Best Practices

Operations & Reporting

Achievement of 100% initial qualified occupancy is a major milestone, but projects are considered to remain in “start-up” mode through the first partial year of operations and typically are closely evaluated during this period. Commencing with the first full year of operations after completing initial lease-up, projects have reached the “stabilized” phase and are subject to routine monitoring and reporting requirements. Broadly, much of Asset Management’s focus from this point is on two aspects: (1) performance and condition of the real estate, and (2) delivery of investment return in line with original projections. Therefore, much of the flow of information from developers and property managers to syndicators, and from syndicators to investors, deals with a wide variety of reporting and analysis related to these fundamental aspects.

Data from stabilized operations can be compared to syndicator projections and annual budgets, and aggregated into portfolio performance measures. Timely submission by developers or property managers of complete and accurate partnership and property reports is crucial to adequate evaluation by syndicators of investment performance. Project Operating Agreements may provide for financial penalties incurred by developers who fail to comply with these provisions.

Thus, comprehensive and efficient reporting procedures and systems must be established to ensure that syndicators obtain required information throughout the investment holding period. Syndicators may consider providing a standardized reporting template to each developer partner. When feasible, reporting formats and documents should be consistent with those of annual audited financials by partnership accountants and of HFAs. When allowed by the HFA, syndicators should be included on mailing lists for any default notices or IRS forms 8823 generated by the State about the syndicator’s projects.

Syndicators are expected by institutional tax credit investors to provide an increasing scope and variety of information about both upper and lower tier performance. Availability of current and accurate operating data on operating properties is the foundation for much of this information flow. Syndicators must be able to collect, store, extract, analyze, and aggregate data on both an individual investment partnership level and at a collection of investments, whether for specific upper tier funds or an entire investment portfolio.

Technology implications will be discussed in a subsequent section of this document. The focus here is on collection and analysis of lower tier information from developers and property managers to Asset Management.


  • Site inspection and compliance review of initial tenant files within 90 days of full occupancy. Syndicators or their agent may inspect a representative portion or all units for satisfaction of HUD housing quality standards or laws concerning accessibility by the disabled. Particular care should be taken to affirm qualified tenant eligibility before December 31st of the year of lease-up, so that corrective action may be taken if necessary, prior to relevant Section 42 deadlines.
  • Occupancy Reports: monthly and quarterly physical and economic vacancies, complete rent rolls quarterly, and unit turnover analysis if possible.
  • Annual Operating Budgets: review and approval by Asset Management of annual operating budget typically serves as basis for comparison to future actual results and monitoring of property performance, including early warning of potential problems.
  • Quarterly Interim Financial Statements: income and expense statement, balance sheet, aged accounts payable and receivable, and reserve account balances and period activity (deposits and withdrawals). Reports should include explanations of significant variances in actual revenues and expenses versus budget, and any use of restricted reserves.
  • General Partner’s quarterly certification of compliance with all partnership contractual requirements and affirmation that no violations exist.
  • Periodic copies of documents required to be provided by the developer to the HFA, the IRS or any other government or financial authority. Included in this category are annual certifications and tenant activity reports, as well as ad hoc items such as HUD management reviews and REAC scores, any default notices, and any IRS Forms 8823.
  • Annual tax returns and audited financial statements: drafts and final copies should be reviewed and approved. Errors or inconsistencies are to be resolved prior to final submission. Relevant data from these key reports are incorporated in portfolio databases regarding lower tier performance and upper tier financial models regarding delivery of investment benefits. In many companies, these responsibilities may be allocated among Fund Accounting and Asset Management.
  • Payment of deferred Developer Fee and Cash Flow Distributions: in accordance with partnership operating agreements, should be monitored annually through review of the financial audits. Asset Management confirms amounts owed, priority of payment per contractual terms, and collects amounts owed as fees to syndicator or capital return to investors.
  • Confirm at least annually (and preferably quarterly) that activity in restricted reserves (deposits and disbursements) conforms to contractual requirements. Take corrective action as needed to cure any defaults.
  • Ongoing monitoring to ensure that property taxes and insurance premiums remain current. Take corrective action for any delinquencies or lapses in coverage.
  • Collect capital needs assessments as regularly updated. Syndicators may monitor spending from replacement reserves in context with capital needs assessments.


  • Debt coverage ratio (DCR) calculated as the ratio of net operating income including deposits to restricted reserve but excluding payment for hard debt service, divided by hard debt service payments. Industry standards for minimum target DCR historically have ranged from 1.15 to 1.20, with reduction to as low as 1.00 in certain cases, such as for projects with budget-based operating subsidies. Industry watch list and risk rating criteria depend on DCR, among other performance indicators.
  • Occupancy rates generally are targeted from 93% to 97%, depending on existence of project-based rental assistance.
  • Typically syndicators defer payment of a portion of equity capital, conditioned on property performance as measured by DCR and sustained occupancy rates, among other factors. Such thresholds for capital pay-in are intended to confirm that investment properties can meet or exceed original performance projections.
  • Net cash flow per unit may be analyzed, but the value of such data can be minimal given wide variety in size, types and locations of tax credit projects. However, industry professionals and investors may seek to collect such historic information.