In 2012, in an effort to align itself with the timing constraints of the LIHTC universe, HUD created the 223(f) Low Income Housing Tax Credit Pilot Program. The primary goal of the program was to help streamline the underwriting and closing process of low risk LIHTC transactions. At first, the Pilot Program was limited to only four HUD offices around the country. In late 2012, HUD expanded the program to include all areas of the country. Processing of the lender’s underwriting occurs in select regional offices with a team of HUD professionals under a single underwriter model. This team is dedicated solely to the oversight of deal flow under this newly expanded program.
So, you may be asking, what kind of deals can run through this program? Right now, the program allows for 3 different deal types. HUD will permit acquisition and/or refinance and moderate rehab of properties with at least 90% of the units supported by a Section 8 HAP contract, moderate rehab and permanent financing of stabilized LIHTC assets that are being re-syndicated with new tax credits, and permanent financing for LIHTC deals under the 3-year rule waiver for assets with high interest rate forward commitments. Just recently, HUD has said they will now consider waivers on a case by case basis for projects that do not fit the requirements of the PILOT Program. Examples would include existing market rate or affordable transactions without Section 8 or tax credits that have an allocation of bonds or a tax credit reservation. You’re probably also asking what defines moderate rehab? Under the Pilot Program, it’s basically defined as $40,000 per unit or less in hard costs with only temporary relocation of the residents. If more extensive repairs are required, or if the relocation of the tenant base is for an extended period of time, then HUD has advised that the 221(d)(4) loan program is a more appropriate execution for this scope of rehab.
Finally, let’s cover timing. The goal of the Pilot Program is to issue a commitment within 60-90 calendar days of submission, and close within 90-120 days of submission. They are adhering to those time frames, and I can attest to this since we are nearing a closing date on our first Pilot deal in Memphis, TN.
So now, all that’s left is to identify an asset or two that would be a candidate for this program. HUD wants this business, and now’s the time to take advantage of it.