Credits with Senior Housing Products NATIONAL HOUSING & - - PowerPoint PPT Presentation

Using New Markets Tax Credits with Senior Housing Products

NATIONAL HOUSING & REHABILITATION ASSOCIATION

Kristin DeKuiper Holland & Knight LLP Boston, MA

What Kinds of Projects Qualify for the New Markets Tax Credit?

• Generally, any active business or non-profit activity conducted in

a Low-Income Community except:

– “sin” businesses’ (golf course, country club, racetrack or gambling facility, massage parlor, hot tub facility, suntan facility, liquor store) – Residential rental property (80% or more of rental income is from dwelling units)

• Examples:

– Community facilities (health care centers, charter schools, food banks, grocery stores, theaters) – Office or retail space – Manufacturing or production facilities (lumber yard, fish processing plant, yogurt processing plant) – Medical facilities – Mixed use commercial and residential facilities (where less than 80%

• f rental income is from residential OR the ownership of the two

uses is separated by a condominium structure)

No NMTC Financing for Residential Rental Property

What is Residential Rental Property? Residential Rental Property = any building or structure if 80% or more of the gross rental income from such building or structure is rental income from dwelling units. Code Section 168(e)(2)(a).

What is a Dwelling Unit?

Dwelling Unit = a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a “transient basis”.

No NMTC for Building financed by LIHTC

If a CDE makes a capital or equity investment or a loan with respect to a qualified low-income building under Section 42, the investment or loan is not a qualified low income community investment…to the extent the building’s eligible basis under Section 42(d) is financed by the proceeds of the investment or loan.

Treasury Regulation 1.45D-1(g)(3)(ii).

Mixed Use Residential/Commercial Project NOT Treated as Residential Rental Property (Less than 80%

• f Gross Rental Income = Income from Dwelling Units)

Building Owner LLC Commercial Leases (Grocery Store, Health Care Center, etc.) Residential Leases

Gross Rental Income <79% NMTC Financing

This diagram is incomplete and does not include all of the facts nor does it address any of the federal or state income tax issues involved. The federal and state income tax issues involved in a transaction of this type could affect the tax treatment of the transaction and this diagram does not consider, address, or represent a conclusion

• n any federal or state tax issues that may be involved. Taxpayers should not use this chart without advice from an independent tax counsel based on the taxpayer's

particular circumstances.

Mixed Use Residential/Commercial Project Two Master Condominium Units

Sponsor Housing Managing Member NMTC Managing Member Housing LLC Investor Member 99% NMTC (Commercial) LLC Non- Managing Member 1%-100% Residential Project (Unit 1) Commercial Project (Unit 2) Leases to Residential Tenants Leases to Commercial Tenants

NMTC Financing

This diagram is incomplete and does not include all of the facts nor does it address any of the federal or state income tax issues involved. The federal and state income tax issues involved in a transaction of this type could affect the tax treatment of the transaction and this diagram does not consider, address, or represent a conclusion on any federal or state tax issues that may be involved. Taxpayers should not use this chart without advice from an independent tax counsel based on the taxpayer's particular circumstances.

LIHTC or Other Residential Financing 100% 100% 1% 1%-100% Owns Unit 1 Owns Unit 2

NMTC for Nursing Homes or Assisted Living

• Is the facility a house or apartment?
• Are there dwelling units?
• If Yes, is 80% or more of the gross

rental income from dwelling units?

MHIC NMTC Financing for Nursing Home Facilities

Leonard Florence Center For Living, Chelsea, MA South Cove Manor, Quincy, MA Kathy McGilvray Boston, MA

Leonard Florence Center for Living Chelsea, MA

• 100-bed, 6-story Greenhouse style skilled

nursing facility located on a campus with 2 existing assisted living facilities.

• First urban Greenhouse style nursing facility in

the nation, with 3 houses dedicated to specific populations:

– Lou Gehrig’s disease (ALS) – Multiple Sclerosis (MS) – LGBT population

• Target patient mix: 50% Medicaid; 20% private

pay; 30% Medicare/managed care (short-term)

Leonard Florence Center for Living Chelsea, MA

• Financing closed in July 2008
• Sponsored by Chelsea Jewish Nursing Home

Foundation, Inc.

• NMTC allocation: MHIC ($20 million) & NCB

Capital Impact ($15 million)

• Investor: US Bank CDC
• Leveraged Lender: Eastern Bank
• Construction completed February 2010

Leonard Florence Center for Living Chelsea, MA

Leonard Florence Center for Living Chelsea, MA

Leonard Florence Center for Living Chelsea, MA

South Cove Manor Quincy, MA

• 141-bed, 4-story skilled nursing & rehabilitation facility
• Dining, social activities and nursing care organized

around Courtyards

• South Cove opened in Boston’s Chinatown in 1985 to

provide culturally competent care to Chinese elders:

– Culturally appropriate food options; – Activities – Mah Jong, Tai Chi, intergenerational events – Social service & family counseling by Chinese-speaking professionals

• Target patient mix: 83% Medicaid; 4% private pay; 13%

Medicare/managed care (short-term)

South Cove Manor Quincy, MA

• Closed in October 2012
• Sponsored by South Cove Manor Nursing &

Rehabilitation Center, Inc. (SCM)

• NMTC allocation: MHIC ($15 million) & US

Bank ($5 million)

• Investor: US Bank CDC
• Leveraged Lender: SCM, with proceeds of

tax-exempt bond financing from Cambridge Savings Bank

• Construction completed April 2014

South Cove Manor Quincy, MA

South Cove Manor Quincy, MA

South Cove Manor Quincy, MA

South Cove Manor Quincy, MA

Using NMTCs in Conjunction with Senior Housing Products

Richard Davies CohnReznick Baltimore, MD

Case Study: Loveland Green House and the Mirasol Senior Living Community

• Mirasol offers seniors 55+ a range of housing options with services and

amenities known for affordability, moderate climate, access to quality medical services, shopping, culture and the beautiful outdoors.

• Independent living housing options – rental and for-sale options, community

dues (services and amenities), pet-friendly.

• Services – life enhancement, transportation, classes, classes, community

services, grounds-keeping.

• Amenities – event center, coffee bistro, fitness room, business hub, grand

room, garden, guest suite, salon, massage.

• Final phase brings the Green House Project to the campus in lieu of

traditional assisted living.

Case Study: Loveland Green House and the Mirasol Senior Living Community

The Green House Project – taking us away from wheelchairs parked in a hallway to a planned community where elders can grow and contribute:

• Traditional nursing home turned upside down – skilled care without the same

“old” feel.

• Homes blend into the community – indistinguishable from any other house in the

community.

• Seven to ten seniors live and eat together as a family would with clinical team

support.

• Floor plan includes interior situated around fireplace hearth, open kitchen, large

dining table, high levels of sunlight.

• Partnership between the Loveland Housing Authority, The Green House Project,

Vivage Quality Health Care Partners, Colorado State Division of Housing, NCB Capital Impact and the Harry and Jeanette Weinberg Foundation.

Case Study: Loveland Green House and the Mirasol Senior Living Community

NMTC Qualification – the residential rental property analysis:

• Facts:
• SNF consisting of 6 homes with 10 bedrooms in each and an administrative building. In addition

to the bedrooms there will be a kitchen (commercial grade, licensed and inspected), where meals will be prepared by staff with resident participation.

• Buildings will be located on a single parcel and operated as a single facility where operations

(staffing, admissions, accounting, etc.) will be carried out on a unified basis.

• Services will be performed within the homes and largely within the bedrooms and supported

from the administrative building.

• The resident relationship will not be structured as a lease, but some of the monthly charges will

be attributable to the ability to occupy the bedroom. The market price for an SRO type bedroom in a dwelling unit would not exceed $500 (based on Medicaid eligibility rules limiting income, HUD FMV rents, Section 42 income limitations, etc.)

• At $500 per month rental value, imputed income across the facility (60 bedrooms) is $360k /

year and represents 6.67% of the annual operating income.

• 620 sq. ft in each building used exclusively for services support and 244 sq ft in the garage and

387 sq ft devoted to “shared support”. Rental value (per a local RE service firm provided a rental value of $15 for the space supporting nursing services

Case Study: Loveland Green House and the Mirasol Senior Living Community

NMTC Qualification – the residential rental property analysis:

• Analysis:
• NMTC requires the property is NOT residential rental based on more than 20% of the gross rental

income for rent from other than dwelling units.

• A dwelling unit is a house or apartment used to provide living accommodations in a building or

structure (PLR concludes nursing home units can be included)

• Multiple buildings located on a single parcel and operated as a single facility are treated as a

single building.

• Revenue attributed to services is NOT treated as gross rental income.
• Based on the imputed residential rental income above the fair rental value of the administrative

building and the other space used to provide services in each of the houses must be at least $90K per year.

• $15 per sq ft as applied to 620 sq ft of support services space (conservatively) across 6 buildings

plus the administrative building yields $90,300 (6020 in square footage at $15 per sq ft).

Case Study: Loveland Green House and the Mirasol Senior Living Community