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A Tale of Two Tax Credits—HTC and LIHTC
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In 1910 President William Howard Taft attended and spoke at a dedication event for the then-brand new YMCA building in San Francisco’s Tenderloin neighborhood. At its opening, the facility, which for many years was known as the Central YMCA, later renamed the Shih Yu Lang Central YMCA, housed 103 hotel rooms, a theater, a grand meeting area, offices, a three-floor workout facility, and a swimming pool in the basement.

Over the years as the building aged, ongoing maintenance became a persistent problem, and the structure was in need of capital improvements including seismic upgrades, which the nonprofit YMCA of San Francisco could not afford to make. In the mid-2000s the decision was made to sell the building to Tenderloin Neighborhood Development Corporation (TNDC), which recently converted the structure into a new community asset.


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Nearly a century after it was built, the YMCA building located in San Francisco’s Tenderloin neighborhood now houses studio apartments for formerly homeless individuals.

Photo (right): Lori Linker

In late 2012, nearly a century after it was first placed in service, the transformation of the former YMCA building was completed, consisting of 172 new studio apartments occupied by formerly chronically homeless individuals as well as on-site support staff, a fully operational health clinic and wellness center, and separate commercial space. The $90 million redevelopment, now known as Kelly Cullen Community (KCC), used multiple funding sources to bring the building back to life. Sources included equity generated by federal low-income housing and historic rehabilitation tax credits (syndicated by PNC Bank), federal American Recovery and Reinvestment Act (ARRA) stimulus funds, loans from the city and county of San Francisco, money from the State of California’s Mental Health Services Act, a construction loan from Citi Community Capital, a pre-construction loan from US Bank, Federal Home Loan Bank Affordable Housing Program dollars, funds from the San Francisco Local Operating Subsidy Reserve (rental assistance), and more.

Historic adaptive-use projects like Kelly Cullen Community, where a developer creates an entirely new use for an aging property, is a common development strategy in the historic preservation world. Similarly, leveraging federal historic tax credits (HTC) in conjunction with the low-income housing tax credit (LIHTC) is a common funding strategy that can make otherwise infeasible transactions viable. In the case of KCC, the equity generated from the historic credit along with the dozen or so other funding sources, made the project possible for TNDC. “For various reasons including market and transaction complexity, absent the $13 million equity generated from the historic tax credits, Kelly Cullen probably would not have been feasible,” said Don Falk, president and CEO of TNDC. “The proceeds from the equity were so substantial that it was worth it to really figure out a way to make the housing credit and historic credit work together.”

Low-Income Housing Tax Credits—A Funding Anchor

The low-income housing tax credit is an annual credit used to finance the development of low-income housing, affordable to tenants earning at or below 60 percent of area median income (AMI). It was designed to generate equity that would cover approximately 70 percent of eligible development costs (30 percent if tax-exempt bonds are used). Credits are allocated in annual increments of 9 percent of eligible development costs per year (4 percent for projects financed with tax-exempt bonds) over a 10-year period. Building acquisition costs are also eligible for 4 percent acquisition credits. The remaining development costs are typically financed with a combination of conventional and soft debt.


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The lobby at Kelly Cullen Community has been restored to its former grandeur.

Photo: Lori Linker

Each year the Internal Revenue Service (IRS) issues a specific amount of housing credits based on a predetermined formula to each state. State housing finance agencies (HFAs) simultaneously develop qualified allocation plans (QAPs) to formulate policy goals that guide the agency in the administration and distribution of the credits. The Housing and Economic Recovery Act of 2008 (HERA) overhauled many aspects of the affordable housing finance system including for the first time, requiring state housing finance agencies to incentivize historic preservation in their...


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