How do tax credit investment funds work?
Typically, tax credit investment funds are established to allow multiple investors to diversify their investments into multiple real estate developments.
St. Louis Equity Fund and Kansas City Equity Fund have established funds, received investments, and underwritten developments that best match the needs of the investors with the improvements required of communities.
When a project meets all criteria of the fund, the fund forms a limited partnership with the developer and becomes the limited partner in the partnership. The limited partner uses a loan to bridge its investment over a longer term, allowing the investor to pay its investment over a period of time. The developments generate tax credits and other tax benefits annually that are split between the limited and general partners, typically at a 99% to 1% ratio, respectively. Due to tax credit regulations, the limited partnerships must exist for a period of 15 years after construction completion.
What are some of the properties in the portfolio?
For a complete listing of the St. Louis Equity Fund and Kansas City Equity Fund’s real estate portfolios, please see our Real Estate Development section.
Who controls the Fund?
St. Louis Equity Fund and Kansas City Equity Fund are owned by the investor members, which are the banks and corporations that have invested in any of the funds since 1988. The members elect a Board of Directors at their annual meeting. In addition to the Board, SLEFI has an Investment Committee, Finance Committee, Audit Committee, and Governance and Nominating Committee, as well as an Advisory Committee of the Kansas City Equity Fund, to provide oversight to the officers of the corporation. The officers provide daily management for the company and its employees.
What is a low-income housing tax credit and how does it help finance affordable housing?
In 1986, Congress passed a tax relief act that included a clause authorizing the distribution of tax credits through state housing agencies to encourage private investment in affordable housing. Annually and based upon a per capita dollar amount of credit, each state is authorized to distribute through a competitive process tax credits to developers qualifying under certain terms. Tax credits are then marketed and sold to investors who provide cash equity to the project to help finance construction or rehabilitation. Tax credits are allocated in equal amounts over a period of ten years, and the development must remain affordable to and be occupied by qualified low-income families for a period of fifteen years. This is called the tax credit compliance period. Since the early 1990s, states have typically required an additional 15 years of affordability after the tax credit compliance period has ended.
In effect, the tax credit generates equity that replaces debt financing as a means to finance construction. Since there is less debt required to finance construction, the rents charged to residents can be lower. In the simplest terms, this is how the tax credit helps provide affordable places to live.
What is the typical rent for a unit financed with the Low Income Housing Tax Credit?
Rents in the St. Louis Equity Fund’s low-income real estate portfolio range from $325 to $625 per month.
What is an historic preservation tax credit and how does it help finance the rehabilitation of historic buildings?
The Historic Preservation Tax Credit is sold by developers to investors, much like the low-income housing tax credit, but similarities end there. In order to qualify for the credit, buildings must be National Historic Landmarks listed on the National Register of Historic Places, or contribute to National Register Historic Districts and certain local historic districts. Properties must be income-producing and must be rehabilitated according to standards set by the Secretary of the Interior.