation of real estate located in opportunity zones. In return, the investors receive tax deferral and tax reduction benefits.


Read the full article in Multi-Housing News.

 

 

 

 

10/01/2019

Affordable Housing and the Next Election


The democratic debate on September 12th focused on a field of presidential hopefuls that is now narrowed down. Many groups and individuals across the United States with an interest in affordable housing watched the debate in hopes of a mention of the candidates’ stances on the topic.

Unfortunately, as with the other two televised debates, there were no questions and no discussion raised related to the current affordable housing crisis. According to the National Low Income Housing Coalition’s “The Gap: A Shortage of Affordable Homes 2019”, “no state has an adequate supply of affordable rental housing for the lowest income renters.” The middle class has also begun to feel the squeeze of housing affordability. Housing affordability will be a major issue that the current and/or next president will need to address now and in the coming years.

Even though the topic was not discussed in the recent debates, some of the democratic candidates have ideas (and even proposed bills) about potential solutions.

Cory Booker’s plan involves a renter’s credit to anyone paying over 30% of their before-tax income, a “Baby Bonds” savings account for every child, amends zoning laws and provides funding to the Housing Trust Fund to build more new rental units nationwide.

Julian Castro, who was the Secretary of Housing and Urban Development during the Obama administration, has detailed a comprehensive plan including more funding to the Housing Trust Fund, expanding the housing voucher program, establishing a renter’s tax credit and zoning reform.

Kamala Harris plans to address redlining, which involves the systematic denial of mortgage loans to certain “undesirable” communities, by offering down payment and closing cost assistance to residents of redlined areas. She also intends to fight discrimination in lending and public housing arenas, as well as provide potential homeowners with more education about home buying.

Elizabeth Warren has already introduced American Housing and Economic Mobility Act into the Senate and successfully encouraged representatives into sponsoring identical legislation in the House. Her bill proposes investing more funds in affordable housing programs, amending zoning laws, and lowering the cap on estate tax, amongst other things.

The proposals above are in addition to the Low Income Housing Tax Credit (LIHTC) program, which has enjoyed bipartisan support since its inception in 1986. The program has incentivized private companies and individuals to make investments in affordable housing developments, rather than rely on the government to provide public housing. According to the National Housing Law Project, there are currently over two million affordable tax credit units online in the United States today, with tens of thousands more placed in service annually. Although the LIHTC program has proven successful thus far, it only addresses part of the worsening affordable housing crisis.

RubinBrown’s real estate team can help advise on any questions related to affordable housing and the current landscape.

 

 

 

 


08/23/2019

HUD Awards $28 Million to Clean Up Lead Hazards in Public Housing


On August 20th, HUD announced awards of $27.8 million to 38 various housing agencies in 25 states to assist with lead-based paint hazards in older public housing units.

In addition to these awards, HUD plans to grant another $330 million later this year to clean up lead-based paint and safety concerns for privately-held affordable housing. To learn more, click here.

 

 

 

 

 

08/13/2019

The Outlook for Low-Income Housing Remains Positive


According to the Dodge Data & Analytics Supply Track data, approximately 394,000 multi-family apartment units were completed in 2017, another 381,000 units in 2018 and 453,000 units are expected in 2019.

Despite the growth in number of multi-family units, the nation’s supply of low-cost rental housing significantly shrank after the Great Recession and has remained for the most part unchanged since 2015. A National Low Income Housing Coalition study found that for every 100 extremely low-income renters, only 35 rental units were affordable and available in 2016, which is a shortfall of more than 7.2 million units. According to the Joint Center for Housing Studies of Harvard University, more than 2.5 million units priced below $800 were lost between 1990 and 2016. Additionally, job growth is expected to be at 1.0% in 2019, which would produce 1.5 million new jobs according to Fannie Mae’s forecast. According to the Fannie Mae 2019 Multi-family Market Outlook, based on that job growth, multi-family rental demand theoretically could increase in the range of between 250,000 units to as high as 370,000 units. Further straining the nation’s supply of low-cost rental housing.

As a result of demand, vacancy rates remain at historically low levels. Additionally, the low-income vacancy rates remain lower at government-assisted projects than at market rate projects. This has been a consistent trend as the need for low-income housing far surpasses the supply. Unsubsidized low-income housing units are under constant threat of being lost to upgrading or removal, while subsidized contracts are at risk of converting to market rate units. Affordability restrictions on 533,000 LIHTC units, 425,000 project-based section 8 units and 142,000 other subsidized units are set to expire within the next 10 years. As a result of both tenant and industry demand, the outlook for additional low-income housing remains positive.

 

 

 

 

07/22/2019

Facebook and the Fair Housing Act


The U.S. Department of Housing and Urban Development (HUD) announced in March 2019 that it is charging Facebook with violating the Fair Housing Act by enabling housing discrimination through its advertising platform.

HUD alleges that Facebook unlawfully discriminates based on race, color, national origin, religion, familial status, sex and disability by restricting who can view housing-related ads on Facebook’s platforms and across the internet. Further, HUD claims Facebook mines extensive data about its users and then uses this data to determine which of its users view housing-related ads based, in part, on these protected characteristics.

The Fair Housing Act prohibits discrimination in housing and in housing-related services, including online advertisements, based on race, color, national origin, religion, sex, disability or familial status.

A United States Administrative Law Judge will hear HUD’s charge unless any party to the charge elects to have the case heard in federal district court. If a judge finds that discrimination has occurred, he may award damages for harm caused by the discrimination. The judge may also order injunctive relief and other equitable relief, as well as payment of attorney fees. In addition, the judge may impose fines to vindicate the public interest. If the matter is decided in federal court, the judge may also award punitive damages.

At RubinBrown, we specialize in the complex and highly regulated affordable housing industry. We perform audits of Low-Income Housing Tax Credit (LIHTC) partnerships to ensure they comply with HUD regulations. In addition, we can help you navigate the complexities of these types of regulations and laws to protect your reputation.

 

 

 

 

 


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.