Assessing Developer Capacity
Exhibit 2-1 summarizes the key questions that the PJ should answer when it assesses the development team of a proposed project. With an LIHTC ownership entity, the PJ’s review should assess the capabilities of the managing partner or general partner who will carry out the day-to-day responsibilities of the project.
Exhibit 2-1: Assessing Development Team Qualifications
In evaluating the development team’s skills, capacity, and experience, the PJ should consider how similar the proposed project is to the projects that the team has previously developed. For instance, in a HOME-LIHTC project, the ideal development team has experience building and operating affordable rental housing using HOME funds, LIHTC funds, and HOME and LIHTC combined. If the development team has experience in only one program, it is important for the PJ to determine how the team plans to gain expertise in the other program, in order to ensure that the team is competent to develop and manage the property in compliance with both sets of program requirements.
Likewise, the PJ should evaluate whether the developer has undertaken projects that are similar to the proposed project—in terms of the project size and scope, target population, and geographic location. A developer may succeed with a series of projects of one type, but then fail when it attempts a different type of project, a project in a different market, or a project of significantly greater size. For instance, a developer who has a wonderful track record with medium-sized new construction projects for low-income seniors in the suburbs may fail when it attempts a large rehabilitation project for low-income families in the inner city, or a market-rate project, or a project in another town.
CHDO Involvement in LIHTC Projects
When CHDO funding is involved in a HOME-LIHTC project, the PJ needs to evaluate the CHDO’s anticipated role in the project. This is especially true if the PJ wants to “count” the HOME funds invested in the project toward its CHDO set-aside requirement. This is the HOME requirement that a minimum of fifteen percent of each annual HOME allocation must be invested in housing that owned, developed, or sponsored by a CHDO.
In some HOME-LIHTC projects, the CHDO is the managing member of an LLC or general partner of a limited partnership. Often, however, the CHDO is a co-sponsor with a larger or more experienced developer. If the CHDO is not the sole managing partner of the LLC, the PJ must obtain a waiver to use CHDO set-aside funds. In these projects, the larger developer may be the managing member or general partner, and the CHDO may be a subordinate member with a more limited role. These roles and responsibilities are explicitly addressed in the project’s Partnership Agreement (discussed in Chapter 3). If the PJ wants to use CHDO set-aside funds in the project, it must determine that the CHDO serves in a capacity where it has effective project control. The PJ should review the Partnership Agreement carefully to make that determination.
For more information on what constitutes effective project control, see HUD Notice CPD 97-11, Guidance on Community Housing Development Organizations (CHDOs) Under the HOME Program , issued October 8, 1997. This HUD Notice is available on the HOME website at https://www.hud.gov/program_offices/comm_planning/affordablehousing/programs/home/.
To use CHDO set-aside funds in an LIHTC project, the CHDO must have effective project control. For tax credit projects, this generally means that the CHDO must serve in the capacity of managing member (in an LLC) or the general partner (in a limited partnership)."
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