EDGE Communications from the
Portfolio Management Frontline
May 14, 2019
INCOME AVERAGING: INCREASING OPPORTUNITIES
by: Brooke Solis, Senior Vice President - Asset Management
and occupied by individuals with incomes of 60% or less of the Area Median Income (40/60 test). In 2018, the omnibus bill amended Section 42(g) of the Internal Revenue Code of 1986 by adding a third minimum set-aside test called Average Income Test, commonly referred to as “Income Averaging.” The Average Income Test is now a third option available to elect on the partnership’s Form 8609: 3) 40 percent or more of the residential units are rent-restricted and occupied by individuals whose income does not exceed the imputed income limitation designated by the taxpayer with respect to a specific unit. The designated imputed income limitation for each unit shall be made in 10% increments from 20% to 80% and the average of all the imputed income limitations designated shall not exceed 60% of
the area gross median income.
To break it down further, the Average Income Test has two parts a) 40% of the units must be occupied by qualified low-income tenants and b) the average of designated income limits for all units must not exceed 60% of AMI. This new federal set- aside is not based on the tenant’s actual income percentage but based on federal set-asides set in 10% increments between 20% and 80% which are designated to each unit. For example, if a tenant’s actual income is 42% of the AMI, they would be able to occupy a unit with a federal set-aside of 50% or greater. This new set-aside brings flexibility and increased opportunity to provide affordable housing to additional tenants in areas and income bands that have historically been harder to reach. Tenants at deeper income limits such as 20% AMI can now be
It has been a year since the Consolidated Appropriations Act, 2018, also known as the omnibus spending bill, was signed into law. Since then, our industry has been focused on understanding and formulating policies around the new “Income Averaging” concept introduced by the bill. The Low Income Housing Tax Credit (LIHTC) program was created under the Tax Reform Act of 1986, and since inception, there have only been two options for the minimum set-aside test: 1) 20 percent or more of the residential units are rent-restricted and occupied by individuals with incomes of 50% or less of the Area Median Income (20/50 test) or
2) 40 percent or more of the residential units are rent-restricted
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INDIANAPOLIS OFFICE BUILD OUT The Indianapolis office recently underwent a remodel and expansion. CREA continues to reside at 30 S. Meridian Street in the heart of downtown, but we are now occupying the entire 4th floor. Gone are the days where new hires have to sit at conference room tables or mini desks along the cubicle walls throughout our office... continue on page 4
Samantha (Sam) Theising, AVP, Senior Asset Manager joined CREA in April of 2015. Originally located in Indianapolis and working her way from Asset Manager, to Senior Asset Manager and AVP, Sam was given the opportunity to move across the country and work out of CREA’s Portland office. Read about Samantha’s transition and role at CREA... EMPLOYEE SPOTLIGHT: SAM THEISING continue on page 5
P7 AWARDS & KUDOS P7 TAX SEASON P7 GOOD TO KNOW
P5 EMPLOYEE SPOTLIGHT, CONT. P6 NEW HIRES P6 FLANNEL FRIDAYS
P2 INCOME AVERAGING, CONT. P3 PROPERTY SPOTLIGHT P4 INDIANAPOLIS BUILD-OUT, CONT.
INCOME AVERAGING: INCREASING OPPORTUNITIES, CONTINUED
reached in markets where transaction structures previously did ...not support. Rents provided by lower incomebands canbeoffsetwith tenants at higher income bands such as 70% or 80%. Income Averaging
opportunity to hear from industry leaders and participate in discussion on this fascinating topic. It was encouraging to hear the various approachesandpolicies implemented by state agencies, investors,
steps prior to closing include considering the capacity of the Property Manager in light of Income Averaging. Asset Management will conduct an interview to understand the additional internal control and compliance procedures that Management has in place to manage the Average Income Test. We will also require the Property Manager to utilize property management software that is sophisticated enough to manage the Average Income Test and restrict changes to unit set- aside designations. Prior to lease- up, our Asset Management team will conduct a call with the General Partner and Property Manager to revisit the unit designations and confirm Management’s plan for lease-up and achieving the minimum set-aside. During initial lease-up we will be requesting management to submit, along with their monthly lease-up reports, a calculation that demonstrates how the property will achieve an average income of 60% or less for existing and anticipated unit set-asides. In addition, Asset Management will request a copy of their Income Averaging test as part of their quarterly reporting requirements. As we continue to learn more, I expect our policies and guidelines to also continue to evolve. It has been exciting to participate in conversations with passionate members of our industry over the past year. I look forward to seeing the effect the new Average Income Test set-aside has on the flexibility and availability of affordable housing.
can also have a significant positive impact on properties in rural markets by providing stability to transactions. This is accomplished by increasing the tenant base or increasing revenue where soft debt or
accountants and syndicators. The approach varies by state, while some are pioneering policies others are still in the formation process. States’ policies can vary greatly on additional
“Overall, Income Averaging opens the door to offer affordable housing to a wider range of households and markets.”
subsidy sources are not available. Income Averaging for an acquisition rehabilitation property can increase the opportunity for existing tenants to stay in place that exceed the 60% income limit but would qualify for a unit designated at 70% or 80% AMI. This new provision can also chip away at the affordable housing gap for families between the 60% and 80% income bands. Overall, Income Averaging opens the door to offer affordable housing to a wider range of households and markets. Over the past year, wherever the industry gathered, there was also likely a discussion about what the implementation of Income Averaging looks like. The IRS has not issued any guidance since the Code was amended leaving the states to determine their own policies. I had the pleasure of attending The HFA Institute in Washington D.C. this past January. It was an incredible
restrictions such as income bands, unit mix, set-asides, mixed-income structures and whether the unit designationsmust be fixedor floating. We will continue to see states develop and evolve their policies over time with the hope that we will move towards uniformity and consistency. Novogradac has assembled all the State Income Averaging Policies in one place on their website. This is a fantastic industry resource to learn about specific policies for each state. Income Averaging properties under contract and in the closing process in Indiana, Ohio, Michigan, Washington and Colorado. Our partners have also inquired about our approach to the Average Income Test. CREA has added language to our Investment Guidelines, policies and procedures, and our partnership agreements to address this new concept. Some of our newly implemented additional CREA currently has
APARTMENTS PROPERTY QUICK FACTS Location : Jacksonville, FL Units : 120 Construction : New Construction
Marcis Pointe Apartments is a senior community in Jacksonville, FL that offers resort living at an affordable price for its 55+ age residents. Centrally located and easily accessible, Marcis Pointe is just minutes away from downtown Jacksonville and its recreational areas. Community features include everything needed for an active senior lifestyle: fitness and community center, theater, salon, garden, and swimming pool.
prestigious Wendover Management collection of properties. We pride ourselves on providing an apartment home living experience for the discerning resident with a busy, active lifestyle. Wendover Management LLC is part of the Wendover Housing Group, a development company focusing on the creation of residential communities from exclusive condominium residences to outstanding workforce housing neighborhoods. Commitment to community and a strong sense of family, paired with remarkable,
Resident : Senior 55+ Community : Suburban Developer : Wendover
highly motivated personnel have been the driving forces behind the unparalleled success of Wendover Housing.” - Marcis Pointe website
“Marcis Pointe is a member of the
DOWNTOWN INDIANAPOLIS OFFICE BUILD OUT, CONTINUED
Everyone now has their own full size work station, with room for futher growth. The construction was completed in multiple phases, allowing for as little disruption as possible for employees. This included adding approximately 10,000 square feet of new space and
room for nine additional offices, 36 cubicles, two new conference rooms, and multiple smaller focus rooms. The kitchen turned café doubled in size and provides employees with a social atmosphere to enjoy their breakfast, lunch and snacks during breaks.
The existing office space has also been painted and received new carpet for a complete, cohesive feel throughout the entire office suite. We hope our visiting partners enjoy the update and expansion as much as we do!
Conference Room 3
Congratulations on your move! What have you enjoyed the most about your
Moving out to Portland in January provided us the opportunity to hit the slopes and go skiing, which is where we spent most of our weekends in February and March. Now that it is getting warmer we have ventured to the Oregon coast and done some hiking. The waterfalls in Oregon are a sight to see and we cannot wait to see more. How do you collaborate with Asset Managers and Indy through this transition? Communication is key. Skype has been a lifesaver during this transition. But honestly the asset management team has been great at making sure that I stay connected. Having weekly meetings with the team has also assisted in being able to collaborate. What is your favorite thing about working in Asset Management? Working for CREA? Working in Asset Management is a treat for me. I am a numbers person so reviewing quarterly financial statements and cash flow calculations are strangely fun for me. But what makes the job even better is working with people you can call your friends. That is what I would say is my favorite part of working for CREA.
the year after I graduated college, I found an opportunity though an organization I was part of in college, National Society of Leadership and Success. They were putting together a 10 day trip to Costa Rica which was half vacation, half service work. When we weren’t ziplining though the jungles or parasailing over the ocean, we helped rebuild a monkey sanctuary, cleaned up the beaches, and poured concrete for sidewalks at a local school. But the best part was meeting 30 people from all over the US that I would never have had the chance to meet otherwise. If Hollywood made a movie about your life, who would you like to see cast as you? Emma Stone In 40 years what will people be nostalgic for? Relationship building and socializing. I feel as technology and social media take over, generations will lose the ability to converse and build relationships face-to-face.
time in Portland? What has been the most surprising thing you have discovered about living in Portland? My husband and I love the outdoors and being outside. Portland offers us more opportunities to enjoy the outdoors than we had in Indianapolis. In the three months that we have been here we’ve not been still for very long. I would say the most surprising thing about Portland has been their hospitality. Being from Santa Claus, IN (a small town in southern Indiana) I have missed how nice people can really be to each other until I arrived in Portland. Everyone I have met has been so nice and friendly. It has really stood out to me. How has your new location been received by your clients and the CREA Portland office? Everyone involved has embraced the move with open arms. I have enjoyed being able to share some of the ins and outs of the Asset Management department with those in the Portland office and look forward to developing relationships with clients in the area. When you aren’t busy working, what do you enjoy doing? We are always looking for new adventures. But most often you can find us with our pup Cash, taking long walks along the Williamette River waterfront, checking out the dog park nearby or scoping out a new happy hour spot.
Any personal facts you could share with us? I’ve been to 36/50 states.
Best vacation you’ve been on? The best vacation I have been on was
MEET OUR MOST RECENT NEW HIRES!
banking industry in 2016 as a financial analyst for Pedcor. After spending two years there, he transitioned to downtown Indianapolis where he joined CREA towards the end of 2018 as a fund analyst. Brock and his wife, Liz, reside on the canal in downtown Indianapolis and when not in the office you can find him golfing, playing guitar, biking, running, or spending time with his family.
an avid concert goer, loves to spend time with her family at Walloon Lake, and enjoys watching the Indianapolis Colts.
Jarrod Campbell, Asset Manager Asset management
Alex Schneider, Asset Manager Asset Management
Jarrod graduated from Purdue University in 2015 with a degree in accounting and management. He worked at Duke Realty for three years before making the jump to CREA in November of 2018. Jarrod currently lives in Broad Ripple with his girlfriend, Alyssa, and his dog, Sherwin. When he is not watching sports, he enjoys the outdoors and spending time with friends and family.
Alex Butler University in 2014 with a bachelors degree in accounting and also received a masters in accounting from Butler in 2015. After starting his career at Barnes Dennig for two years, auditing affordable housing, Alex joined CREA’s Asset Management team in November 2018. Alex currently resides in the Broad Ripple neighborhood of Indianapolis. Outside of work, he enjoys spending time with family and friends, watching and following sports, and playing volleyball. graduated from
McKenzie Reese, Fund Analyst Fund Management
McKenzie graduated from Ball State University with degrees in accounting and marketing. Her career began at Dauby O’Connor & Zaleski, LLC (DOZ) before joining CREA’s Fund Management team in February of 2019. McKenzie also owns a development company, which specializes in home renovations. McKenzie and her husband, Michael, live in Indianapolis’ Meridian Kessler neighborhood with their six year old son, Hunter. Outside of work, she is
Brock Erb, Fund Analyst Fund Management
Brock grew up on the north side of Indianapolis and attended Purdue University,whereheearnedhisdegree in business management. He got his start in the affordable housing and
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FLANNEL FRIDAYS It has become tradition for fund management to don their flannels every Friday throughout the cooler months. Why? Because plaid is rad. So rad that many employees outside of fund management have started participating. A company that wears flannel together - stays together.
AWARDS & KUDOS
We’re pleased to announce that CREA’s Indianapolis office earned a spot on the Indiana Chamber’s Best Places to Work in Indiana list for the second year in a row for the medium size company category. Highlighted were CREA’s benefits - supporting growing families, as well as a “work hard, play hard” culture. Results were based primarily on employee surveys.
Another tax season in the books! Thank you to our developer and accountant partners who helped CREA get to the finish line and deliver the Fund audits and tax returns to our investor partners. 2018 was a particularly challenging year due to tax reform and a lot of extra work and review went in to the partnership tax returns and audits. We want to thank you for another successful year! 2019 TAX SEASON
GOOD TO KNOW
2019 HUD Income Limits – The HUD income limits were released on 4/24/2019. There is a 45 day grace period for implementation of new rent and income limits (6/8/19).
On February 26, 2019 the IRS issued new compliance monitoring regulations which decreased the inspection notice requirement from 30 days to 15 days, requires state agencies to inspect units in all buildings and changed the minimum number of units required to be inspected to be based on a project’s size according to the Low Income Housing Credit Minimum Sample Size Chart.
Insurance – Beginning in February, CREA has contracted with D&M Insurance, LLC to service all of insurance monitoring. D&M Insurance will reach out to our partners directly on behalf of CREA for insurance certificate renewals.
SnapInspect – We have gone mobile! CREA has invested in web and application services provided by SnapInspect to conduct our annual site inspections on our phones and tablets. This software allows us to snap pictures and create reports with a tap of a button. We can create and send inspection reports while on the fly between locations.
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