We have a subject property that is located in a low income census tract and is under the City of Los Angeles Rent Control. However, the borrowers plan to renovate the building, relocate the existing tenants, and increase the rents to market rate after renovation. Would this loan still qualify for affordable housing?

Also, if a subject property was located in a middle income census tract but subject to LA Rent Stabilization Ordinance, could it still qualify since it is under rent control?

First, affordable housing can be located in any census tract, regardless of its income classification
Second, if the rents remain affordable and if the tenants will be primarily low- or moderate-income families you can still get credit for affordable housing.
Third, if the property is located within a low- or moderate-income tract or an area targeted by federal, state or local government for revitalization or stabilization it may qualify for Community Development credit if you can affirm the plans for the property are consistent with the plans to revitalize or stabilize the community.
It doesn't matter if the rent is affordable because of legal requirements or because the landlord is focused on the LMI community, as long as the rents are affordable and the tenants are primarily LMI families it would potentially qualify as affordable housing.

The concern that regulators will raise is that the primary purpose of the loans is NOT affordable housing. I would be very careful since their already clearly stated intent (and CRA achilles heel) is to decontrol the units for market rents. With that said, the loans may qualify if it is part of a redevelopment plan or as revitalization and stabilization.

Thank you SO much for both of your helpful responses and input! I also want to double check that to determine that rents are affordable for LMI families, we look at the 2014 FFIEC Estimated MSA/MD/non-MSA/MD Median Family Income and not the 2014 Estimated Tract Median Family Income on the FFIEC Geocode Census Report.

Thank you

Wouldn't you want to compare the rents to the HUD rents? You are right that the tract MFI is not used, except for determining the classification of the CT.

Check out HUD's fair market rent for your state/county

http://www.huduser.org/portal/datasets/fmr/fmrs/FY2015_code/select_Geography.odn

You can fulfill the "primary purpose" test simply if the majority of the beneficiaries (i.e., tenants) are LMI families and if the rents are computed to be affordable or if the majority of dollars spent qualify for a CD purpose. The motive of the borrower does not have to be for a CD purpose using this approach.

If, on the other hand, the majority of beneficiaries are not LMI occupants and the majority of dollars does not fulfill a CD purpose then the second way to meet the primary purpose test is to meet 3 requirements (intent is important under this method of qualifying):
1- the explicit purpose (i.e., intent) of the project is to fulfill a CD purpose
2 - the deal must be structured to meet the CD purpose and
3- there is a reasonable probability of meeting the CD purpose

The income class of the occupants is determined by comparing to the EMFI for the MSA (or non-MSA) in which the occupants live and affordability is determined by occupancy costs relative to the occupant's income. NB - I did see a CRA exam once in which the examiners calculated the occupants' income relative to the EMFI of the county in which they were located. I have never seen this in any other exam. But, since the Regulation clearly defines how to calculate the income class of the person (based again on MSA or non-MSA area) and since the affordability is always calculated relative to the occupant's income I would stick to that approach.