Refinancing for Section 95 WEBINAR Planning for our Future: Change is Coming! April 28, 2018

Transcription

1 Refinancing for Section 95 WEBINAR Planning for our Future: Change is Coming! April 28,

2 Agenda 10:00 am: Introductions: Brian Eng: CoAction Mary Ann Hannant: CHFT Bill Bacon: HSC 10:15 to 10:30: Why Refinancing? Why Now? Dave Howard, CHF Canada 10:30 to 11:30: Asset Management Planning David Spackman, CHF Canada 11:30 to 12:15: What is Your Lender Thinking? Heather Simpson, Alterna 1

3 Co-operative Housing Federation of Canada Most of CHF Canada s members are housing co-ops. There are 902 member housing co-ops (outside of Quebec). CHF Canada has been the national voice of co-op housing for 50 years. More than eight out of ten housing co-ops outside of Quebec are members of CHF Canada. 2

4 Co-operative Housing Federation of Canada CHF Canada is a co-operative, owned and controlled by its members. It is governed by its Board of Directors, which currently has 16 directors: o ten representing the provinces and territories, o one representing the aboriginal community and o five directors elected at-large. 3

5 CHF Canada s Enterprise Services 4

6 Purpose of the Refinancing Program As CMHC 35 year operating agreements and mortgages finish over the next three to four years, coops need to invest in their buildings and properties. Across Canada, aging housing co-operatives need new capital for repairs, renovations, modernization. An injection of new capital into this housing stock is needed to insure ongoing viability. CHF Canada negotiated with CMHC to allow prepayment of existing CMHC mortgage. 5

7 End of Operating Agreement 55,000 co-op homes in Canada will be out of their operating agreements by 2020 Not just about end of obligations to CMHC Housing stock is aging Most co-ops have not saved enough in Reserves Focus has to be on long-term planning 6

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9 Key Results of Refinancing Program Pilot project - January 2011 Alterna Savings credit union was asked to help CHF Canada develop and test the feasibility of new mortgage loan. Mondragon Co-op was first co-op approached. 8

10 Key Results of Refinancing Program 30 co-ops funded successfully to date (approx. $90 million in new loans) 19 co-ops are in the process to fund in the near future Average loan: $3.0 million (smallest = $350K, largest = $9.0 million) Average new spending per unit: $52,000 By 2017, 13 credit unions are offering new mortgages (across Canada) 9

11 Assessing the Impact of Refinancing Housing Co-operatives In 2016 and 2017 CHF Canada asked Eco-Ethonomics to conduct a study of five housing co-ops that had refinanced. The study was intended to look at impacts of refinancing in four areas: Economic Health Environmental Impact Social Benefits Improved Governance 10

12 Economic Reduced cost of debt service post-refinancing Extended life of buildings due to renovations Generally reserved increased, operating costs decreased Decrease in maintenance costs Increased demand for membership/decreased vacancy loss Improved board capacity for financial management 11

13 Assessing the Impact of Refinancing Housing Co-operatives Environmental New, improved energy-saving features/increased energy efficiency Reduced energy/water consumption Some air quality improvement Much higher encouragement of sustainable behaviour 12

14 Assessing the Impact of Refinancing Housing Co-operatives Governance Improved member participation and sense of community Improved Members Meetings Reasonable and predictable housing charge increases Increased member satisfaction and retention 13

15 Assessing the Impact of Refinancing Housing Co-operatives Social Better comfort for members Capacity development in asset management and financial planning Increased accessibility Improved pride in units New skills and knowledge 14

16 Our Lending Partners Alterna Savings Credit Union Atlantic Desjardins League Savings and Mortgage Libro Credit Union Kawartha Credit Union Meridian Credit Union Motor City Credit Union Your Neighbourhood Credit Union Servus Credit Union Sudbury Credit Union Your Credit Union Kindred Credit Union 15

17 Planning for long-term success EOA: Federally funded co-ops David Howard David Spackman 16

18 What we know to be true Teenagers in groups are dangerous Elvis is alive and hidden in a witness protection program Turtles got flushed into the New York sewer system and still live there Change is BAD 17

19 Set the record straight About rules All of your co-op s by-laws remain in place until such time as you amend or replace them The laws as stated in The Co-operative Corporations Act still apply The Ontario Human Rights Code still applies Other provincial and municipal laws still apply The rules in your Operating Agreement will not 18

20 Set the record straight About selling units to the members Section of the Co-operative Corporations Act states, (1) A non-profit housing co-operative shall not distribute or pay any of its property to its members during its existence or on its dissolution. 19

21 Set the record straight About RGI assistance and housing charges The RGI assistance as you now receive it will end when your operating agreement ends CHF Canada s members have successfully lobbied for replacement programs (TBA). Agreement extensions are being provided for 2 years while an alternate RGI system is implemented. 20

22 Set the record straight About RGI assistance and housing charges Agreement extensions for the purpose of subsidy DO NOT extend all previous operating agreement rules. 21

23 Setting the record straight About HST Rebates Because eligibility for the HST rebate is based on how much funding your co-op gets from the government, when you no longer receive government funding you will no longer be eligible for the HST rebate 22

24 Setting the record straight About lowering the housing charges Co-ops will need as much revenue as possible to fund their capital needs for the future No safety net of going to CMHC if you find yourself in need of money for capital repairs Your co-op may need reserve funds or want to re-finance to improve member standard of living, the co-op will need the cash flow to support capital repairs. 23

25 Setting the record straight About being fully independent The co-op will be a fully independent co-operative corporation assuming all the risks and opportunities that go along with that Careful planning is needed because new business failure in North America: 35-56% within 5 years In co-op housing terms that would mean up to 30,000 of our homes could be lost by

26 Planning for EOA Co-ops will need: an asset management plan an up-to-date Building Condition Assessment a long-term financial forecast sufficient funds for the BCA and to improve member homes a plan to implement large scale repairs and improvements plans to to save energy and improve universal design a plan to maintain an affordability mandate 25

27 Financial Stability How do we renovate our buildings, reduce vacancies, and stabilize operating costs without driving housing charges through the roof? 26

28 Creating Financial Stability Building Condition Assessment Reserve fund forecast Financial statements Housing charges Reserves & Financing Energy efficiency Universal design Community infrastructure Reserves and renovations Long term operating budgets Housing charges & market projections Support for low income members Improved standard of living Accessibility/Aging in place Mixed income community 27

29 Assess Needs Planning Dream, planning session - what do we want for our Co-op? Gather Ideas, input and hard data Choose a financial plan and direction Prioritize - Plan Standard of living, quality of life Implement Standard of Living for all ages and abilities Maintain a mixed income community Set and Maintain Quality Standards 28

30 Assess Needs Planning data, Building Condition Assessment Document review Site inspection Prioritized Capital Replacement Plan Life cycle spreadsheet Results: Which capital items you need to replace first. How much you will need to spend each year over 25 years. 29

31 Assess Needs Planning data: Reserve Fund Forecast (RFF) The difference between your current reserves and contributions to reserves and the spending in the BCA How much money you should be putting into your replacement reserve each year. How much you can expect to earn on your replacement reserve investments What impact this will have on housing charges 30

32 Assess Needs Planning data, Financial Statements What are our current reserves? Are they fully funded? (Do we have the cash to match the liability?) What is our annual contribution to reserves? Do we transfer any surplus to reserves? Do we spend our full maintenance budget each year? Do our housing charges keep up with inflation? Can we implement all the repairs called for in the BCA? 31

33 Assess Needs Planning needs Housing charges and affordability mandate Do your current housing charges create an annual surplus? Do your housing services provide on time maintenance, capital replacement, quality of life improvements? Will completing the work raise housing charges? How do your housing charges compare to local market? Will higher housing charges be a problem, are expectations realistic? 32

34 Develop Strategies Planning: who will? Lead the planning and implementation process Set the stage; dream, direction, standard of living Procure data and reports, BCA, AMP, financial statements Review data and craft a plan for the co-operative Set milestones and monitor progress Board, Management, Consultant, CHF Canada? 33

35 Create Solutions: Asset management Plans The BCA calls for replacement to original Do we want to rebuild 1980? Building systems Building envelope & Insulation Plumbing systems Mechanical & electrical Community Infrastructure Appliance alternatives Recycling Accessibility/aging in place Food security Quality of life 34

36 Create Solutions: Asset management Plans Green Infrastructure/ lower costs to members High efficiency boiler 9 unit apartment. Electric Hydronic baseboard heater/ Programmable thermostat 35

37 Create Solutions: Asset management plans Green Infrastructure/lower costs to members Windows + insulation +siding Shingles + venting + insulation 36

38 Create Solutions: Asset management Plans 37

39 Create Solutions: Asset management plans Universal design & site accessibility 38

40 Create Solutions: Asset management Plans Universal design & fixture improvements Low flow, universal design Energy star best performance 39

41 Universal design & fixture improvements 40

42 Create Solutions: Community infrastructure Personal Food security Recycling 41

43 Invest resources Planning questions, What is the cost of minimum BCA requirements? How does that compare to reserves and contributions (RFF) Are we fully funding our capital requirements? Can we fund capital requirements if we redirect loan payments at EOA? Are we meeting an affordability mandate or criteria? Can we use some cash flow to support mixed income community? Would financing assist us to achieve our goals? 42

44 Develop Strategies Planning: reallocate current mortgage cash flow at EOA? Reallocate all mortgage payments to reserves or some needed for low income members? Can we phase all required projects to fit with cash flow or does standard of living decline? (Do all of the BCA!) Do we have human resources to phase all projects? The BCA only replaces to original. Do we want or need to do more? Review data and create solutions for the co-operative Board, Management, CHF Canada? 43

45 Develop Strategies Redirect loan payments positive Phasing allows co-op to remain mortgage free? Some units receive immediate improvement, Some units receive aging in place improvements Overhead costs improve; slowly Standard of living improves over time ( approx. 20 year implementation) 44

46 Develop Strategies Redirect loan payments negative Phasing requires annual human resources commitment Projects every year are disruptive and difficult Phasing increases costs with smaller projects Overhead costs improve s. l. o. w. l. y. Some units receive immediate improvement. Some don t Some units receive aging in place improvements. Some don't Current cash flow pays for future living standards Current cash allocation subject to annual board decisions Standard of living improves over time ( approx. 10 to 20 yrs.) 45

47 Develop Strategies Planning, Financing - negative Financing is a time consuming project Co-op has a mortgage? The lender will have some rules Large projects are disruptive and difficult 46

48 Develop Strategies Financing positive Economies of scale for projects and project management Improved standard of living now for all members Lower unit overhead costs now for all members Provide accessibility & aging in place, as required Housing charges are stabilized into the future Members share equally over time in cost of improvements Mortgage payments place discipline on future boards Units are marketable 47

49 Invest resources: Reserves aren t always enough Financing as a tool 48

50 Invest resources Refinancing can help close the gap refinance 49

51 Invest resources: refinancing Refinancing Funding for major capital repairs Invest in green infrastructure Modify units to meet changing needs of members New development / acquisition & rehab How? CMHC Direct Lending? Commercial market / Credit Unions or Banks? Sector based lending service. 50

52 Improving Lives Planning Set aside time to plan Appoint Governance & management to lead Get the data, BCA, RFF, Financial statements. Review building condition, reserves, & requirements Review replacement to original and desired improvements Review capacity to support mixed income community Make a long term plan & consider financing as a tool Get expert support, planning and project management 51

53 CHF Canada Asset Management Support CHF Canada services Technical report procurement BCA & RFF Technical investigation Asset management plans Refinancing program Analysis Application assistance Board, member, & management education Technical services procurement (with HSC) Scope development, tendering documents & procurement Project management 52

54 How CHF Canada supports the co-op 1. Helps finalize key capital needs/costs 2. Provides expert financial advice that calibrates: Borrowing for capital repairs/renovations Total borrowing (mortgage payout plus capital renewal from borrowing) Amount of monthly payment Ongoing repair/replacement needs and reserve contribution 53

55 How CHF Canada supports the co-op 3. Prepares application to Credit Union 4. Reviews Credit Union s offer with co-op and negotiates any changes to: Interest rate Conditions 5. Handles the paperwork with co-op and Credit Union 54

56 How CHF Canada supports the co-op 6. Handles provincial government, Agency and CMHC approval processes (for co-ops out of their operating agreement this does not apply) 7. Organizes mortgage support agreement between co-op, Credit Union and CHF Canada for loan monitoring 8. Provides annual report to Credit Union, based on coop s annual information return 9. Intervenes at lender s request if financial performance warrants it 55

57 Mortgage Support Agreement Co-op s auditor will continue to report to the Agency or equivalent until the new mortgage is paid and conducts a yearly review of operations. Co-op must continue memberships in CHF Canada, local CHF Canada member federation and credit union during the new mortgage Co-op will give CHF Canada notice of adverse financial change, material loss, termination of property manager, or litigation Reasonable access to the property or the co-ops books, etc. CHF Canada provides an annual report to the credit union on the co-ops operations and financial status. 56

58 What your co-op has to budget in terms of costs CMHC prepayment fees (Section 95 co-ops only) About 0.5% lenders fees Asset Management Services Fees CHF Canada Refinancing fee (sliding scale) Property appraisal Legal costs of deal closing and registering mortgage 57

59 The Process Co-op contacts CHF Canada representative to confirm interest in the re-financing program. Co-op provides 3 years Financial Statements and a Building Condition Assessment (BCA) to CHF Canada. Co-op Agency provides most recent operating review and commentary ( thumbnail ). CHF Canada s Asset Management Services develops with the co-op a long term asset plan and provides recommendations regarding financing repairs. 58

60 The Process CHF Canada meet with Co-op Board to review findings, answer questions and determine how best to proceed. If re-financing recommended, Board arranges General Membership meeting. CHF Canada present findings to membership, Board provides recommendation, membership votes and a Resolution to proceed, or not, is obtained. If proceeding, CHF Canada and Consultants provide required information to Credit Union and assists with their review issuing a term sheet. 59

61 The Process Prior to funding of the new mortgage, CHF Canada, the Credit Union lender, and the Co-op execute the tri-partite Agreement. At this point with all the Third Party reports completed and legal work for the new mortgage also completed, then funds are advanced and the CMHC mortgage is repaid. Additional monies will be advanced on a monthly basis as work progresses. On-going capital works continue until completion with regular inspections/monitoring by Project monitor/engineer. 60

62 Shoreham Halifax 61 61

63 Windfield Co-op, Guelph ON 62

64 Asset management David Spackman Refinancing David Howard , ext

65 Any questions? 64