Case Study

The housing bill, which President Bush is expected to sign shortly, modifies the so-called “10-year hold” rule, which prevents property owners from obtaining Low Income Housing Tax Credits for properties placed in service or sold within the prior 10 years. 

“By broadening the number of housing projects now exempt from this rule, developers or owners of affordable housing projects will now find it much easier to secure equity funding to rehabilitate older projects or make any crucial changes or improvements that will benefit residents,” said Pillsbury public policy advisor Anita Epstein.

The exceptions to the rule have been broadened to exempt housing previously financed or assisted by a variety of federal programs, including buildings assisted or financed under any housing program administered by the Department of Housing and Urban Development or by the Rural Housing Service of the Department of Agriculture. Properties previously financed or assisted by similar state housing assistance programs are also now exempt from the 10-year-hold rule. Under prior law it was necessary to obtain IRS approval for specific properties to obtain an exemption, but the new law dispenses with that hurdle.

Pillsbury was contacted by a nonprofit client regarding the need for a rule change in August 2007. The client had acquired a rundown property in 2003, and with the help of a mortgage insured by HUD’s Section 221(d)(4) program, transformed it from one of the worst complexes in Phoenix into a pleasant affordable community that is performing as well as or better than similar properties on the market. Yet even after extensive rehabilitation, utility bills (particularly for electricity) were exceedingly high, resulting in a $1.3 million operating loss, putting the viability of the housing complex at risk.

“Thanks to the rule change the client will now be able to take advantage of Low Income Housing Tax Credits to finance the installation of solar panels at a Phoenix low-income housing project which will improve energy efficiency and reduce carbon emissions,” said team leader Gary Downs, a partner in the firm’s San Francisco office and co-head of Pillsbury’s Affordable Housing practice. “We believe nearly all our affordable housing clients will benefit from the change and perhaps spur other developers to rehabilitate housing for lower income families.”

In addition to Downs and Epstein, Pillsbury affordable housing counsel Jon Goetz also served on the team. Numerous affordable housing developers and advocates including The Affordable Housing Tax Credit Coalition supported changes to the "10-year hold" provision.

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