Condo Conversions Under PLR 200703024

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Condo Conversions Under PLR 200703024
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The PLR Was Published OnJanuary 19, 2007

• Each tenant, granted a right of first refusal,
  can buy that unit, along with all the tenants in
  the property, upon the conversion of Section 42
  rental property to condominiums. The ownership
  plan can be implemented after the compliance
  period ends. All tax credits taken will not be
  recaptured.
• The Agency can terminate the existing LURA after
  the compliance period terminates and substitute a
  new LURA for rental and home ownership.

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Agency Support

• A conversion does not diminish the affordable
  housing pool
• Tenants will be more committed to stay to
  conversion date, keeping property in better
  condition
• Prior to conversion, the owner has the incentive
  to maintain the property
• Following the conversion, tenants, as owners,
  have the incentive to maintain the property
• MHDC will not have to use new allocations of
  housing tax credits or other resources
• The propertys use for affordable housing is
  maintained and extended and
• Home ownership is advanced.

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Major PLR Guidelines

• The Mathematical Formula setting the homes sales
  price is derived from the maximum monthly LITC
  rent. The new monthly payment pays the mortgage
  and the condominium fee.
• No displacement can occur after the conversion
  process starts.
• The extended use period was extended from 15
  years to 30 years.

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The PLRs Redacted Facts

1. The sales price is 79,500 for the 1BR and
   89,500 for the 2BR (including one parking
   space).
2. The condominium fee is all inclusive.
3. The tenancy rent credit is 1 of the sales price
   for each full year of occupancy.
4. Any home re-sales must be to a then income
   eligible Section 42 buyer.
5. The re-sale price is capped at the original sales
   price plus 10, compounded per year.

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Agencys Baseline

• MHDC has issued a Baseline memorandum detailing
  implementation rules that include
• i. No ongoing tenant income re-certifications
  after conversions
• ii. Non-tenant and resale home buyers are
  income certified on the date of the sale
  contract
• iii. HOA manager must be Section 42
  experienced
• iv. All units must be owner occupied and
• v. The qualified contract period can be
  by-passed.

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• The Baseline sets forth PLR criteria for other
• 1990 1995 project conversions
• i. MHDC must approve all PLR conversions
• ii. Once approved, all leases must include a
  tenant right of
• first refusal
• iii. A physical needs assessment must be
  prepared
• iv. A sales schedule and HOA management plan
  must be submitted
• v. No conversion will be approved if there
  are material
• Form 8823 violations and
• vi. MHDC will continue to monitor the
  propertys physical condition.
• Nixon Peabody Reliance Letter.

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PLR Sponsor Imposed Requirements

• Common paymaster for mortgage payment and
  condominium fee
• Mandatory home ownership counseling course and
• HOA management company will have entry rights to
  fix common elements and make unit repairs.

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Each Agency Must Adopt the PLR

• Nixon Peabody Reliance Letter.
• Each Agency may specify its own approval process.

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Downtown Kansas City, MO
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Quality Hill Projects
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Phase II-B
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Phase II-B
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Before
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After
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Before
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After
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Phase II-B
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Special Home Buyer Incentives

• 1 Per Annum Credit To Tenant For Occupancy Up To
  10 Years.
• Homeowner Down Payment/Closing Grant From City of
  3,000 per Home.
• Real Estate Tax Freeze.
• CRA End Loan Programs
• (A) Bank Of America
• (B) HFA (First Time HFA Financing).

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Other Issues

• Local and State condominium conversion laws.
• Partner Consents.
• Lender Consents.

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Take Aways

• Each Agency must approve the PLR.
• The politics of affordable/workforce Home
  Ownership are positive and real.
• The math must work for the homebuyers and the
  developer.
• Conversions are not easy.
• Most post compliance period properties may not
  fit into the PLR.

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CONTACT INFORMATION

• Gregory N. Doran, Esq.
• Nixon Peabody LLP
• 401 9th Street, NW
• Suite 900
• Washington, DC 20004
• [phone]
• gdoran_at_nixonpeabody.com