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The housing units that private equity built

Building a $5 million 20-unit housing complex is large endeavour, especially for a local nonprofit like the District 4 Human Resources Development Council, but Gene Leuwer explained how it happened at Thursday's Buffalo Court ribbon cutting.

Leuwer, of Helena-based GL Development, helped coordinate the financing for the project and explained where the process will likely lead.

The project was funded through Section 42 of the tax code, a provision from President Ronald Reagan's Tax Reform Act of 1986, which allowed the sale of tax credits to fund low-income housing projects.

Leuwer said that the code provides funding to the Montana Department of Commerce's Board of Housing, which takes applications on housing projects statewide.

When District 4 HRDC's application was approved, the associated tax credits were sold to Mountain Plains Equity Group, a nonprofit private equity firm and tax credit "syndicator" who manages the funds of many larger entities, like Wells Fargo, Bank of the West and Fannie Mae.

When investors provided $5 million to build the housing, they became "limited partners, " partial owners of the property, also gaining two tax-related financial benefits.

Leuwer said the investors will receive a nearly $580,000 annual tax credit for the next 10 years. They also get to claim the depreciation of the property value, which Leuwer estimates at about $150,000 a year, as a tax deduction.

These benefits are managed and split proportionally among the investors by their representatives, MPEG.

While the investors only get these benefits for the next 10 years, Leuwer said they cannot sell their stake for at least 15 years.

In larger areas, in which a property's value may rise dramatically, Leuwer said that investors stay in a project after they are allowed to leave, but in Havre he estimates the limited partners would be interested in selling their shares, after the benefits run out, to the general partner, HRDC, leaving them in complete ownership before 2030.

Unlike Housing and Urban Development grants that contain almost no discussion of upkeep, Leuwer said that the private investors in this deal have insisted on the establishment of a reserve fund, for regular maintenance and upkeep, to protect their investment.

Of the $5 million project, about $130,000 was set aside for this fund, to be increased by $250 per unit per year. That's an additional $5,000 per year.

The investors even added more funds beyond the request so that the project could be completed without any permanent debt.

Leuwer estimated nearly $750,000 was spent on the grading, paving and adding utility hookups to the property.

While not intended to provide any revenue, HRDC Director Karen Thomas said the project will be self-sustaining. Though HRDC, who will manage the property, has almost no say in the pricing, which is set by the BOH.

 

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