HCCP Project Management 3 — Questions and Answers
Question 1: A LIHTC project is behind schedule and at risk of missing the placed-in-service deadline. What is the developer's first recourse?
- Request a placed-in-service extension from the IRS directly
- Contact the state housing finance agency to request an allocation extension or waiver
- Place at least one building in service to preserve the allocation for the entire project (Correct answer)
- Return the allocation and reapply in the next funding round
Correct answer: Place at least one building in service to preserve the allocation for the entire project
Placing at least one building in service before the deadline can preserve the allocation; the developer should also contact the state agency, but the immediate project action is to place a building in service.
Question 2: Which party is primarily responsible for ensuring that construction meets the LIHTC minimum set-aside requirements before units are occupied?
- The general contractor
- The syndicator
- The owner/developer (Correct answer)
- The state housing finance agency
Correct answer: The owner/developer
The owner/developer bears primary responsibility for ensuring the project meets LIHTC requirements, including minimum set-asides, and must certify compliance to the allocating agency.
Question 3: In LIHTC project management, what is a 'draw inspection' primarily intended to verify?
- That the construction schedule matches the approved Gantt chart
- That work billed in a draw request has actually been completed to the standard specified (Correct answer)
- That the general contractor's license is current
- That tenant income certifications are on file
Correct answer: That work billed in a draw request has actually been completed to the standard specified
Draw inspections are conducted by a lender's or investor's inspector to confirm that the work invoiced in a construction draw request has been physically completed and meets contract specifications.
Question 4: A LIHTC project uses an owner-controlled insurance program (OCIP). What is the primary project management advantage?
- It eliminates the need for an environmental site assessment
- It consolidates coverage for all contractors under one policy, reducing gaps and disputes (Correct answer)
- It guarantees the project will pass state agency inspections
- It allows the owner to skip builder's risk insurance
Correct answer: It consolidates coverage for all contractors under one policy, reducing gaps and disputes
An OCIP covers all enrolled contractors under a single program, reducing duplicate coverage, coverage gaps, and insurance-related disputes on large LIHTC projects.
Question 5: During LIHTC construction, which budget line item is most likely to trigger a request for a basis increase from the state agency?
- Soft cost overruns related to legal fees
- Hard cost overruns due to unforeseen site conditions or material price escalation (Correct answer)
- Developer fee increases negotiated mid-construction
- Marketing and lease-up costs exceeding projections
Correct answer: Hard cost overruns due to unforeseen site conditions or material price escalation
Hard cost overruns stemming from unforeseen site conditions or material escalation are the most common reason developers request a basis increase from the allocating agency.
Question 6: What is the purpose of a construction completion guaranty in a LIHTC transaction?
- It guarantees the syndicator will fund all investor equity installments
- It obligates the guarantor to complete construction if the developer defaults (Correct answer)
- It ensures the project will achieve minimum debt service coverage ratios
- It certifies that all subcontractors are minority-owned businesses
Correct answer: It obligates the guarantor to complete construction if the developer defaults
A construction completion guaranty protects lenders and investors by obligating a creditworthy guarantor (typically the developer) to complete the project if the borrower defaults.
Question 7: Under IRC Section 42, a building is considered 'placed in service' for tax credit purposes in the year when which event occurs?
- The last unit in the building is leased to a qualified tenant
- The building is ready and available for occupancy (Correct answer)
- The construction loan is fully disbursed
- The IRS issues the Form 8609 for the building
Correct answer: The building is ready and available for occupancy
Under IRC Section 42, a building is placed in service in the taxable year it is ready and available for occupancy, regardless of whether all units are leased.
HCCP Project Management 3
A LIHTC project is behind schedule and at risk of missing the placed-in-service deadline.
What is the developer's first recourse?