Chicago Social Housing Program

Transcription

1 Chicago Social Housing Program

2 Contents Executive Summary 3 Social Housing Bond Overview 7 Investment Strategy 9 Strong Rental Cash flows 11 What is the Housing Choice Voucher Program? 13 Fair Market Rents 15 Why Invest in Chicago? 17 Why Should I Invest Now? 19 Contact Us 20

3 Executive Summary 2 Year Social Housing Bond (SHB) with 12% Return per annum

4 The Social Housing Bond (SHB) launched in 2016 with the express objective of re-housing up to 2,000 families in the Chicago area. Over the 2 year period, an investor will receive returns equal to 12% per annum, paid monthly The SHB is a Socially Responsible Investment (SRI) as our main objective is to help provide safe, clean and decent housing to either the very low or low income families in the Chicago area. The US Housing market has been on a downward path since it reached an all-time high in late 2006/ Early However, after plummeting over 50% in some areas the consensus is that we may have finally found a bottom to the market. The graph to the right shows the vast majority drop in prices occurred between mid and early 2009.

5 Whilst the property prices have dropped, foreclosures have skyrocketed forcing many thousands of families out of their homes. This in turn has increased the demand for good rental properties and this has been compounded by the banks in the US keeping a very tight rein on mortgage finance. This restriction of credit is forcing not just those that have lost their homes into the rented sector but also first time buyers. This perfect storm has created a once in a lifetime opportunity in the US housing market. The Forbes Capital 2 year Social Housing Bond has been designed to allow both private and institutional investors an opportunity to benefit from these circumstances. Returns of 12% per annum are available. This is asset backed and secured upon the property held and managed by Forbes Capital.

6 Returns of 12% per annum are available. This is asset backed and secured upon the property held by Forbes Capital

7 Social Housing Bond Overview 2 Year Social Housing Starts in Chicago 2016

8 Forbes Capital acquires distressed property, typically 2-4 unit dwelling houses in both West and South Chicago. After a comprehensive refurbishment process, we let these properties to US families under the Housing Choice Voucher Program, formerly known as Section 8. This allows the company to achieve high rental yields that are paid directly to our property manager. In some cases the company may sell a portion of it s portfolio to help accelerate growth and use leverage where appropriate. There is a minimum initial investment of 5,000 and multiples of 1,000 there after. The annual returns are 12% of the sum invested with monthly payment dates. The first payment date will be the final business day of the month following receipt of investment. This allows for administration, property acquisition, refurbishment if needed and rental. The final redemption payment is paid on the final business day of the 2nd anniversary of the receipt of funds. All investment received are secured against the properties in the portfolio and income generated will be held in a segregated clients account with Forbes Capital.

9 Investment Strategy The initial strategy is to help re-house 2,000 families in Chicago. The vast majority of these families will have lost their homes over the past three years and are now desperately trying to find good quality rental accommodation.

10 We focus on multi-unit dwellings that contain between 2-4 apartments. All properties are bought directly from US banks or via foreclosure sales. All properties are refurbished to a high standard which includes new kitchens, bathrooms, windows and wooden floors. Yields achieved are sufficient to deliver the necessary returns to the investors whilst allowing the portfolio to continue to grow. Throughout the three year term, we will actively manage each property each property to maximise the returns. This will include a mixed strategy of buy & hold or buy & sell at the most appropriate times. We expect to undertake more property dealing in the first 12 months whilst prices are particularly low, which will help accelerate growth before switching to a longer holding strategy as redemption dates approach. The table below shows the Housing & Urban Development* (HUD) department s agreed rent payable in Chicago for One Bedroom Two Bedroom Three Bedroom Four Bedroom $922 $1,093 $1,395 $1,624 We can acquire a 2 unit property for as little as $30,000 and refurbish it for approximately another $30,000. A 2 unit property with one 2 bed and one 3 bed apartments will produce a rental income of $29,856 per annum. If we take an acquisition and refurbishment cost of $60,000, we will achieve and un-leveraged yield of 49.76% Another option is to acquire, refurbish and sell. The above example could be sold for $145,000 and still produce and un-leveraged yield of 20.59% per annum for a but to let investor.** The figures achieved are even better on a 3 unit dwelling. In this example the property has one 2 bed and two 3 bed apartments. A typical acquisition and refurbishment cost would be approximately $120,000. The rental income generated by this property would be $46,596. This would provide an un-leveraged profit $66,384 if we sold at a cap rate of 25% The sale of just one of these 3 apartment properties would generate enough funds to cover all of the interest due for the 2year term and the final redemption payment. (Based on investment of $120,000, see below) Investment $120,000 12% per annum $14,400 Property Type: 3 Apartments 8 Beds Total Interest Payable (2yrs) $28,800 Rental Income as per FMR $39, % $120,000 Cap Rate 25% Sale Proceeds $186,384 Total Due to Investor $148,800 All of the returns shown above are un-leveraged. The Fair Market Rent (FMR) is set by the Housing & Urban Development department and is paid directly to either the investor or the investor s agent. Thus guaranteeing a certain level of rental income. All funds are secured with a 1 st lien charge against the portfolio and we also have a sinking fund which acts as further insurance against non-payment of investor returns. The HUD is a US Governmental Department ** Investors who wish to buy properties outright should contact us directly.

11 Strong Rental Cashflow The US homeownership rate has fallen to around 6 million homes since 2007 and this has increased the demand for good quality rentals properties.

12 1 People who have suffered from a foreclosure still need somewhere to live and therefore their only option is to rent. 2 First time buyers cannot get a mortgage to buy a property so they are forced to rent instead. 3 Voluntary Default, whereby a regular borrower hands back their keys because they are in a negative equity position and they decide they would be better off renting. As more people are forced into the rental market, the demand for rental property increases and this creates upward pressure on the rental prices as can be seen in the graph opposite. Rental prices have steadily increased since 1983 yet home ownership rates have fallen drastically since 2005, as shown by both graphs opposite.

13 What is the Housing Choice Voucher Program? Most of the properties will be let to new prospective tenants under the Housing and Urban Development (HUD) Housing Choice Voucher (HCV) program, formerly known as section 8.

14 The Housing Choice Voucher program is the US Federal Government s major program for assisting very low and low-income families, the elderly and disabled to afford decent, safe and sanitary housing in the private rental market. Since housing assistance in provided on behalf of the family or individual, participants are able to find their own housing, including single-family homes, townhouses and apartments. The participant is free to choose any housing that meets the requirements of the program and is not limited in subsidised housing projects. Housing choice vouchers are administered locally by Public Housing Agencies (PHAs). The PHAs receive federal funds from the US Department of Housing and Urban Development (HUD) to administer the voucher program. A family that is issued a housing voucher is responsible for finding a suitable housing unit of the family s choice where the owner agrees to rent under the program. Rental units must meet the minimum standards of health and safety, as determined by the PHA. By the program. Under certain circumstances, if authorised by the PHA, a family may use it s voucher to purchase a modest home. The Rent Subsidy The PHA calculates the maximum amount of housing assistance allowable. The maximum housing assistance is generally the lesser of the payment minus 30% of the family s monthly adjusted income or the gross rent for the unit minus 30% of monthly Adjusted income. All rented payments are paid directly from the US Government department HUD into our managing agent s bank account, where it is combined with the tenant's contribution before being forwarded to Forbes Capital. A housing subsidy is paid to the landlord directly by the PHA on behalf of the participating family. The family the pays the difference between the actual rent charged by the landlord and the amount subsidized

15 Fair Market Rents Since Congress established the Section 8 program in 1974 there have been three definitions of FMRs. The current definition, which became effective in 1995, contains several elements.

16 The Fair Market Rent is the 40 th percentile of gross rents for typical, non-substandard rental units occupied by recent movers in a local housing market. 40 th percentile: The 40 th percentile is that point in a distribution of numbers at which 40% of the numbers are less than or equal to it and 60% of the numbers are greater than or equal to it. In this set of numbers {$395,$458, $486, $517, $675}, $458 would be the 40 th percentile. The 40 th percentile is similar in concept to a median; the median is the 50 th percentile. One Strike Policy Unlike the UK, where unruly tenants seem to repeatedly get re-housed, this does not happen in the US under the HCV program thus protecting our investment. If the tenants do not pass any of the routine inspections or fail to pay just one monthly rent, they are given 30 days to rectify the problem and if this is not done, the can be evicted. Any tenant evicted from the HCV Section 8 home cannot get back into the scheme anywhere else in the US. Under the scheme, the Section 8 payments can cover from 70% up to 100% of the tenant s rent. Obviously tenants try hard to not lose this support. Thus ensuring that the property remains in good condition and in most cases treating it as if it were their own. How HUD Matches the FMR Definition With Different Data Sources Gross Rents: Gross rent is the sum of the rent paid to the owner plus any utility costs incurred by the tenant. Utilities include electricity, gas, water and sewer and trash removal services but not telephone services. If the owner pays for all utilities then the gross rent equals the rent paid to the owner. Element 1990 Census American Housing Survey Gross Rent Recorded by census Recorded by AHS Recent mover Moved inpast 15 Months Moved in past months Random Digit Dialing Survey Respondents indicate utilities they pay for and HUD estimates monthly costs from local housing authority data Moved in past months Public Comment Varies. If the comment contains an RDD, HUD will estimate utility costs using local housing authority data. Otherwise, HUD will estimate from 1990 census If public comment does not contain recent mover information, HUD will estimate from 1990 census Public Housing Adjusted HUD based on AHS Eliminated by HUD from AHS information Eliminated in survey Varies. HUD can estimate from AHS data Built in past 2 years Eliminatedby Census Bureau in extract. Eliminated by HUD from AHS information Eliminated in survey Varies. HUD can estimate from 1990 census Substand ard units Census extract excludes units with major deficencies HUD makes further adjustment based on AHS HUD uses AHS definitions of serious problems No separate adjustment* Varies. HUD makes adjustment if needed Seasonal units Census extract excluded Excluded by HUD from AHS information Eliminated in survey Varies Atypical Census extract excluded Excluded by HUD from AHS information Eliminated in survey Varies

17 Why Invest in Chicago Chicago has one of the world s largest and most diversified economies, a gross regional product (GRP) of $500 billion.

18 Diverse Economy Chicago is home to more than 400 major corporate headquarters, including 27 fortune 500 headquarters. Rated #1 Large US Metro for Economic Diversity by Moody s Investor Services, Chicago is a key player in every economic sector from risk management innovation to manufacturing to information technology to heath services. Trading Post The most distinctive aspect of Chicago s financial services community is also among it s oldest. The city s derivatives exchange community, which started with commodity futures trading at the Chicago Board of Trade in 1848, established the city as a global financial centre. To this day, even though the trading of derivatives is conducted on an ever-expanding international scale, Chicago arguably remains the geographic centre of global derivatives trading in terms of markets, scale and talent. Over $3 billion in global derivatives trading volume, nearly twice the trading volume of New York. Chicago based Options Clearing Corporation clears all US options contracts worth nearly $2 trillion in Chicago futures and options exchanges collectively dominate exchange-based derivatives trading, with 51% of exchangebased derivatives trading in the U.S. Since 2000, the volume of global derivatives trading has increased from a little over 2 billion contracts traded to more than 17.4 billion; Chicago s exchange community accounted for 18% of the global increase and 48% of the U.S. market increase. Growing Economy Chicago continues to grow; total trade surpassed $160 billion in 2010 (up from $95 billion in 2004). Chicago is top-ranked for economic potential among major cities across the world and in 2010, World Business Chicago identified more than 230 medium-sized new and expanding facilities announced, under development or completed in the metro area, representing a total of more than 14 million square feet and nearly $2 billion in economic development activity. In August 2010, inc. magazine included 202 companies from the Chicago region in it s annual list of the 5,000 fastest-growing companies in the U.S., placing Chicago 4 th among metro regions for number of Inc. 5,000 companies; the city itself ranked second with 101 companies. Source:

19 Why Should I Invest Now? To take advantage of exceptional returns without the time consumption of direct ownership. Returns paid monthly. Short to medium term. Returns and redemption payments concluded after 2 years. Asset backed investment. 85% rule. The amount of investors funds invested shall not be above 85% of the value of the property portfolio. Assured above average returns of 12% per annum. Secure exit strategy in place. No need to register or pay US taxes* No need to open a U.S. LLC or bank account. Property management, trading and administration team in place with over 40 years experience. No worries amount maintenance or refurbishment costs or issues. No void periods Low entry level, 5,000 Flexibility, subsequent investment can be made in multiples of 1,000. The ultimate armchair investment. For those who wish to invest in the U.S property market with out the associated hassle. A once in a lifetime opportunity to benefit from low property prices and high rents in the world s largest economy. See table below. *Returns are subject to UK withholding tax, however, your tax advisor will be able to confirm how this affects you dependent on your personal circumstances.

20 Contact Us Forbes Capital Limited Suite LP Wenlock Road London N1 7GU