Best Practices

Lease-Up & Initial Tenant File Review

Asset Management’s primary role in this phase is to monitor the pace of initial leasing, confirm compliance with Section 42 rules regarding tenant eligibility, and estimate delivery of resulting tax credits. The ultimate goals are to track and facilitate the project’s performance in order to meet requirements under the operating agreement and to quantify and mitigate any non-performance or shortfalls. Asset managers identify problems such as slow leasing, ineligible tenants and potential deferral of credits. They intervene to the reasonable extent feasible in order to minimize or resolve shortfalls and delays in investment benefits, and they assess financial penalties (credit adjusters, guaranty advances) if warranted.

Syndicators may rely on staff or external compliance consultants to evaluate Section 42 eligibility of all households which take initial occupancy of restricted units. Every tenant file must be confirmed to be complete and compliant with IRS regulations. If noncompliance is found, it must be resolved to the syndicator’s satisfaction, which may entail eviction of ineligible tenants and replacement with qualified tenants. Asset managers oversee the execution of lease-up and Section 42 compliance by the partnership’s property manager. Asset management may also monitor the project’s compliance with other relevant regulations or requirements imposed by public funding or subsidy sources, including:

  • HUD loan programs.
  • Section 8 rent subsidy.
  • Rural Housing rent subsidy.
  • Federal HOME, HOPE, AHP and CDBG programs.
  • State and local subsidy and loan programs.

Asset managers develop relationships and work closely with property managers engaged by developers to operate investment properties, starting largely in the lease-up phase and continuing through the entire IRS compliance period. Since staff of state housing finance agencies (HFAs) may replicate some or all of the initial regulatory compliance evaluation, it is desirable for syndicators to coordinate with all involved parties to maximize productivity by property managers and minimize disruption to tenants.


  • Pre-occupancy meeting organized by syndicator, ideally convening all stakeholders including developer, property manager, state HFA, compliance monitor, other capital sources. Pre-occupancy meeting is valuable to introduce parties, share information, confirm that property manager has relevant partnership documents and requirements, and update projections for leasing and operations.
  • Dissemination to developer partners and property managers applicable reference materials, such as closing binders, reporting formats, standard policies, syndicator’s website access and guidance about access to external consultants.
  • Monthly occupancy reports which define leasing status of restricted and unrestricted units.
  • Developer’s certification of attainment and date of 100% qualified occupancy, as well as adequate summary roster of qualifying tenants. Complete rent roll showing all units and tenants.
  • Syndicators may hold back a portion of equity until the asset manager has reviewed all initial tenant files for compliance.
  • Complete copies of all initial lease files for all restricted units, may be hard copy or electronic media.
  • Compliance monitor’s confirmation that all restricted units are occupied by eligible households.
  • Project Accountant’s certification of first year tax credits, based on developer’s lease-up reports (number, square footage and dates occupied of restricted units).
  • Confirmation that Minimum Set-Aside per IRS Section 42 is met by relevant deadline.
  • Estimate any permanent shortfall in future annual tax credits and any deferral of credits due to leasing delays. Calculate any applicable credit adjusters, and coordinate with Acquisitions or Fund Accounting to collect any adjuster payments from developer.
  • Revised operating budget from property manager or developer for current leasing year and first full year of operations.