The developer eyeing Hotel Clovis as a potential housing community is part of a specialized breed who do business by merging the dollars of private investors with those belonging to taxpayers.
Navigating the system of obtaining tax credits for housing projects that are then sold for investments is a niche Stephen Crozier, chief executive officer of Tierra Realty LLC, and a handful of others have refined, according to Dan Foster, New Mexico’s Mortgage Finance Authority’s tax credit program manager.
“It really is a specialized field, so it’s not something that run-of-the-mill developers (get into). This program has so many nuances and layers with it. ” Foster said.
The tax credits purchased by an investor can be claimed against the investor’s tax debt for 10 years, he said.
In the case of the Hotel Clovis, with a tax credit of $1,055,077 sold for about $9 million in project investment, over 10 years, the investor will reduce their tax debt by more than $10.5 million.
Crozier has proposed a renovation of the city-owned historic hotel and surrounding properties, converting it into 59 rental lofts and 8,000 square feet of commercial space.
Created in 1997 by Crozier, The Taos-based Tierra Realty is described on its website as a, “vertically integrated real estate operating company primarily focused on the ownership, development, acquisition, construction and management of sustainable residential communities throughout New Mexico and surrounding southwestern states.”
Crozier did not respond to efforts to contact him for this story.
Each year the IRS allocates tax credits for low-income housing projects and MFA acts as a fiduciary agent for those credit awards, Foster said. Developers go through a rigorous application process to make sure they and their projects meet the requirements of the IRS, he said; if they are approved, credits are reserved for them but not awarded until their project is completed and meets all the requirements of the program.
Of the 10 completed new construction housing communities listed on Crozier’s Web site, eight were awarded tax credits by MFA totaling more than $4.9 million in eight years.
Located on Mitchell Street north of 14th Street, the Clovis Lo Lomas Senior Housing community was built by Crozier’s company using 2007 tax credits of more than $930,000.
Additionally, MFA records show a little more than $1 million in tax credits was reserved in 2010 for Crozier’s plans to acquire and convert Hotel Clovis into the “Hotel Clovis Lofts.”
“As far as I know, he has not received a penny (of taxpayer money for the hotel project),” Foster said. “We reserve a certain amount of tax credits for the project and he is not actually awarded (them) until the project is complete … you can’t do anything with a tax credit.”
The credits are used as equity in the project and sold to an investor who, in exchange, financially backs the project. Foster said when it is completed, the tax credit is transferred to the investor, who can claim it to offset their own tax liability for 10 years as long as the project continues to meet program requirements.
Foster said requirements include that rental units be priced 60 percent of the area’s median income, which is $46,400 in Clovis with tenants paying no more than a third of their income for housing.
But he said Crozier wants the units to be more affordable and has opted to structure rent for people at 40 percent or less of area median income.
Tenants must earn below the required income levels.
Area median income was determined by the city through the development of the Clovis Affordable Housing Plan.
“He has elected to keep his rents lower than would otherwise be required. (Under requirements) the tenant shouldn’t pay more than 30 percent of their income (for housing),” Foster said.
In other words, for a person making 40 percent AMI, or $18,560 a year, rent would be about $460 a month or less for lower income. For someone on the highest end of the requirements making 60 percent AMI, or a little more than $27,000, rent would be around $700 a month.
Using the tax credits as security, Crozier has put about $800,000 into the project — in design work, attorneys fees and the purchase of land around the hotel — and procured more than $8 million from a private sector investor for the hotel project, said Clovis Community Development Director Claire Burroughes.
“These tax credits are heavily fought over. They’re difficult to get,” she said. “Not a lot of people are able or willing to undertake that task. Mr. Crozier over the years has learned how to go through this process and has done so with a large measure of success.”
Despite procuring private funding and tax credits — citing a tough lending environment and poor economic conditions — Crozier’s company is shy of obtaining the $12.8 million needed to complete the project and has asked the city to extend up to $1.4 million in loans and grants to bridge a gap in funding.
In November the city issued a commitment letter to Tierra Realty for $1.4 million subject to the commission approving final loan documentation and the loan being used solely on the project.
City officials have said Crozier is working to reduce the money he needs through other sources and is only expected to need about $600,000 in all.
Burroughes said the city will not have full disclosure on Crozier’s financial sources for the project until Tierra Realty submits its application for money.
In part to help Crozier reduce the amount he needs to ask the city for, May 5, the city passed an “affordable housing” plan that creates a loophole for state anti-donation clauses and allows state and federal grants to be obtained for projects like the hotel.
The High Plains Patriots citizens group objects to the affordable housing plan as a step toward taxpayer money subsidizing private business and says it has gathered enough signatures to force the affordable housing plan to a referendum, which would send it to voters.
With the looming threat of a referendum that could hinder his ability to get government funding, Burroughes said Crozier has put the project on hold.
“It would have been well full-steam ahead by now,” she said. “The threat of that has brought a caution from Mr. Crozier from moving forward. … We’re on a schedule and I’d hate to see that schedule ruined because he is our best hope and he has the experience and these people don’t come around every day.”
If referendum requirements are met the latest an election could be held is Aug. 6.
Burroughes said to meet the requirements for the tax credits, Crozier must have the hotel project completed by December 2012.
Hotel Clovis is not the first eastern New Mexico project in which Tierra Realty has asked for tax dollars.
At a May 5 commission meeting, Crozier told commissioners a $2 million award of federal stimulus money was directed toward the La Pradera project in Hobbs.
Records show the $2 million grant came from MFA through the Tax Credit Assistance Program designed to, “aid stalled affordable housing rental projects … that received an award of Housing Credits … and required additional funding to be completed and placed into service.”
“I know people in here are going to cringe when hearing that but we needed it and the Hotel Clovis is not any different,” Crozier told commissioners. “These types of developments because of the quality that we’re developing in terms of the units and where our rents are is a huge demand. There really is no market for this.”
According to MFA documents, in addition to private loans and monies, $2.7 million of the $10.9 million La Pradera project was financed through government grants and loans and $7.5 million came from the sale of $1.1 million in tax credits.
Burroughes said Crozier approached the city about five years ago and expressed interest in developing the Clovis hotel.
Though none of the New Mexico projects he lists involved renovation of historic buildings, she said, “from the conversations we’ve had, he’s done things like that on the east coast before he moved (to New Mexico).”
Burroughes said Crozier has expressed a passion and “sympathy” for the plight of historic buildings, “hence his interest,” in the abandoned hotel.