Groundhog Day Resyndicating Your Portfolio Projects After Year 15

Transcription

1 Groundhog Day Resyndicating Your Portfolio Projects After Year 15

2 Laura Kobler California Housing Partnership Corporation Mark Stivers California Tax Credit Allocation Committee Kyle B. Arndt Bocarsly Emden Cowan Esmail & Arndt LLP Sylvia Martinez Community Housing Works Kevin Leichner Eden Housing

3 Now Trending Annual Resyndication Volume 4% Awards 9% Awards Total Awards

4 Case Study One 4% scattered-site resyndication HAYWARD FOUR

5 Cypress Glen 54 family units, constructed 1987

6 Image courtesy of Andrew Walker Cypress Glen 54 family units, substantially rehabilitated 29 years later

7 Huntwood Commons 40 family units, constructed 1989

8 Image courtesy of Andrew Walker Huntwood Commons 40 family units, substantially rehabilitated 27 years later

9 Harris Court 24 family units, constructed 1964

10 Image courtesy of Andrew Walker Harris Court 24 family units, substantially rehabilitated 52 years later

11 Cypress Glen 1.6 miles Harris Court Huntwood Commons

12 Hayward Four SOURCES Total Per Unit Perm Loan $7,752,000 $65,695 City of Hayward Loans/Assumed $5,396,215 $45,731 soft debt Seller Carryback $5,311,680 $45,014 Sponsor Perm Loan $5,500,000 $46,610 Income from Operations $722,060 $6,119 Deferred Fee $969,921 $8,220 Eden GP Contribution (incl. $1,106,492 $9,377 existing reserves) Tax Credit Equity $16,262,423 $137,817 TOTAL SOURCES $43,020,791 $364,583 USES Total Per Unit Acquisition Costs $20,528,000 $173,966 Residential Construction Cost $15,123,265 $128,163 Architecture & Engineering $1,457,315 $12,350 Financing/Costs of Issuance $424,194 $3,595 Capitalized Interest $966,827 $8,193 Capitalized Reserves $623,575 $5,285 Developer Fee $2,500,000 $21,186 Other Soft Costs $1,397,615 $11,844 TOTAL SOURCES $43,020,791 $364,583

13 In the Weeds Important Financial Structuring Considerations Meet the New Debt, Same as the Old Debt? Assuming and Recasting Original Debt Debt which is assumed but not modified is boring Debt which is Significantly Modified is subject to OID Rules

14 In the Weeds Important Financial Structuring Considerations How much is that Project in the Window? Acquisition Value Limitations on Acquisition Price? Third Party Seller, All Cash? Pay as much as you want Assuming Debt? Beware overvalue basis reduction

15 In the Weeds Important Financial Structuring Considerations Sorry, I must be going? Related Party Acquisitions Acquisition Credits require purchase from unrelated party 50% Capital and Profits Test

16 In the Weeds Important Financial Structuring Considerations Money for Nothing? Related Party Debt Related party debt generally treated as recourse 20% Capital and Profits Test

17 In the Weeds Important Financial Structuring Considerations The Rent is Always Due? Post Acquisition Income Qualification and Rents Grandfathering of Over Income Units Allowed if Encumbered by Extended Use Agreement Hold Harmless Rents will Reset

18 Extended Use Language Required to Allow Grandfathering of Overincome Units

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20 In the Weeds Important Financial Structuring Considerations Mo Money Mo Problems? Calculation of Developer Fee Just because TCAC allows it, doesn t mean it is reasonable Developer Fee must be reasonably allocated between Development and Acquisition

21 In the Weeds Important Financial Structuring Considerations Take the Money and Run? Repayment of Deferred Developer Fee Developer Fee must be repayable within a reasonable period of time Catch and Release Contribution of developer fee to Partnership

22 Case Study Two 4% resyndication of a 9% with extended deep affordability BANDAR SALAAM, SAN DIEGO

23 BANDAR SALAAM San Diego, CA Built in units 1b to 5b units 45% average AMI 9% in 1999: HOME and Housing Trust funds from SDHC; AHP Very high occupancy & tenure. Loss to lease fairly high.

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27 Resyndication Hurdles Existing operations Re-casting existing debt Gain on AHP if forgiven Interest paydown and new terms on local funds AFR on all recast debt & unpaid interest Breakage fee on 30 year perm Seller carryback Rolling rehab/temporary relocation in heavily occupied project Income restrictions

28 Lifecycle issues Thinking ahead to Year 30 How to pay for resident services?

29 Case Study Three 9% scattered-site rural resyndication with HCD RANCHO PARK + RUSTIC GARDENS, HOLLISTER

30 Rancho Park 54 family units, constructed 1991

31 Rustic Gardens 19 family units, constructed 1993

32 Rancho Park + Rustic Gardens SOURCES Total Per Unit Perm Loan $0 $0 HCD-LPR (RHCP) Loans/Assumed $6,072,377 $83,183 soft debt City of Hollister Combined $1,067,000 $14,616 Assumed/New Loans Deferred Fee $373,976 $5,123 Eden GP Contribution (incl. $255,718 $3,503 existing reserves) Tax Credit Equity - 9% $9,966,820 $136,532 TOTAL SOURCES $17,735,891 $242,957 USES Total Per Unit Acquisition Costs $7,358,674 $100,804 Residential Construction Cost $6,907,538 $94,624 Architecture & Engineering $586,000 $8,027 Financing/Costs of Issuance $247,812 $3,395 Capitalized Interest $326,002 $4,466 Capitalized Reserves $451,121 $6,180 Developer Fee $1,176,722 $16,119 Other Soft Costs $682,022 $9,343 TOTAL USES $17,735,891 $242,957

33 Laura Kobler California Housing Partnership Corporation Mark Stivers California Tax Credit Allocation Committee Kyle B. Arndt Bocarsly Emden Cowan Esmail & Arndt LLP Sylvia Martinez Community Housing Works Kevin Leichner Eden Housing

34 Bandar Salaam Location: San Diego, CA Rental Homes: 68 family apartment homes 16 one-bedroom 31 two-bedroom 17 three-bedroom 1 four-bedroom 2 five-bedroom apartments Developer: Community HousingWorks (CHW) Financing: Original 9% project resyndicated to tax exempt bond financing with 4% LIHTC with seller carryback note and recast soft debt. SOURCES/USES SOURCES Current Resyndication Per Unit Perm Loan $ 790,000 $ 2,190,000 $ 30,845 SDHC funds/assumed soft debt $ 3,462,752 $ 3,436,627 $ 48,403 Seller Carryback $ 482,233 $ 6,792 Income from Operations $ 216,757 $ 3,053 Deferred Fee $ 375,000 $ 5,282 CHW General Partner Contribution $ 146,814 $ 151,111 $ 2,128 Tax Credit Equity $ (520,000) $ 3,766,431 $ 53,048 TOTAL SOURCES $ 3,879,566 $10,619,141 $ 149,565 USES Total Per Unit Acquisition Costs $ 5,138,069 $ 72,367 Residential Construction Cost $ 2,380,000 $ 33,521 Architecture & Engineering $ 367,500 $ 5,176 Financing Costs $ 705,253 $ 9,933 Reserves $ 181,931 $ 2,562 Fee & Syndication $ 1,302,640 $ 18,025 Other Soft Costs $ 543,748 $ 7,658 TOTAL USES $10,619,141 $ 149,565 P F Camino del Rio South, #350 San Diego, CA

35 Financing: Challenges/Questions Small Overall, not a large bond issuance which eliminates economy of scale in the resyndication. CHW does not have another project that meets the geographic proximity requirement. Operations How to refinance a property with poor trailing 12 due to heavily occupied property (large families) and high expenses? The old 9% competition drove rents below an average of 43% AMI. Current rents are still below maximum due to the actual low incomes of the resident families. Meeting TCAC s sustainability requirements - Bandar s existing operations already include DSHW and a solar PPA, and participation in Energy Upgrade CA. There is a short window to have these grandfathered in by TCAC. Current interest rate is fixed 8.76% (originally 30 years 14 more years to go with a penalty for early payment). New Year 15 problem We are recasting a soft note that has already doubled in size and now will be growing at AFR. Only a small interest repayment is possible at capitalization. What is enough rehab? $20k/unit? $40k/unit? $60k/unit? The only new soft money is the seller carryback. With no new soft money, we are stuck at $35,000/unit, which will not upgrade all the interiors. Rehab will focus on drainage/site work/ exteriors, plumbing, conversion to hard flooring. The tenants want air conditioning and new cabinets. High relocation Relocations of large families can result in 10-20% of the rehab budget. New TCAC/CDLAC requirements to achieve original unit affordability mix while layering new resyndication targets at 50-60% AMI. Background on CHW: Community HousingWorks (CHW) is a nationally-recognized non-profit organization that helps people living on low wages and fixed incomes move up in the world, in San Diego and across California, by building and owning stable affordable apartment homes and providing onsite services and opportunities for residents to achieve their dreams. CHW has nearly 30 years of success developing new and renovating existing multi-family, affordable rental apartments in urban, suburban and rural communities. With over 2,600 rental apartments in 36 communities statewide, CHW proudly serves more than 8,000 children and adults each year. CHW and our strategic partners deliver onsite programs to give residents the knowledge, tools, and hope to achieve their goals and dreams. As a result, many adult residents are able to get out of debt, improve their credit, and start a practice of saving for the future; and youth have a safe place to learn and grow, improve reading ability, and succeed at school. CHW is an Exemplary-ranked member of the national NeighborWorks Network, an award-winning affiliate of the National Council of La Raza, and member of the prestigious Housing Partnership Network.

36 Hayward Four Location: Hayward, CA Rental Homes: 118 family apartments 28 one-bedroom 55 two-bedroom 35 three-bedroom Developer: Eden Housing Financing: The single greatest challenge was a hodgepodge of legacy financing with only 20 out of 118 homes covered by an in-force tax credit agreement with extended use language that allowed for grandfathering overincome residents. Comprising four legacy developments assembled into three sites, Eden (re)syndicated them with 4% credits as one scattered-site 4% tax credit and tax-exempt bond project. It utilized seller financing, a permanent sponsor loan funded by construction loan proceeds, a General Partner capital contribution funded by developer fee, and nine sources of recast soft debt. HAYWARD 4 - SOURCES/USES SOURCES Total Per Unit Perm Loan $7,752,000 $65,695 City of Hayward Loans/Assumed soft debt $5,396,215 $45,731 Seller Carryback $5,311,680 $45,014 Sponsor Perm Loan $5,500,000 $46,610 Income from Operations $722,060 $6,119 Deferred Fee $969,921 $8,220 Eden GP Contribution (incl. existing reserves) $1,106,492 $9,377 Tax Credit Equity $16,262,423 $137,817 TOTAL SOURCES $43,020,791 $364,583 USES Total Per Unit Acquisition Costs $20,528,000 $173,966 Residential Construction Cost $15,123,265 $128,163 Architecture & Engineering $1,457,315 $12,350 Financing/Costs of Issuance $424,194 $3,595 Capitalized Interest $966,827 $8,193 Capitalized Reserves $623,575 $5,285 Developer Fee $2,500,000 $21,186 Other Soft Costs $1,397,615 $11,844 TOTAL USES 43,020,791 $364,583

37 Financing: Challenges/Questions Scattered-site project some of the sites were not feasible as standalone (re)syndications. Combining sites allowed the project to pool equity, attract a strong pay-in from an investor, and achieve some efficiency with transaction costs. Grandfathering and overincome households. Only one site, comprising 20 of the 118 homes, had an in-force tax credit regulatory agreement that allowed for grandfathering of overincome households. Overincome households are not evenly distributed across the sites. Combining sites helped to mitigate the reduction in the applicable fraction and ineligibility for new tax credits. New tax credit, bond, and City regulatory agreements restrict all households at 60% Area Median Income (AMI) and below. The regulatory agreements will allow homes currently occupied by overincome households to be brought into compliance over time. Meeting the 50% test on a building-by-building/site-by-site basis is challenging. The sponsor borrowed additional money from the bond issuance/construction loan at construction closing and placed it in an impound account, to be paid in at conversion as a permanent source after the 50% test is met. In order to boost the sources available to the project, the sponsor is reinvesting a portion of the developer fee as a General Partner equity contribution. In order to meet the 55-year debt test, both the sponsor and the City had to agree to write down accrued liabilities on the original developments. Eden wrote off $2.8 million and the City wrote off $5.3 million in order to make the project feasible. Background on Eden Housing: The mission of Eden Housing is to build and maintain high-quality, well-managed, service-enhanced affordable housing communities that meet the needs of lower income families, seniors and persons with disabilities. Eden Housing was founded in May of 1968 by six community activists who were greatly concerned about the lack of non-discriminatory, affordable housing in Alameda County. Eden Housing has grown to approximately 130 properties comprising 8,500 homes throughout the Bay Area, the Sacramento region, and Southern California.

38 Rancho Park + Rustic Gardens Location: Hollister, CA Rental Homes: 73 family apartments 12 two-bedroom 47 three-bedroom 14 four-bedroom Developer: Eden Housing Financing: This scatteredsite 9% rural family resyndication comprises two legacy tax credit developments. Both projects were financed with California Department of Housing and Community Development (HCD) Rental Housing Construction Program- Bond (RHCP-B) loans and have deep affordability targeting. The project s residual receipts loans include the RHCP-B principal plus accrued interest, and original and new City financing. The project will not support a senior mortgage. Rancho-Rustic - SOURCES/USES SOURCES Total Per Unit Perm Loan $0 $0 HCD-LPR (RHCP) Loans/Assumed soft debt $6,072,377 $83,183 City of Hollister Combined Assumed/New Loans $1,067,000 $14,616 Deferred Fee $373,976 $5,123 Eden GP Contribution (incl. existing reserves) $255,718 $3,503 Tax Credit Equity - 9% $9,966,820 $136,532 TOTAL SOURCES $17,735,891 $242,957 USES Total Per Unit Acquisition Costs $7,358,674 $100,804 Residential Construction Cost $6,907,538 $94,624 Architecture & Engineering $586,000 $8,027 Financing/Costs of Issuance $247,812 $3,395 Capitalized Interest $326,002 $4,466 Capitalized Reserves $451,121 $6,180 Developer Fee $1,176,722 $16,119 Other Soft Costs $682,022 $9,343 TOTAL USES 17,735,891 $242,957 Financing: Challenges/Questions

39 Scattered-site project Rustic Gardens, with 19 units, was not feasible as a standalone resyndication. Combining sites allowed the project to pool equity, attract a stronger pay-in from an investor, and achieve some efficiency with transaction costs. The sites already shared property management staffing. Due to negative Net Operating Income over time, per the pro forma, the sponsor determined that a new senior mortgage would be infeasible. The property will not have any must-pay debt. In accordance with HCD Loan Portfolio Restructuring (LPR) guidelines, HCD terminated and reconveyed both of the original RHCP-B loans, and the new LPR loan has the combined principal plus accrued interest as the new principal amount, recorded against both sites. HCD also recorded a new LPR regulatory agreement against both sites. Background on Eden Housing: The mission of Eden Housing is to build and maintain high-quality, well-managed, service-enhanced affordable housing communities that meet the needs of lower income families, seniors and persons with disabilities. Eden Housing was founded in May of 1968 by six community activists who were greatly concerned about the lack of non-discriminatory, affordable housing in Alameda County. Eden Housing has grown to approximately 130 properties comprising 8,500 homes throughout the Bay Area, the Sacramento region, and Southern California.