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Austin: TDHCA Board Asked to Assist 9% Tax Credit Project Developers with Skyrocketing Lumber Prices

Feature Photo: The Calcasieu Lumber Company lumber yard in South Austin. Image: Google Streets.

Posted: 5-14-2021

by Adolfo Pesquera

Austin (Travis County) — At the May 13 session of the state agency that assists affordable housing projects, an amendment to a Year 2020 tax credit award was approved in part because skyrocketing lumber prices had forced the developer to redesign the project.

This was the only action item where volatile construction pricing was cited, but the Texas Department of Housing and Community Affairs Governing Board also accepted a staff report that was initiated by an association of apartment developers that are on pins and needles over the current state of their industry.

No action was taken on a request to allocate millions of dollars to distribute to 9% housing tax credit applicants in general, but staff is expected to come back next month with a recommendation.

The first mention of the lumber crisis appeared almost without discussion when the board approved a “Material Amendment” to a 9% tax credit that was awarded last year for Lofts at Temple Medical District in Temple. The tax credit is use to leverage financing for a construction loan–in this case for a 120-unit apartment complex.

Thursday’s request was to change the scope of project from 120 units to 140 units because of “unforseeable increases in construction pricing and volatility in debt and equity costs as a result of the COVID-19 pandemic, and that these factors have cause the need for the addition of 20 units to ensure profitability.”

The project expansion also required an increase in project site, with the acreage going from 26.67 acres to 31.11 acres. Total square footage would change from 101,572 SF to 115,120 SF.

Jessica Krochtengel, manager to the general partner, informed TDHCA that the pricing and pandemic disruptions had already caused an ownership transfer, “and the new partners (Temple MD 20 LP) have been working diligently on minimizing changes to the original application.”

The Governing Board later heard a request from the Texas Association of Affordable Housing Providers (TAAHP) to assist other developers that had received Year 2020 9% tax credit awards. Last July, the Governing Board approved 71 projects through the competitive 9% tax credit program.

TAAHP’s request was that $5.1 million from the upcoming 2022 9% allocation be set aside for relief to the 2020 awardees. Fueled by increased costs due to safety requirements, lower production due to quarantine, and increased demand due to homeowner interest in remodeling, the increased prices have negatively impacted construction projects. TAAHP President Janine Sisak noted that a similar “forward commitment” set-aside was successfully done in 2006.

The National Association of Homebuilders reported in February that lumber prices had jumped more than 180% since last spring. Sisak said the lumber costs are also hurting some 2019 tax credit awarded projects that got a late start.

A TDHCA staff assessment of the request cautioned that such a set aside would reduce the per capital amount on projects submitted in 2022 to a pre-2018 level.

Lumber being loaded onto a flatbed trailer at Stahlman Lumber Co. in Houston. Image: Google Streets.

Staff is currently working with 2021 applications on the assumption that this year’s pool of funds for 9% tax credit awards will be about $82.5 million. Unless federal action is taken to continue adjusting this pool of funding upward on its current trend, the 2022 pool is already anticipated to drop to about $74 million, and the requested set-aside and other adjustments would reduce that to about $58 million, “which would represent an approximate $30 million reduction from 2021 funding.”

TDHCA’s multifamily finance director, Marni Holloway, also noted that such a set aside would require regulatory waivers and could adversely affect developers that took the additional credit and then the applied for a tax credit on their next project in the 2022 cycle.

Holloway offered an alternative. Thanks to a rule change, this is the first year that the TDHCA is offering direct loans with certain tax credit awards.

“The Multifamily Direct Loan (MFDL) Program rule could be used to provide loans as opposed to credit allocations to 2020 9% applicants,” Holloway said. “These loans could be made less burdensome by removing certain non-regulatory limitations and increasing available activities.

“TDHCA anticipates having at least $60 million in MFDL available that could be used for this purpose–approximately two-thirds of which must be committed by mid-2023 or will be lost to the State of Texas.”

Donna Rickenbacker of Houston-based Marque Real Estate Consultants LLC called in during public comment and acknowledged that lumber prices are causing havoc.

“I have at 9% 2019 (tax credit) deal where the lumber company refused to honor their contracts because of price escalations. So, we are rebidding and getting close to work stoppage as a result,” Rickenbacker said.

However, Rickenbacker was opposed to the association’s request for a set-aside from future tax credits. “We’re already starting out with less credit (in 2022) and that will result in fewer projects. And lumber prices may come down.”

Governing Board Chair Leo Vasquez expressed reluctance about doing the $5.1 million set-aside, noting all the adverse ripple effects it would cause. Referring to the action taken in 2006 that Sisak cited, Vasquez said, “Actions from the past don’t always indicate they were good actions.”


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By |2021-05-14T13:41:04-05:00May 14th, 2021|Feature Story, Industry News|

About the Author:

Adolfo Pesquera (Reporter/Editor) is a veteran news journalist. He has worked for Hearst Corp., American Lawyer Media, News Corp and Freedom Communications. His work has been published in newspapers and magazines across the USA. He is a journalism graduate of UT-RGV. He writes, edits and creates digital pages for VBX.

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