N.J. Admin. Code § 5:80-33.12

Current through Register Vol. 56, No. 9, May 6, 2024

Section 5:80-33.12 - Application to a cycle/eligibility requirements

(a) A mixed-income project, mixed-use project, or affordable project linked to a market-rate or commercial component that is part of a municipal fair share housing development plan or a court-approved judgment of repose or compliance, including, but not limited to, developments that have received a density bonus, may not compete for tax credits (ceiling tax credits), unless the applicant can conclusively demonstrate that the market-rate residential or commercial units are unable to internally subsidize the affordable units and the affordable units are developed contemporaneously with the commercial or market-rate residential units. This subsection shall not be evaded by failing to apply all or any portion of the subsidy to the low- or moderate-income units, by diverting all or any portion of the subsidy to other uses, or by using any other device by which all or any portion of the subsidy is not used to benefit low- or moderate-income housing. For example, if a site was originally zoned at four units per acre and a rezoning resulted in six units per acre with a 20-percent set-aside for low- and/or moderate-income units, then the site would be the recipient of a density bonus. If the developer built at six market units per acre, subdivided a portion of the acreage, and donated the subdivided portion to a for-profit or nonprofit developer, then the new owner may not compete for ceiling tax credits if the market-rate residential units were able to subsidize the affordable units. Alternatively, if on the same site the number of low- and moderate-income units is increased without a corresponding increase in density, then the additional affordable units would be eligible to compete for ceiling tax credits. In determining whether an applicant has conclusively demonstrated that the market-rate residential or commercial units are unable to internally subsidize the affordable units, NJHMFA shall apply the standards set forth at N.J.A.C. 5:80-33.9(b)1 through 4.

(b) In performing its review of all applicable eligibility requirements, NJHMFA staff may contact the applicant to ask questions if there are unclear aspects of the application. Such contact should not be construed by the applicant as an approval or rejection, but simply as an attempt to clarify the application.

(c) Applications shall meet all of the eligibility requirements listed in this section by the application deadline in order to be admitted into a cycle. NJHMFA reserves the right to contact the applicant if the need arises.

1. Applications shall include the information set forth at (c)1i, either (c)1ii or (c)1iii, and (c)1iv below in order to demonstrate the need and demand for the proposed project in a market area. If NJHMFA determines an insufficient market need or demand exists, the project shall be deemed ineligible.

i. The proposed development, including all amenities and services, shall be described in a narrative format by the applicant. The narrative shall include an explanation of how the services shall be paid for, as well as the need and demand for the project and its impact upon the neighborhood. Commercial space, if any, shall be disclosed. Photographs of the site and existing structures shall be provided from all significant perspectives and show all significant nearby land uses, including, but not limited to, those land uses listed at N.J.A.C. 5:80-33.15(a)11. Preliminary drawings of the finished project, including the site plan, floor plan, and elevations drawn to scale, shall be submitted with the narrative.

ii. A market study, certified to both the applicant and NJHMFA in the analyst's Certification, shall be submitted for all projects. Two copies of the report shall be submitted. The market study shall be no more than six months old. Projects applying for additional credits from the Reserve that have already received a previous allocation of tax credits shall not be required to submit a new market study. The analyst shall state in the certification that all market study requirements have been fully addressed. If any relevant information cannot be obtained, the analyst shall explain why the information cannot be obtained. The study shall also identify any assumptions, estimates, projections, and models used in the analysis. The assumptions used in the market study (for example, project rents, unit mix, amenities, etc.) must precisely reflect the information provided in the tax credit application. The data and analysis shall clearly indicate enough demand in the market to support the proposed development. Any additional information appropriate to the market area and the project shall be submitted to demonstrate the demand for the proposed housing project. The report shall include, at a minimum:

(1) A brief executive summary that includes the appropriate vacancy rate, capture rate, absorption period, and the market advantage compared to comparable market-rate properties given the rents projected by the applicant, as well as a detailed table of contents that clearly identifies the location of the items listed below;

(2) A description of the proposed site, including pictures of the site and existing structures, pictures of the immediate neighborhood, visibility/access/exposure, proximity to retail and employment, detailed neighborhood and market area maps showing all significant nearby land uses, block and lot numbers of each parcel, site acreage, available public services and public transportation, and existing infrastructure. A description of the proposed improvements including unit mix, a commentary on the preliminary drawings including unit size and design, proposed project and unit amenities, and any applicable tenant charges, tenant-paid utilities, and project-paid utilities shall be provided. Detailed monthly utility allowance figures shall be presented separately for each utility type (for example, electric, gas, etc.) and for each unit type within the project;

(3) Geographic definition and analysis of the market area, including a comprehensive and reasonable rationale for the suggested market area with supporting evidence. For example, the market area may be defined as the area in which similar properties compete with the subject property for tenants, or the area immediately surrounding the project from which 60 to 70 percent of the residents are expected to be drawn, taking into account political and natural boundaries, socioeconomic characteristics, and the areas from which nearby rental developments draw new tenants. The market area shall be evaluated on the basis of employment and income levels and trends, the presence of local revitalization projects, the number of substandard units in the market, and the number of cost-burdened households in the market. Interviews shall be conducted with area apartment managers to establish mobility patterns in the area. Particular attention should be given to tax credit properties. As available, the results of the interviews shall be reported, showing the percentage of residents by neighborhood/community. For cases in which the subject property is an existing rental development or later phase of an existing development, detailed tenure by prior residence must be shown. Additional explanation shall be provided for any market area with boundaries in excess of three miles (urban site) or five miles (rural site) of the site;

(4) An economic analysis that provides the reader context to better understand the household and rent trends in the market. Topics to be addressed shall include:

(A) Presentation of data and analysis pertaining to the trend in resident employment and unemployment;

(B) Presentation of data and analysis pertaining to trends over the past five years in total at-place employment (that is, jobs) in the county in which the subject site is located;

(C) Presentation of data and analysis pertaining to at-place employment by industry sector for the primary market area (PMA) or smallest available geographic area that includes the PMA and comparison to appropriate larger geographic area (that is, city, county, metropolitan statistical area, or labor market area);

(D) A list of major employers in the PMA or other appropriate small geographic area and announced changes in workforce (that is, expansions, contractions, and relocations), as well as newly announced employers and their anticipated effect on the local economy; and

(E) A map of major employers and employment centers in relation to the subject property;

(5) A demographic analysis of the owner and renter households in the market area at (c)1ii(3) above that are income eligible and can afford to pay the rent (assuming potential households may spend up to 40 percent of their income on housing expenses). When appropriate, the eligible households shall also be analyzed by household size, race, ethnicity, and age. Market studies submitted for projects applying to the Age-Friendly Senior Cycle shall include an evaluation of the market for the eligible population over 70 years old. Demographics from the last decennial census shall be updated to reflect current market conditions and shall be the basis for projected demographics. This research data shall be provided in the appendix and shall be from an organization such as Nielsen or a governmental source such as the American Community Survey, metropolitan planning organizations, or local planning agencies. Supportive Housing projects shall also provide demographics on the special needs population in the project in order to substantiate need and demand at projected rent levels;

(6) Rent, vacancy, and amenity surveys by unit size of market rate, affordable, and subsidized properties. The affordable property survey shall include all LIHTC properties in the market area and those projects that are currently under construction or have received preliminary site plan approval. A rent adjustment analysis of the most comparable properties to the subject shall be presented to derive a market rent for each unit type. Data shall include, at a minimum, a grid analysis by unit size for rents, amenities, unit features, unit square footage, age, number of bathrooms, tenant-paid utilities, rent per square foot, location, physical condition, and curb appeal. Rents shall be adjusted, especially for utility and amenity charges, so that appropriate comparisons can be made. The proposed rent shall have at least a 10-percent rent advantage in relation to the estimate of market rent. Additional information concerning unit mix, vacancy and turnover rates, operating expenses, rent trends, rent concessions, rent control, waiting lists, absorption per month, design, contact, and contact phone number shall be provided in a grid or narrative format, when available. The market study shall contain a minimum of three rent comparables for each unit size. All comparable properties should be within the delineated market area when possible. In cases where a comparable project has to be chosen from outside the market area (for example, where there is not enough similar rental product in the market area), appropriate adjustments should be made for location differences. At least one picture of each comparable and a detailed street map that shows the location of each comparable shall be provided. In addition, if the building that is the subject of the tax credit application is currently occupied, rent rolls and current tenant incomes shall be provided and analyzed;

(7) The capture rate, absorption period, and the impact the proposed rental housing may have on existing inventory. The capture rate is the number of units in the project divided by the net demand for the project, where the net demand is the number of households that are income eligible and can afford to pay the rent minus the number of comparable affordable units in the market area. For purposes of the market study, the maximum annual household income for the tax credit units shall be equal to 50, 60, or 80 percent of the area median income (depending on whether the applicant chooses the 20 percent at 50 percent, 40 percent at 60 percent, or average income Federal set-aside) of a household. The maximum income limit shall be based on an average household size of 1.5 persons per bedroom for the largest tax credit unit. For single room occupancy projects, the maximum income limit shall be based on the assumption of one person per unit. Maximum income limits for all proposed senior projects shall be limited to a two-person household. The minimum annual household income for the tax credit units shall be equal to the lowest tax credit gross rent multiplied by 30 (which assumes that potential households may spend up to 40 percent of their income on housing expenses on a monthly basis). The absorption period is a forecast of the number of months that will elapse from the completion of construction to stabilization (93 percent occupancy) of the project as a whole, taking into consideration a reasonable vacancy rate. Sample calculations of capture rate and absorption period shall be shown in the report, and NJHMFA shall be able to reconstruct the estimates using the data and methods in the market study. When additional analysis is appropriate, methods shall consider demographic trends, age of householders, the size of renter households, the unit mix of the project, the amount of home ownership in the target population, the cost of home ownership in the market area, approved projects not yet placed in service, and any other significant factors. Tine impact of tine subject project on existing housing in the market area shall also be addressed;

(8) If applicable, the appropriate rent per square foot and vacancy factor based on market conditions for any commercial space in the project;

(9) A conclusion forecast regarding the potential viability of the proposed project which states the strengths and weaknesses of the project, compatibility of surrounding land uses, appropriateness of project design and amenities, and the reasonableness of projected rents. In addition, the analyst shall state whether sufficient demand from targeted households exists for the development as proposed. Suggestions to make the project more marketable shall be provided if appropriate. All conclusions shall be based on data analyzed in the body of the report; and

(10) A statement of the competency of the analyst conducting the study. The market analyst shall certify that:

(A) They are an independent, third-party professional with no financial interest in the project other than in the practice of their profession (for example, their fee for preparing the report is not contingent upon project completion and/or an award of tax credits);

(B) They have the requisite knowledge to conduct the study;

(C) They have personally inspected the subject property and the comparable properties analyzed in the report; and

(D) They have conducted the study in accordance with the Model Content Standards for Market Studies for Rental Housing of the National Council of Housing Market Analysts (NCHMA), 1400 16th Street NW, Suite 420, Washington, DC 20036, whose Model Content Standards are available at http://www.housingonline.com/councils/national-council-housing-market-analysts/model-content-standards/, incorporated herein by reference, as amended and supplemented.

(11) The provisions at N.J.A.C. 5:80-33.11(d) and (e) shall not apply to market studies submitted pursuant to this subsection. Instead, during the market study review process, a reviewer contracted by NJHMFA shall notify the independent, third-party professional who completed the market study by telephone and, simultaneously, in writing, by email about significant missing or unclear components of the market study. A copy of such correspondence shall also be simultaneously sent to NJHMFA and the tax credit applicant. Failure of the independent, third-party professional who completed the market study to provide a sufficient response within five business days about significant missing or unclear components of a market study shall result in an application being declared ineligible.

iii. For projects of 25 units or less and projects receiving Project Based Section 8 rental assistance for 100 percent of the units, the form of market analysis described below may be submitted in lieu of the market study requirements listed at (c)1ii(1) through (7) above:

(1) The third-party analyst shall provide a description of the proposed site and proposed improvements, a geographic definition and analysis of the market area, age and income demographics within the defined market area, and rent, vacancy, and amenity surveys by unit size of market-rate, affordable, and subsidized properties. In addition, a rent adjustment analysis shall be provided of the properties most comparable to the subject property. For suggestions, see (c)1ii above; and

(2) The requirements at (c)1ii(8) through (11) above shall be complied with.

iv. Updates of market studies more than six months old shall reflect a recent site visit by the market analyst, updated information on the comparable properties, and an analysis of any significant changes to the subject development. Only one update to the market study is permitted. Applicants shall submit both the original market study and any applicable update in the application submission.

2. Applications shall include the information set forth at (c)2i and ii below in order to demonstrate site control:

i. The applicant shall be either the owner or developer of the project and shall demonstrate that it has control of the property through any one or a combination of the following: fee simple title by way of deed; long-term ground lease or option to enter into a ground lease (for a minimum term of the compliance and extended use periods); option agreement to purchase or lease, including evidence that options are renewable until at least the start of construction; executed contract of sale or other enforceable agreement for acquisition of the property; and/or an executed disposition and development agreement with a public agency that specifies the site(s) to be acquired and, if the property is to be or may be acquired by eminent domain, identifies the condemnor, as such term is defined at N.J.S.A. 20:3-2, or its successor. The acquisition price and basis shall be limited to the lesser of the purchase price or the "as is" appraised value of the building and/or land.

ii. The applicant assumes the full burden of disclosing with certainty in its application how it will obtain and maintain site control. The application shall set forth with specificity by what means each parcel of the project's real property is to be acquired if such acquisition has not yet been perfected; applications shall not indicate alternate means of acquisition for any particular parcel. If multiple documents are necessary to evidence site control, there shall be no lapse in the chain of site control documentation, such that the applicant's right of site control over the property from the property owner is evidenced. For all forms of site control, a copy of the current owner's recorded deed (or equivalent) shall be submitted as supporting documentation. In the case of a municipality or other entity acquiring property through eminent domain, at a minimum, the applicant shall submit as part of its application a copy of all written offers, as described at N.J.S.A. 20:3-6, or its successor, executed by the condemnor to the condemnee(s) with regard to all real property comprising the project that is to be acquired by this means, which offers must be in effect and valid at the time of submission to NJHMFA. If additional documents have been executed and/or filed with regard to eminent domain at the time of application deadline, the applicant shall append a copy of those documents with its application and shall continue to supplement the application with such documents as required at N.J.A.C. 5:80-33.31; additionally, the declaration of taking shall be recorded within three months from the date of the Tax Credit Committee meeting at which awards/decisions are announced.

3. Applicants shall submit a copy of the preliminary or final site plan resolution, as well as all other approvals. For rehabilitation projects with sites that are not required by the municipality to obtain site plan approval, a letter from the planning board (or appropriate municipal official) stating that the site(s) are not subject to site plan approval shall be provided. It is the applicant's responsibility to ensure that the project complies with all applicable local land use and zoning ordinances and that nothing at the local or county level will interfere with the project obtaining all necessary permits.

4. Applicants shall disclose the existence of any known environmental conditions/constraints, including, but not limited to, wetlands, stream encroachment, and steep slope grading, that may impact development on the project site. In addition, applicants shall certify that all necessary environmental approvals have been obtained or, at a minimum, applied for from the Department of Environmental Protection. If remediation is necessary, the remediation plan shall be accounted for in total development costs. If a Phase I environmental study conducted in accordance with the American Society for Testing and Materials (ASTM) E1527-21 (or most recent standards adopted by the State), Standard and Poor's Enhanced Protocol (which includes testing for lead, asbestos, and radon) has been completed for the project, the findings shall be submitted. A Phase I is not required; however, if a project is awarded credits and a Phase I was not submitted with the application, the applicant shall not be allowed to apply for hardship credits for unforeseen environmental issues.

5. As required pursuant to Section 42(m)(2)(B)(i) of tine Code, all financing information shall be disclosed in the application, including information about letters of interest and other undertakings that the applicant does not identify as funding sources in the application. The applicant shall provide all syndication documents in existence at the time of application, including, but not limited to, the prospectus (offering memorandum), limited partnership agreement, joint venture agreement, partnership administration services agreement, development agreement, any amendments to the aforementioned documents, and any relevant agreement between and among the relevant parties setting forth the terms of the financial arrangements, commitment letters, if any (firm or otherwise), and mortgage documents. All documents must include all exhibits and schedules. In addition. Section 42(m)(2)(C)(ii) of the Code requires the taxpayer to "certify to the housing credit agency the full extent of all Federal, State, and local subsidies which apply (or which the taxpayer expects to apply) with respect to the building."

6. All funding sources planned for the project shall be committed to the project at the time of application, excluding NJHMFA financing sought as part of the application. For NJHMFA financing only, a preliminary approval letter will be acceptable at the time of application, which letter shall verify that the project development budget included as part of the application for financing has been reviewed and the underwriting parameters conform with current NJHMFA Multifamily Underwriting Guidelines and Financing Policy, available at http://ni.aov/dca/hmfa/developers/multifamily. Commitments shall be firm and contain only conditions that are under the control of the applicant (that is, commitments cannot be conditioned on the availability of funds). The amount and all terms of the funding commitment shall be listed in the documentation provided at (c)6i through viii below. The amount and terms shall be used by NJHMFA in its underwriting analysis. Commitment letters shall be countersigned/accepted, in writing, by the applicant. Expired commitments, letters of interest/intent, and term sheets do not qualify as commitments. To evidence commitments for funding sources, the following is required:

i. Banks and other lending institutions: Commitment letters for construction and permanent financing must indicate the interest rate (or the basis on which the interest rate will be set), term of the loan (at least 15 years for permanent financing, or, if less than 15 years, the loan must be fully amortizing), and all conditions. If the interest rate is floating after permanent loan closing, a maximum interest rate shall be stated in the commitment letter, and shall be the rate at which NJHMFA conducts its underwriting analysis. The commitment shall have been approved by the lender's final approval authority (for example, from a bank's loan review committee or if a lending consortium, from the consortium itself). The maximum mortgage supportable shall have been obtained.

ii. State Affordable Housing Trust Fund (AHTF), State Community Development Block Grant (CDBG), or HOME funds: Projects applying for AHTF funds and tax credits shall comply with the applicable rules of these programs. DCA shall inform NJHMFA of those projects that have submitted a complete application for State AHTF, State CDBG, or State HOME funds by the tax credit application deadline. DCA will inform NJHMFA of the projects it intends to fund and the subsidy amounts if those projects are sufficiently competitive to receive tax credits. DCA will announce the AHTF, State CDBG, and HOME commitments at the same time NJHMFA awards the reservations of tax credits.

iii. Grants: All private. State, or local grants shall be deducted from basis unless the grantee is taking the grant into income and paying income tax on it or the grantee is making a loan to the final ownership entity. All Federal grants must be subtracted from basis.

iv. Municipal, county, or PHA grants or loans: Funding approvals for municipal or county grants or loans (for example, CDBG, HOME) vary from county to county and from municipality to municipality. NJHMFA is sensitive to the regulatory constraints and administrative processes of local governmental funding sources and recognizes that evidence of firm commitments may vary from one government entity to the next. Generally, it is the municipal council and county board of freeholders that have final approval authority; therefore, a copy of the county or municipal resolution/ordinance approving the funds for the project is required to be submitted with the application. However, for governmental entities where that is not the standard approval process, NJHMFA shall accept comparable commitments. For example, for projects receiving HOME funds from participating jurisdictions (PJs), NJHMFA shall accept one of four forms of commitments in light of the many ways that local governmental entities combine their local approval process with Federal HOME regulations. First, applicants may simply submit an approved municipal or county resolution described in the beginning of this subsection. Second, an applicant may submit a copy of the HUD form 7015.15 "Request for Release of Funds and Certification" along with a copy of the PJ's cover letter transmitting it to HUD. Third, the applicant may submit a copy of their PJ's Comprehensive Housing Affordability Strategy (CHAS) with the project and the funding amount specifically cited in the CHAS along with a copy of the PJ's resolution approving the CHAS. Fourth, for those PJs that have authorized their staff to make final funding decisions, a commitment letter signed by the authorized signatory (that is, the person having final approval authority) shall be sufficient, so long as documentation delegating final approval authority to the signatory is also submitted.

v. Owner equity/loans and deferred developer fee: All applicants representing that they shall be contributing equity beyond that generated by the tax credit shall disclose the amount, the source, and all terms. Applicants "coming out-of-pocket" to fill a funding gap shall provide supporting documentation (that is, bank statements) and a letter from an independent C.P.A. certifying that the applicant has the amount of cash that is needed to fill the funding gap. Except for owner equity/loans listed in conjunction with (c)6viii and x below, any owner equity/loans in excess of $ 1,000,000 shall be considered a permanent source that cannot subsequently be replaced by another funding source. Cash already expended on the project by the applicant can be utilized as a source of funds if the expenditures are verified by an independent C.P.A. and the cash is not an advance of other project funding sources. If the developer fee is deferred, applicants shall specify the amount, and when and how it will be paid. (NJHMFA establishes maximum developer fees.) Projects that utilize more than 50.00 percent of the total developer fee as a funding source at the application stage shall be declared infeasible, unless such use of the developer fee is on an interim basis (that is, if an anticipated funding source to replace the deferred developer fee is identified in the application, and the commitment of those funds is received no later than the issuance of the carryover allocation/binding agreement). Failure to secure the funding source and subsequently reduce the deferred portion of the developer fee to 50.00 percent of the total amount by carryover shall result in a cancellation of the tax credit reservation. Contractor fees cannot be pledged. Applicant equity or deferred developer fee may be subsequently replaced by State HOME or AHTF resources only if the application for State HOME or AHTF resources has been submitted by the tax credit application deadline.

vi. Investor commitments: Applicants who do not have an agreement with a syndicator/investor at the time of application or who have only received an investor's term sheet may still apply for tax credits; however, NJHMFA shall underwrite the project at the lowest level of the NJHMFA equity range. Applicants that have an investment agreement with their investor shall have their project underwritten at a higher price, upon request, provided the equity pricing falls within the NJHMFA equity range. The applicant shall include in the application a commitment letter (not a term sheet) from an investor evidencing the net pricing (cents per credit dollar) and total anticipated net proceeds. Applicants of projects where the general partner(s) (or equivalent) will be retaining a two-or-more-percent ownership interest will have a retention factor added to the NJHMFA base of the equity range or the project's net pricing.

vii. All-equity projects: Such projects include those where the applicant is financing the project and is taking the credits itself and those where the project is permanently financed solely on tax credit proceeds (that is, no mortgage, grants, etc.). Applicants of projects in the former category shall comply with (c)6v above and shall have a retention factor added to the base of the NJHMFA equity range. Applicants of projects in the latter category shall submit a fully executed investor commitment evidencing the pricing per credit dollar and total anticipated net proceeds shown in the application. If there is sufficient cash flow to amortize debt, the applicant shall obtain a mortgage commitment for such debt.

viii. Federal Home Loan Bank (FHLB): Applicants applying for tax credits and the FHLB Affordable Housing Program shall not be required to submit a commitment letter from FHLB by the application deadline. If a project fails to receive FHLB funding, the project may be declared infeasible unless there is an alternate source of financing, such as a deferred developer fee, identified in the tax credit application and commitment of the alternate funding is received by issuance of the carryover allocation/binding agreement.

ix. Municipal Affordable Housing Trust Funds: A copy of the current spending plan listing the project that has been approved by the municipality and submitted to DCA or the courts by the application deadline shall be submitted in the application.

x. New Jersey Economic Development Authority (NJEDA) funding: For projects applying for funds from NJEDA and for four-percent LIHTCs, the applicant shall ensure that NJEDA has informed NJHMFA of any of the applicant's projects that have submitted a complete application for funding, the projects NJEDA intends to fund, and the subsidy amounts. If a project does not receive NJEDA funding, the project may be declared infeasible unless there is an alternate source of financing identified in the tax credit application and commitment of the alternate funding source is received by issuance of the 42(m) letter. For projects applying for funds from NJEDA and for nine-percent LIHTCs, a commitment letter from NJEDA shall be submitted in the tax credit application.

7. In accordance with the Code, NJHMFA shall examine the reasonableness of the operational costs of the project. Applicants shall demonstrate that their project is financially feasible and viable as a qualified low-income housing project throughout the tax credit compliance period.

i. Projects shall be underwritten to demonstrate project feasibility at a household median income percentage that is 2.5 percent below the income designation selected. For example, if the 50-percent AMI income designation is selected, those units shall be underwritten with rents affordable to tenants at or below 47.5 percent of the area median income adjusted for family size. Supportive housing units not receiving project-based rental assistance shall be underwritten with rents affordable to tenants whose incomes are at or below 20 percent of the area median income adjusted for family size.

ii. Applicants shall submit a 15-year cash flow pro forma signed by the first mortgagee (or syndicator/investor if the project has no hard debt) which exclusively reflects the following language verbatim: "We acknowledge that this pro forma substantially matches the assumptions used in our underwriting of the mortgage (equity investment)."

(1) The pro forma must precisely reflect the rent structure in the tax credit application, including all lenders' assumptions such as principal and interest payments, non-rental income, operating expenses, required reserves, annual fees, etc., as well as other characteristics of the application that impact financial feasibility (for example, cost of social services). That is, a project's applications for any and all other financing must mirror the development cost, operating assumptions, rent structure, etc., shown in the tax credit application.

(2) Year one of the pro forma shall show stabilized operations. If the pro forma reflects negative cash flows in any year, the application shall demonstrate the funding and utilization of an Operating Deficit Escrow Account (ODEA). Assumptions regarding interest on the ODEA shall be reasonable.

(3) The pro forma may reflect rental assistance only if such assistance is project-based and is evidenced by the submission requirements described at (c)13 below. The subsidy may be illustrated only for the initial contractual term; that is, future renewals of project-based subsidy contracts cannot be assumed. Upon the expiration of project-based rental assistance, supportive housing projects shall be underwritten at rents no more than 20 percent of area median income adjusted for family size. For non-supportive housing projects, the project shall be underwritten at rents that are appropriate for market conditions (and are thus supported by the market study required at (c)1ii above); however, in no event shall rents exceed 50 percent of area median income adjusted for family size.

(4) Year one of the pro forma should reflect core operating expenses between $ 3,000 and $ 4,000 per unit. For those projects with core operating expenses less than $ 3,000 per unit or more than $ 4,000 per unit, the application shall include an explanation supported by audited financial statements as to why the per unit operating expenses fall outside this recommended range, except that no family project shall have core operating expenses below $ 3,000 per unit and no senior project shall have core operating expenses above $ 4,000 per unit. Other operating expenses will be evaluated for reasonableness given the characteristics of the project.

(5) Executed leases for a minimum term of five years shall be required for projects that rely upon commercial income to demonstrate financial feasibility. Should the term of the executed lease end prior to the end of the compliance period, NJHMFA shall use a vacancy rate of 50 percent for the years not covered by the lease.

iii. Applicants shall submit at least two forms of data supporting the operating expenses stated in the pro forma (for example, database information, comparable project information. Institute of Real Estate Management (IREM) statistics), or an NJHMFA Form 10 signed by the NJHMFA Asset Management Division. NJHMFA reserves the right to require submission of the audited financial statements for comparable projects owned by the applicant.

iv. NJHMFA reserves the right to require a residual value analysis (conducted by the partnership's accountant) of any project with significant soft debt, at any time during the application and/or allocation process.

v. Projects with market-rate units shall distribute the low- and moderate-income units among the different-sized units to reflect the same percentage distribution as the number of different-sized units bears to the total number of units. A greater percentage of the low- and moderate-income units may, however, be allocated to the larger units. Additionally, low- and moderate-income units shall be distributed throughout the project such that the tenants of such units have equal access to, and enjoyment of, all common facilities of the project. (See N.J.A.C. 5:80-8.3.)

8. Successful participation in the New Jersey Clean Energy Program's (NJCEP) NJ ENERGY STAR Certified Homes Program Version 3.1, NJ Zero Energy Ready Homes, NJ Pay for Performance-New Construction, ENERGY STAR Multifamily New Construction Version 1.1, or alternative per the Guide to QAP Green Requirements (Green Guide), and in the NJHMFA Energy Benchmarking Initiative shall be required for all applications. Both the Green Guide and the NJHMFA Energy Benchmarking Initiative are available at http://ni.aov/dca/hmfa/developers/lihtc/areenpoints/.

i. All applicants shall comply with the requirements of the Green Guide. Applications shall include a copy of a signed contract between the applicant and a Home Energy Rating System (HERS) rater and a signed letter of intent provided by NJHMFA, which states that the applicant has read the Green Guide and will comply with all requirements thereof. At the time a project is placed in service, owners shall submit to NJHMFA the Certificates issued by the NJCEP (or equivalent) for eacin dwelling unit/building, as applicable, in the project.

ii. In order to satisfy the Energy Benchmarking Initiative requirements at (c)8 above, the application shall include a copy of the completed and signed letter of intent from the developer to NJHMFA. Prior to issuance of the IRS Form 8609, the developer/owner shall submit the forms at (c)8ii(1), (2), and (3) below, which can be found at http://ni.aov/dca/hmfa/developers/lihtc/areenpoints/:

(1) A completed NJHMFA New Jersey Green Homes Office Building Owner Utility Release Form for all common area meters (gas; oil; electric; cogeneration);

(2) A completed NJHMFA New Jersey Green Homes Office Energy Benchmarking Survey Form, which includes building data consisting of the name, age, address, number of floors, inclusion of elevators, square footage, number of buildings, whether the building(s) are master- or individually-metered, a description of any previously completed energy-efficiency work, and utility account information; and

(3) Completed NJHMFA New Jersey Green Homes Office Tenant Utility Release Forms and/or evidence that requests for such forms were made from at least 40 percent of tenants occupying the project at the time of the IRS Form 8609 issuance for new construction or at least 25 percent of each unit type for rehabilitation projects. The applicant shall also be required to include the tenant utility release form as a part of the lease agreement. For new construction projects, the applicant shall ensure that at least 40 percent of the tenants have active utility release forms (or shall provide documentation of the efforts to obtain such forms) and common area utility data shall be reported for the first three years of occupancy. For rehabilitation projects, the applicant shall provide utility data for one year prior to commencement of renovation work and for two years post-construction for all common areas and at least 25 percent of each unit type. Common area and tenant utility data shall be uploaded into the ENERGY STAR Portfolio Manager at www.eneravstanaov/benchmark pursuant to the procedures outlined in the NJHMFA Energy Benchmarking Technical Manual, available at http://ni.aov/dca/hmfa/developers/lihtc/areenpoints/. In order to satisfy the resilience requirements of the Green Guide, the application shall include a Site and Risk Assessment Review Report. Prior to issuance of the IRS Form 8609, the developer/owner shall submit an Emergency Management Plan addressing all site-specific risk hazards per the requirements in the Green Guide.

9. Successful completion of an NJHMFA-approved tax credit certification program prior to the project being placed in service. The staff person responsible for verification of tenant income must be the person to successfully pass the certification examination and meet a continuing education requirement of at least six hours annually by an approved provider for the term of the compliance and extended use periods. For the list of approved tax credit certification programs, please contact NJHMFA's Division of Multifamily/Supportive Housing and Lending at NJHMFAtaxcredits@nihmfa.aov.

10. Applicants requesting acquisition credits shall include an attorney's opinion regarding each building's eligibility for acquisition credits. The acquisition value shall be the lesser of the appraised value or the purchase price or lease fee of the realty and any buildings and improvements thereon in the most recent arm's length transaction, if such a transaction occurred within the past 10 years, as determined by a title history. The title report shall identify each party associated with the transaction. The appraised value of the real estate shall be determinative if it is less than the amount of the most recent arm's-length transaction or if there was no arm's-length transaction within the past 10 years. Applicants shall submit an appraisal not older than six months, which may be subject to third-party review. If acquisition credits are denied, the application shall still be considered for rehabilitation credits so long as the project remains feasible without the acquisition credits. NJHMFA reserves the right to require a capital needs assessment for any project seeking acquisition credits and/or an independent appraisal that conforms to the Uniform Standards of Professional Appraisal Practice (USPAP).

11. For all projects that are claiming a prior owner's expenditures in basis, a C.P.A. shall itemize the step-in-the-shoes costs and certify that the amount of the step-in-the-shoes costs shown in the application has indeed been spent and is accurately reflected in eligible basis. Prior owner's developer fees shall not be recognized.

12. All projects funded by the United States Department of Agriculture (USDA) Rural Development shall provide a letter from the State Director approving the loan and stating that the funds have been obligated. Because USDA Rural Development does not fund a developer fee, the allocated credit amount may be limited to an amount sufficient to pay only the developer fee. NJHMFA establishes the maximum developer fee.

13. All applicants receiving rental subsidy from a government or private source shall submit with the tax credit application evidence of receipt of such assistance. Evidence of Project Based Section 8 Rental Assistance shall include, at a minimum, a letter from the Public Housing Authority (PHA) firmly approving the project for Project Based Section 8 Rental Assistance subject to the completion of the subsidy layering review or a Commitment to enter into a Housing Assistance Payments Contract (CHAP) under the HUD Rental Assistance Demonstration (RAD). For projects involved in the AFL-CIO Pension Fund Program, a preliminary commitment from the AFL-CIO shall suffice. For other types of (non-Section 8) rental assistance, evidence shall include a fully executed rental assistance contract that specifies the source and term of the subsidy. Only projects receiving project based rental assistance may underwrite the project using the fair market rents (FMRs) as defined by the project's approved HAP contract. Upon the expiration of project based rental assistance, Supportive Housing projects shall be underwritten at rents no more than 20 percent of area median income adjusted for family size. For non-Supportive Housing projects, the project shall be underwritten at rents that are appropriate for market conditions (and are thus supported by the market study required at (c)1ii above); however, in no event shall rents exceed 50 percent of area median income adjusted for family size. If State Rental Assistance Program (SRAP) rental subsidy is available, projects applying for SRAP and tax credits shall comply with the applicable rules of these programs. DCA will inform NJHMFA of those projects that have submitted a complete application for SRAP by the tax credit application deadline. DCA will inform NJHMFA of the projects it intends to fund and the subsidy amounts if those projects are sufficiently competitive to receive tax credits. DCA will announce the SRAP commitments at the same time NJHMFA awards the reservations of tax credits.

14. Supportive housing projects or projects applying to any cycle that contain supportive housing units shall submit the following items in addition to those items at N.J.A.C. 5:80-33.15(a)5:

i. A supportive housing population needs analysis;

ii. A supportive housing marketing plan. The plan must identify the organizations that will be used for referrals and provide evidence, such as a letter of support, attesting that such organizations have experience serving the target population and can be a source for referrals. For example, if the target population is homeless individuals or homeless families, a resolution indicating that referrals will be provided or a letter of support from the local/county Continuum of Care is recommended;

iii. Evidence of the supportive housing development, management, and/or supportive services experience of the owner entity, property management entity, and/or social service provider who will be providing the property management and supportive services to the residents;

iv. Sources of funding and, if applicable, a social services plan that includes a detailed description of the scope of services to be provided to the individuals with special needs. If the social service provider is partnering with other community services, that relationship must be substantiated with executed letters of agreement detailing the services to be provided and the term thereof;

v. An executed supportive services agreement between the supportive services provider and the owner entity; and

vi. Evidence of the receipt of rental assistance or operating subsidy commitment(s) for special needs populations below 30 percent of area median income and/or evidence that the supportive housing units are affordable to the target population.

15. All owners and developers shall affirmatively market their projects. For projects of 25 units or more, applicants shall submit an Affirmative Fair Housing Marketing Plan, which, in short, documents how the project will be marketed to those people who are least likely to apply. For instance, if the proposed development is located in an area predominantly populated by white persons, outreach should be directed to non-white persons. Conversely, if the population is predominantly Black persons, outreach should be directed to non-Black persons. Pursuant to N.J.S.A. 52:27D-321.3 et seq., affirmative fair housing marketing plans shall include registering projects on the New Jersey Housing Resource Center (HRC) and posting vacancies, waitlist opportunities, and lottery drawings when accepting applications for such openings. The listings on the HRC shall comply with N.J.S.A. 52:27D-321.6.a for initial marketings and with N.J.S.A. 52:27D-321.6.b and 6.c for all subsequent applications. Additionally, as part of the affirmative marketing requirement, the owner/developer shall notify the local CoC of any units reserved pursuant to N.J.A.C. 5:80-33.15(a)22 for individuals and families that are homeless. At the time the units are placed in service, the owner/developer and rental agent shall certify that the project was affirmatively marketed.

16. Projects with HOPE VI/Replacement Housing/Choice Neighborhoods Implementation Grant funding shall submit the following:

i. A copy of the commitment letter from HUD awarding funds to the public housing authority. The applicant shall disclose the terms and conditions of the HOPE VI/Replacement Housing/Choice Neighborhoods Implementation grant to the public housing authority that funds the project, as well as the terms and conditions of the funding arrangements between the public housing authority and the applicant;

ii. An opinion of tax counsel in support of the dollar amount of the eligible basis for the project set forth in the application. Attached to this opinion, and incorporated therein, shall be the accountant's analysis required in (c)16iii below;

iii. An analysis conducted by an independent auditor of anticipated project cash flow and residual value demonstrating a reasonable prospect of repayment of all loans funded by the proceeds of the HOPE VI/Replacement Housing/Choice Neighborhoods Implementation Grant funds and all debt. This analysis shall incorporate the same assumptions utilized in the 15-year cash flow pro forma submitted pursuant to (c)7ii above; and

iv. The applicant shall demonstrate that any HOPE VI/Replacement Housing/Choice Neighborhoods Implementation Grant funds used in the application to establish eligible basis at any time during the credit period are received pursuant to contractual financing provisions that, when viewed in the context of reasonably anticipated project cash flow and residual value, constitute lawful basis pursuant to the Code and applicable law.

17. Non-preservation projects located in census tracts wherein 30 percent or more of the existing housing units are low-income housing tax credit units shall not be eligible for funding unless the following criteria are met:

i. The project must be a redevelopment project;

ii. The project does not add more low-income units to the census tract, unless the developer enters into a legally binding community benefits agreement with the municipality to invest resources into the impacted census tract;

iii. The project plan includes relocation options to higher opportunity areas and mobility counseling assistance for existing residents; and

iv. The application includes a municipal resolution that references this paragraph (5:80-33.12(c)17) and supports the allocation of housing tax credits for the development.

18. Applicants that have a general partner, voting member, property manager, developer, principal, or a related party of any of the foregoing who owned or managed any interest in an LIHTC project when title was foreclosed thereon by entry of judgment or deed in lieu of foreclosure shall not be eligible for tax credits for a period of seven years from the date of entry of the judgment of foreclosure or deed in lieu of foreclosure, whichever shall have occurred first. Applicants that have a general partner, voting member, property manager, developer, principal, or a related party of any of the foregoing who owned or managed any interest in an LIHTC project that the Tax Credit Committee (Committee) determined exhibits a pattern of uncorrected noncompliance shall not be eligible for tax credits for a period of three years from the date all issues of noncompliance are deemed corrected by the Committee.

19. High-speed internet must be provided in all common areas at no charge to tenants and high-speed internet hookup capability must be installed in all units.

20. By submitting an application, the applicant waives the right to request to terminate the extended use period through the qualified contract (QC) process pursuant to Sections 42(h)(6)(E), (F), and (I) of the Code. This waiver will be included in the extended use agreement described at N.J.A.C. 5:80-33.29.

21. NJHMFA is committed to the long-term affordability of developments for the benefit of tenants and full compliance by applicants and principals with the provisions of the Code, the extended use agreement, and other program requirements. NJHMFA similarly has an interest in preserving the right of first refusal (ROFR) by a qualified nonprofit organization at the close of the compliance period, as authorized at Section 42(i)(7) of the Code. NJHMFA reserves the right to require any or all of the following from applicants, as applicable:

i. Provisions to be included in the applicant's organizational documents limiting transfers of partnership or member interests or other actions detrimental to the continued provision of affordable housing;

ii. Terms in the extended use agreement requiring notice and approval by NJHMFA of transfers of partnership or member interests;

iii. A designated form of ROFR document as produced by NJHMFA;

iv. An ROFR agreement, including specific language that acknowledges the right of the qualified nonprofit organization to exercise the ROFR, provides that consent to execution of the ROFR may not be unreasonably withheld by the investor, and provides that the ROFR is not conditioned upon receipt by the owner of a bona fide offer from any party, to be reviewed by NJHMFA prior to issuance of IRS Form 8609;

v. A letter of intent from a tax credit investor that clearly grants to a qualified nonprofit organization a right of first refusal to purchase the project for not less than the minimum purchase price as set forth at Section 42(i)(7)(B) of the Code following the expiration of the tax credit compliance period;

vi. Written acknowledgement from any or all potential investors or syndicators that they have never sought to undermine the exercise of a right of first refusal or option to purchase in prior transactions, that they understand that return on investment is primarily in the form of tax benefits and not dependent on the project's appreciation in value, and that the ROFR as authorized at Section 42 of the Code is distinct from a right of first refusal pursuant to state statutory, court-interpreted, or common law;

vii. Negative points for applications involving sponsors, investors, syndicators, or lenders that, in NJHMFA's determination, have demonstrated a history of conduct detrimental to long-term compliance with extended use agreements, whether in New Jersey or another jurisdiction, and the provision of affordable tax credit units;

viii. Provisions to implement any amendments to the Code or any future Federal or State legislation, rules, or administrative guidance; and

ix. The decision whether to institute, and the terms of any such requirements shall be made by NJHMFA as reasonably determined to be necessary or appropriate to achieve the goals stated at this subsection and in the best interests of the QAP.

N.J. Admin. Code § 5:80-33.12

Amended by 49 N.J.R. 435(a), effective 3/6/2017

Amended by 51 N.J.R. 833(a), effective 6/3/2019

Amended by 51 N.J.R. 1500(b), effective 10/7/2019

Amended by 56 N.J.R. 343(b), effective 3/4/2024