HFA Roundtable: States Sound Off

Jacob Sipe
Executive director, Indiana Housing & Community Development Authority

What’s the biggest change you’ve made to the 2015 qualified allocation plan (QAP), and why?

The 2014-2015 QAP introduced a new measure of cost containment in response to industry-wide concerns about rising costs. We added a total cost per square foot scoring category. Developments are divided into three categories: new construction, preservation, and adaptive-reuse. Each development competes for up to eight points under the category.

Points are awarded based on the following distribution:

Developments with more than one construction type will compete in the category that represents the majority of their square footage.

What trends are you seeing in your 9% and/or 4% credit low-income housing tax credit (LIHTC) programs?

Rising total development cost for 9% has been a consistent trend. We will be analyzing our cost per square foot scoring category described above to determine what (if any) effect it is having in promoting cost containment. Demand also continues to be very strong for 9% credits, as we have only been able to fund about one of four applications. Our 4% activity has picked up considerably. The increase in demand for 4% credits has coincided with a growing demand for gap and soft financing.

What strategies are you implementing to preserve existing affordable housing?

We annually set aside 10% of our 9% credits for the preservation of existing affordable housing. We also encourage developers interested in preserving existing properties to explore the use of 4% credits if their development wouldn’t be competitive in the 9% round. Lastly, we are working closely with the Indiana U.S. Department of Agriculture Rural Development Office to find efficiencies that can align its requirements with our 4% credit program.

What is your agency doing to address cost containment?

In addition to the cost-per-square-foot scoring category, we have a pay-for-performance developer fee policy. Traditionally, IHCDA’s developer fee calculation policy was based on a percentage of total development cost. However, this methodology is counter-intuitive to containing cost because it promotes cost to determine the developer fee amount. For example, if a developer pays more for its lumber, then its fee is higher or easily achieves the maximum fee rather than a developer who purchases lumber at a lower cost. IHCDA’s pay-for-performance developer fee is simple; we pay for each unit produced. The maximum fee is determined by the construction type: new construction and rehabilitation or adaptive-reuse. This methodology also promotes our priorities of preservation and adaptive-reuse because the amount per unit is slightly less for new construction. For example, the 9% maximum developer fee for rehabilitation or adaptive is $1.2 million. The pay for performance is $20,000 for the first 15 units, $15,000 for the next 30 units, $12,500 for the next 30 units, and $6,000 per unit for units above 75.

What advice do you have for developers applying for LIHTCs and/or other financing in your state? What’s a common mistake developers make when applying for funding?

We recommend developers schedule a meeting with us prior to submitting an application to discuss their development, especially if they’re new to Indiana. A development team with tax credit experience is critical. Common mistakes include omitting threshold items or scoring documentation with the application. Even though common mistakes are often a minor technical oversight, their impact is significant as it results in a loss of points. With the highly competitive nature of 9% credits, every point counts, and a minor oversight is often the deciding factor of an award or denial.