The industry is also looking forward to implementation of the “opportunity zone.” These state and IRS-designated zones, typically in lower income areas, enable a taxable developer to build housing, and if ownership holds the asset long enough, to avoid capital gains tax. Creating UBTI (unrelated business taxable income) “There are tripwires related to some very complicated rules about what not-for-profits can and can’t do in order to make money,” warned panelist Greenwald. For example, a not-for- profit considering a multi-use build-out is at risk if they don’t properly separate for-profit activity from not-for-profit. If a not-for-profit owner constructs market-rate or high-end housing, it will fall outside the mission of the non-profit. Without the proper separate ownership structure, taxable income from such property could jeopardize a not-for-profit’s status. Often partnerships will create “condo split” structures to avoid this. A new mixed-use development can be split into separate condominiums and owned by different, likely unaffiliated entities For example, one condominium owns and operates the retail space, while another owns and operates the affordable portion. A third condominium owns and operates the market-rate units, all within the same complex. This arrangement isolates risk and enables each entity to obtain its own financing. Insufficient financial advice There are many examples of poorly structured deals predicated by a lack of financial education on the part of the faith-based partner. Look to the financial team members to explain tools like LC (letters of credit) a payment guarantee that funders like the State or City finance agencies require to guarantee the funding they give a project, or a performance bonds which are provided by the contractor to the developer to ensure the building is finished as contracted—even if the contractor has difficulties during the development. Financial advisors can also ensure that the church is an equitable partner in the deal as opposed to solely a tenant. The right partners will help faith-based owners maintain some form of ownership in perpetuity. It all begins, said panelist Smith, with finding a team that respects the faith-based vision and takes the leaders along for the journey. “If the developer is just showing up to have you sign papers, that’s not really a relationship,” added Smarr, of NHPF. “Ideally, we try to leave churches in a better position, managerially and financially, in order to better help communities. “ Veteran banker Dave Walsh of Chase Bank reinforced the importance of an experienced financial team. The bank looks at whether an organization has the capacity to undertake a project and if it has completed a similar project in the past. And while steering clear of making partner recommendations, he does want to know who makes up the team: the developer, the contractor and the property manager, e.g. He also advises affordable housing prospects to gain familiarity with existing programs. It may seem daunting, but interested parties should know that Walsh loves to finance community-based-type development “because the organization is so engrained in the communities they are looking to develop in.”
Financial advisors can also ensure that the church is an equitable partner in the deal as opposed to solely a tenant.
6. Incorporate all your constituencies in the decision-making process
One aspect of faith-based development stressed throughout the discussion was the importance of buy-in from a congregation to undertake a housing initiative. If affordable housing is being built, this includes helping congregants understand that the new apartments might be subject to a housing lottery and other forces at work which, including income limitations, that will determine who will live in the units.
Putting Faith in Housing: A Primer for All Partners
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