Once a partnership investment is closed and construction begins, the role of Asset Management expands as it assumes responsibility for monitoring construction, lease-up and in many cases, release of equity funds. Typically, the Acquisitions department hands off oversight responsibility at this point, although they may retain a first line of communication with the developer until closing of permanent financing. Even so, Asset Management staff perform most of the functions from this point, whether in conjunction with other departments or independently.
Syndicators may rely on staff or outside independent construction inspectors to ensure that projects are built in accordance with plans and specifications and they are constructed in a workmanlike manner. Syndicators should require independent certification of total construction costs by approved certified public accountants to properly account for use of funds during the development phase.
Plans, specifications and the construction budget should be reviewed by syndicator staff or the construction inspector, if any, prior to starting construction.
Construction Monitoring: Ideally, a qualified independent construction inspector or inspecting architect/engineer should inspect projects and review construction draw requests on a monthly basis during the construction period. Sometimes it is acceptable for syndicators to rely on third party reports generated on behalf of the construction lender or the state housing finance agency.
Asset Management should review all construction progress reports and regularly updated development budget information, as well as all documentation provided by any third party professionals engaged to oversee construction.
Asset Management should review change orders and approve significant changes in construction specifications. The developer, consultant or other agent should provide monthly updates to the total development budget, reporting variances in actual to projected data and estimating total sources and uses of funds through completion. Asset Management’s analysis of such financial data allows early identification and resolution of brewing problems.
Capital Contributions: Asset Management should review all requests for capital once a project is under construction and recommend the syndicator’s response. In some companies, authority over capital contributions may rest with Acquisitions or Fund Accounting, but asset managers should retain responsibility for collection and analysis of all relevant information. Requests for disbursements of equity during construction should be accompanied by adequate documentation including AIA Form G703, completion progress to date, cost overruns or change orders, construction inspector’s reports, and developer’s certification regarding use of funds and the absence or disclosure of any liens.
If construction is delayed past 60 days, the developer should submit a revised construction and leasing schedule.
Syndicators may hold back a portion of equity until the property has undergone its one-year warranty inspection.
Certificates of Occupancy for all units and buildings after completion: In many LIHTC projects, the CO date represents Placed in Service Date per IRS Section 42, starting the compliance period.
Project Accountant’s Cost Certification: resolve any unfavorable variance with regard to expected award of tax credits.
Completed IRS Form 8609: dated and signed by the state housing finance agency. Verify total credits awarded versus initial investment projections. Total Development Budget Sources & Uses of Funds: assess gaps, initiate corrective action if needed in consultation with Acquisitions.
Construction Loan Conversion: goal is to timely pay off construction lender and close permanent financing, with no unresolved unfunded liabilities of investment partnership.
Developer’s Guaranty: assess for completion of construction, no unexpected claims on partnership assets.