Strategies and Considerations Restructuring Soft Debt
Katherine M. AlitzSr. Vice President, DirectorDispositions and Special Assets
Boston CapitalOne Boston PlaceBoston, MA 02108(617) 624-‐[email protected]
Strategies and Considerations Restructuring Soft Debt
Southern CA115 Units
• Third party sale.• First mortgage prohibited pre-‐payment.• Soft debt:
City $1,160,000Seller Note $1,300,000Seller Note $3,100,000Accrued Interest $1,800,000
• 70% of Surplus Cash payable to City under soft loan terms.
• Compliance expiration 12/31/2014 and restrictions extended through 12/31/2055.
Strategies and Considerations Restructuring Soft Debt
Southern CA115 Units
• Buyer assumed first mortgage and second soft mortgage to City.
• City deferred required payment of 70% of Surplus Cash for 7 years.
• Seller Notes:ü $1.3M cash payment ü $3.1M forgiveness of debt
• LP Return $883,000 and GP Return $883,000.
Strategies and Considerations Restructuring Soft Debt
Southern CA115 Units
Takeaways:
• Property part of a Fund that included 13 properties.• At Fund level → small capital loss on disposition.• COD Income → positive adjusted basis which remained
positive after deduction of net sales proceeds.• If gain from sale and COD income occur in the same
year, there likely will not be a significant change in investor yield.
Strategies and Considerations Restructuring Soft Debt
FL58 Units
• 2015 GP Transfer. • Property valued at $1.8M.• First mortgage balance $442,000.• Soft debt:
HFA $600,000Community RDA $600,000County $160,000Accrued Interest $872,000
• HFA loan matured January 2013 and Community RDA loan matured April 2012.
• Compliance expiration 12/31/2011 and restrictions extended through 12/31/2026.
Strategies and Considerations Restructuring Soft Debt
FL58 Units
• GP loaned partnership $840,000 (6.5% interest only).• First mortgage paid in full.• HFA loan:
ü Accrued interest = $765,000 waivedü GP to reduce principal by $174,000 over 5 yearsü Remaining principal re-‐amortized 30 years at 1%
• Community RDA loan:ü Converted to 2% interest only ü GP to reduce principal by $60,000ü Outstanding accrued interest of $ 210,000
converted to non-‐amortizing, 0% interest loan with a balloon payment due in 2026.
Strategies and Considerations Restructuring Soft Debt
FL58 Units
• County loan:ü Principal = $162,000 paid in full ü Accrued interest = $84,000 waived
Results:
• Total outstanding debt before restructure approximately $2.875M
• Total outstanding debt after restructure approximately $2.02M, inclusive of GP Loan.
• LP Return $50,000.
Strategies and Considerations Restructuring Soft Debt
FL49 Units
• 2015 GP Transfer. • Property valued at $2M.• First mortgage balance $277,000.• Soft debt:
HFA $460,000Community RDA $290,000Accrued Interest $744,000
• HFA loan and Community RDA loan matured January 2015.
• Compliance expiration 12/31/2011 and restrictions extended through 12/31/2030.
Strategies and Considerations Restructuring Soft Debt
FL49 Units
• GP loaned partnership $768,000 (6.5% interest only).• First mortgage paid in full.• HFA loan:
ü Accrued interest = $453,000 waivedü GP to repay principal over 4 years
• Community RDA loan:ü Converted to 2% interest only ü GP to reduce principal by $29,000ü Outstanding accrued interest of $ 291,000
converted to non-‐amortizing, 0% interest loan with a balloon payment due in 2030.
Strategies and Considerations Restructuring Soft Debt
FL49 Units
Results:
• Total outstanding debt before restructure approximately $1.775M
• Total outstanding debt after restructure approximately $1.32M, inclusive of GP Loan.
• LP Return $50,000.
Strategies and Considerations Restructuring Soft Debt
FLBoth Deals
Takeaways:
• Properties located in same town.• Lenders are the same entities for each property.• Expect a long process.
• At fund level → small capital gain on disposition.• If the gain from sale and COD income occur in the same
year, there likely will not be a significant change in investor yield.
Strategies and Considerations Restructuring Soft Debt
Southern CA61 Units
• 2014 GP transfer as part of a resyndication.• Soft loans:
City $505,000City $199,000City, CDC $800,000State DDS $367,000County $100,000Accrued Interest $930,000
• Compliance expiration 12/31/2012, and restrictions extended through 12/31/2027.
Strategies and Considerations Restructuring Soft Debt
Southern CA61 Units
• Appraised value and sale price = $5.2M.• First loan paid in full ($1.1M).• All soft loans and accrued interest rolled into new
transaction ($2.9M).• City did not anticipate being paid back on this deal and
GP had paid them back in full earlier in the year on an unrelated transaction.
• LP Return $600,000 and GP Return $600,000
Strategies and Considerations Restructuring Soft Debt
Southern CA41 Units
• Third party sale.• Soft loans:
City, HOME $832,000City RDA $690,000Accrued Interest $678,000
• Compliance expiration 12/31/2013, and restrictions extended through 12/31/2028.
Strategies and Considerations Restructuring Soft Debt
Southern CA41 Units
• GP approached City to forgive or recast soft debt.• City refused to consider.• Property marketed for sale.• Soft debt paid off at closing• LP Return $557,000 and GP Return $313,000
Strategies and Considerations Restructuring Soft Debt
Southern CABoth Deals
Takeaways:
• Same General Partner.• Different Cities about 33 miles apart• Outcomes will differ on a case-‐by-‐case and City-‐by-‐City
(agency) basis.• Some cities in CA especially are financially stressed and
need the money.• More flexibility with equity.