CREA Edge - May 2019



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

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