Spring 2010 issue of Horizons

• Projects receiving more than $275,000 in credits must now enter a lottery and fall into the aforementioned Program Caps. • Projects receiving less than $275,000 in credits avoid the cap. This exemption is known as the “small project exception.” The new law on the program and project caps will now require building owners to enter a lottery that will be administered by DED. Under the lottery, only those projects that have successfully met all of DED’s application requirements will officially be included in the lottery. “This change is different than the old rules, where owners could work through the application process while waiting on certain approvals, firming up their final plans, etc. “Before the law change, many of the items that now must be 100 percent completed just needed to be completed by the time the state issued the tax credits. Now, only applications with 100 percent complete information will be entered into the lottery,” Conrad said. Many industry leaders have stated that the new caps seem workable, and most leaders feel it is unlikely we will see the kind of volume necessary to actually reach the program cap of $140 million. • Owners must commence physical work on the rehab within two years of receiving the approval letter from DED. • No transfer of DED approval letter to another property or owner is permitted. • Owners must now submit their development fee agreements with their initial applications for tax credits. • Following preliminary approval, the identity of the taxpayer (applicant) must remain the same. Other legislative changes include:

• Once the state cap on credits is reached, applications will be kept on file by DED and considered for approval in the event additional credits become available in the current or future years. • Tax credits shall be issued in the final year that costs and expenses are incurred or within the 12-month period immediately following the conclusion of rehab. The 12 months is intended to give the building owner up to six months to submit its audited cost certification and up to another six months for DED to review and approve the project for credits. Many of the changes will require more attention to planning for the cost certification, which must be approved by DED in order to be issued credits. Given the changes in definitions and other rule changes, it is important that owners work with their CPAs early in the process to make sure all the information will be submitted in the manner required by DED. Doing so will avoid unpleasant surprises (delays) when the final application and cost certification are submitted. The expert State Syndicator/Financing Panel, moderated by Dave Herdlick, partner in RubinBrown’s Real Estate Services Group, fielded many thought- provoking questions. In St. Louis, the panel included Noonan; Art Weiss, president of Lisart Capital; and Robert Espeland, vice president with US Bank. One major takeaway from this group was that demand for state credits is still strong and outpacing the amount of credits available. Therefore, the price for state credits has remained strong, and building owners have had no problem selling their state tax credits for much-needed equity. The biggest issue facing projects has been the ability of owners to obtain financing for their buildings. Weiss commented on the amount of increased activity he has seen with his customers who are now closing financing on their projects with HUD.

55 u spring 2010 issue