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PIDC/PHFA Affordable Housing Seminar
March 6, 2013
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PAID Background
Overview:
• Managed by PIDC, PAID is a public authority created by the City of Philadelphia pursuant to the Economic Development Financing Law adopted by the Commonwealth of Pennsylvania in December 1967.
Mission:
• Issue tax-exempt bonds on behalf of non-profit organizations, qualified manufacturers, other exempt organizations and the City of Philadelphia.
• Acquire, improve, sell and lease real estate in the City.
• Facilitate special economic development projects for the City.
• Serve as a conduit for governmental grant funding.
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Strong Public Finance Experience
• Tax-Exempt Experience:
– Since 2007, PAID has issued 71 financings on behalf of 59 borrowers totaling in excess of $2 billion.
• Average Annual Volume: 12 bond financings
• Range of Deal Size: $3 - $340 Million (Average $28 Million)
• Traditional Tax-Exempt Financing Programs:
– Public Offerings
– Private Placements
• Innovative Tax-Exempt Financing Programs:
– Tax-Exempt Equipment Lease-Purchase Program
– Recovery Zone Facility Bonds
– Pooled Loan Program
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Non-Rated
Non-Rated
$23,000,000
Multifamily Housing Revenue Bonds, Series
2012A and 2012B
August 2012
Non-Rated
$12,100,000
Multifamily Housing Revenue Bonds
November 2012
OPPORTUNITIES
TOWERS I & II
LIMITED
PARTNERSHIP
Representative PAID Financings
AA-/ A-1+
$20,000,000
Retirement Communities
Variable Rate Demand
Revenue Bonds
February 2008
Beech International, LLC
Non-Rated
$17,280,000
Revenue Bonds Series 2010A & 2010B and Series
2010C Taxable
September 2010
*Rating of Initial Letter of Credit Provider
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BECKETT GARDENS
APARTMENTS II LP
RIVERSIDE SENIOR
APARTMENTS,L.P.
Non-Rated
$15,000,000
Multifamily Housing Revenue Bonds, Series
2008A and 2008B
April 2008
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Streamlined Approval Process
• Complete PAID Financing Application
• Bi-Monthly PAID Board Meetings
– Draft Documents are not Required for PAID Board Approval
• Two Week Turnaround for Mayor and Commonwealth Approval – City Council Approval is not Required
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Competitive Fee Structure
• Three Components to PAID Fee:
1. Application Fee: $2,000 (covers TEFRA publication fee)
2. Administrative Fee: Tiered Pricing Schedule
• New Money:
– 37.5 basis points (0.375%) on the 1st $10 Million
– 25 basis points (0.25%) on the 2nd $10 Million
– 12.5 basis points (0.125%) on the 3rd $10 Million
– 6.25 basis points (0.0625%) on any amounts above $30 Million
• Refundings:
– 25 basis points (0.25%) for refundings of existing PAID Bonds
3. Authority Counsel Fee: Capped at $10,000
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Benefits of Utilizing PAID
• Competitive Pricing
• Streamlined and Flexible Application Process – Two Week Turnaround for Governmental Approval – Borrower Selects Working Group Professionals
• Dedicated Professionals Focused on Tax-Exempt Issuances
– Experience with a Variety of Tax-Exempt Financing Programs
• Access to Additional Financial and Real Estate Services
– Low Cost Direct and Subordinate Lending for Commercial Component of Residential Projects – Commonwealth and Local Grants – Development and Management of Request for Proposals for Land Sales – Assistance with Property Acquisition – Property Management
• PAID’s Fee Revenue is a Bottom Line Contribution to the City’s Economic Development Efforts
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Facebook .com / P ID Cp h i l a @P IDCph i l a ● ● W W W.P IDC -PA .ORG
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PIDC-PHFA WORKSHOP Affordable Housing Finance –
Tax Exempt Funding Opportunities
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Application Process
• The PA Department of Community and
Economic Development each year provides an allocation to PHFA for the issuance of private activity bonds for housing purposes.
• Applicants for these bonds must request an allocation from PHFA.
• Either PHFA or a local entity may issue the bonds.
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PHFA Application Process
• Applications generally accepted through July 1.
• Tax-Exempt Bond Term Sheet
▫ Project name and address
▫ Target population
▫ Project type
▫ Bond request (construction/permanent)
▫ Borrower
▫ Bond issuer
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Tax-Exempt Bond Term Sheet
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Tax-Exempt Bond Term Sheet
• The term sheet should be forwarded approximately 60 days prior to submitting the application.
• Submitting the term sheet will put the project on the radar and preliminarily set-aside the volume cap.
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Application Process
• Use the Multi-Family application from website.
▫ Same application as for 9% credit applications
▫ Some additional exhibits specific to the bonds
• Be sure to do a quick 50% test.
• Be sure to provide a detailed description of the bond transaction.
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Application Process
• Board presentation for commitment usually occurs within 90 days of application receipt.
• Portfolio-type applications (combining more than one project into a single application) will take longer.
• A conditional inducement resolution can be issued prior to the complete application review if necessary, for example, if this resolution is required to submit a HUD application.
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Application Process
• The Board presentation consists of a commitment write-up and capital budget analysis.
• A representative of the applicant must be available at the Board meeting to answer questions, either in person or via telephone conference call.
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Application Process
• If the Agency is not the bond issuer, the project must close prior to the end of the calendar year or lose the volume cap allocation.
• If the Agency is the bond issuer there may be more flexibility on the closing date.
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Application Process
• In order for projects that are financed with tax-exempt bonds to receive the “automatic” tax credits, the governmental unit issuing the bonds must make a determination that the application meets the Qualified Allocation Plan.
• This is called the 42(m) letter.
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Application Process
• PHFA routinely issues the 42(m) for applications requesting an allocation of tax-exempt bonds.
• If PHFA is not the bond issuer we will need a written request from the issuer asking us to do the review in its place.
• The 42(m) letter is usually executed just prior to the bond closing.
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Application Process
• In some cases a subsidy layering review is also needed for closing.
▫ Required for projects receiving HUD assistance combined with other governmental assistance.
FHA Mortgage insurance
Section 202/811 Capital Advance Programs
Project based voucher assistance
• PHFA can usually also complete this review.
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Application Process
• Owners may elect to lock into the credit percentage for calculating the tax credits either in the month the bonds are issued or when the buildings are placed in service.
• If electing to lock in at the bond closing, an irrevocable Rate Lock election must be made to PHFA.
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Application Process
• The credit percentage election must:
▫ Be in writing;
▫ Reference IRC Sec. 42(b)(2)(A)(ii)(II);
▫ Specify the percentage of aggregate basis financed by the bonds;
▫ State the month the bonds were issued;
▫ State that the month the bonds were issued is the month elected for the credit percentage;
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Application Process
▫ Be signed by the taxpayer; and
▫ Be notarized by the 5th day following the month in which the bonds are issued. (This notarization must be made on the last page of the election statement and not on a separate page.)
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Application Process
• Cost Certification
▫ Placement in service package should be submitted to PHFA 90 days after the last building in the project is completed and placed in service.
▫ Asset management fee due with cost certification.
▫ Tax credit allocation fees due upon completion by PHFA of cost certification review.
▫ IRS Form 8609 is issued once allocation fees are paid.
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Additional Information
• Agency is an approved MAP lender.
• Contact the Agency for more information if interested in pursuing this type of financing.
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Contact Information
• Holly Glauser, Director of Development
▫ 717-780-3994
• Susan M. Belles, Manager of Loan Programs
▫ 717-780-3887
• Brian Shull, Senior Development Officer
▫ 717-780-3909
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Low Income Housing Tax Credits
William C. Rhodes, Partner
Public Finance Department Chair
Ballard Spahr LLP
215.865.8534
The Role of Bond Counsel in
4% Low Income Housing Tax Credits
with Tax-Exempt Bond Financings
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The Function of Bond Counsel
• Validity
• Tax Exemption
• Enforceability
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Bond Counsel Tax Diligence
• Who will be the Owner/Borrower?
- For-profit Borrower under Section 142(d)
- Contribution of existing property from a nonprofit entity
• What is being financed?
- Residential Rental Housing Units suitable for occupancy on a non-transient basis
- 50% of Total Development Costs paid with bond proceeds
• When are costs incurred?
• While we will review pro forma, our diligence is NOT a credit assessment!
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Low/Moderate Income Set-Asides
• 20% or more of units occupied by persons whose income is 50% or less of median gross income
OR
• 40% or more of units occupied by persons whose income is 60% of less of median gross income
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Qualified Project Period
• Low/moderate income set asides begin on the 1st day on which 10% of the residential units are occupied and end on the LATEST of:
- 15 years after the date on which 50% of the units are occupied
- Bonds are no longer outstanding
- Expiration/Termination of Section 8 project assistance
• NB: 15-year compliance period for tax-exempt bonds is typically a non-issue given 30-year Extended Use Agreements imposed as a condition for the tax credits.
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Bond Approval Process
• Why is PAID involved?
• Bond Volume Cap Allocation
- 4% credits may be considered "automatic credits", but Private Activity Bond volume allocations are definitely not.
• TEFRA Hearing and Approval
• PAID Approval
• DCED Approval
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Documents
• Trust Indenture
• Loan Agreement
• Bond Placement Agreement (Direct Placement)
• Mortgage and Security Agreement
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Structural Issues and Considerations
• Will Bonds be paid off in full with Tax Credit Equity?
• Intercreditor Issues?
• Bond issue is very dependent on tax credit investor diligence
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Ralph A. Falbo, Inc.
Real Estate Development Company
Presented to:
PHFA and PIDC Philadelphia, PA
March 6, 2013
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Sample Tax Exempt Bond/4% Tax credit Projects
1.Doughboy Square Apartments – 80/20 Mixed Income
– Mixed Use
2.Eva P. Mitchell Senior Apartments – Refinance of Section 202 through 223f
3.West Park Court Senior Apartments – Refinance of Section 231
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Doughboy Square apartments
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Doughboy Square Apartments
Project Summary: Construction of 45 one and two bedroom luxury apartments and
7,300 square feet of street level commercial space with integral garage parking. The
building will be located on 3431 Butler Street across from the Doughboy Statue at the
intersection of Butler and Penn. Garage parking to be accessed via Mulberry Way,
behind the building.
The site is located in the Lawrenceville business district. The Children’s Hospital of
Pittsburgh UPMC and the regional warehouse shopping “Strip District” are located
within blocks of the site.
Financing consists of a tax exempt loan, URA financing and 4% LIHTC Equity.
Project Financing: $ 9,400,000 Tax Exempt Loan (Dollar Bank)
1,500,000 URA Loan
787,756 LIHTC Equity
390,794 Deferred Developer Fee
$12,078,550 Total Development Cost
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Eva P. Mitchell
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Eva P. Mitchell
Financing Plan: The development plan included a new $4.4 million first
mortgage insured through the FHA 223(f) mortgage program.
Evanston Financial purchased a tax-exempt note to fund the
new loan.
Sources & Uses of Funds
Sources
Limited Partner Equity from 4%
Volume Cap Tax Credits
$1,327,000
FHA-Insured Mortgage Loan
4,400, 000
Existing Reserve for Replacement
116,000
Total Sources
$5,843,000
Uses
Residential Improvements
$1,524,321
Land & Building Acquisition
2,815,311
Soft Costs
1,503,368
Total Uses $5,843,000
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West Park Court
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West Park Court
Financing Plan: Project was allocated $3.85 million in tax-exempt volume
cap. The volume cap allocation was used to fund a 40-year amortizing note to
the limited partnership. West Park Court Housing, L.P. obtained Section 231
FHA mortgage insurance. Based on the volume cap allocation, the limited
partnership raised $1.9 million in low income housing tax credit equity through
the syndication of 4% credits.
Total Project Cost: $6,686,688
Project Sources:
1st Mortgage: $3,858,500
LIHTC Equity: $1,934,000
GP/Seller’s Note: $ 580,420
Deferred Developer’s Fee: $ 198,768
Interim Income: $ 115,000
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Thank you
on behalf of
Ralph A. Falbo, Inc.
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PIDC/PHFA Workshop on Affordable Housing:
Tax–Exempt Opportunities March 6, 2013
Legacy Preservation Initiative
Mission First Housing Group
Building Partnerships, Creating Community Assets
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Founding Mission & Purpose
• Founded in 1988 as 1260 Housing Development Corporation.
• A joint venture: City of Philadelphia, HUD and Robert Wood Johnson Foundation.
• Original Mission: to develop and manage decent, safe and affordable housing for persons with mental illness and other special needs.
• 1989: 34 units in Philadelphia.
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Today: A Family of Companies
Mission First Housing Group envisions communities
where everyone can live independently in
affordable, safe and sustainable homes with access
to resources and opportunities to participate in
their community.
• 1260 Housing Development Corporation – Founding nonprofit
• Columbus Property Management & Development – Philadelphia-based operating company founded in 1993
• Mission First Housing Development Corporation – Washington DC; assets acquired in 2010
• Dover Housing Development Corporation – Delaware; assets acquired in 2010
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Accomplishments
• 2,242 Managed Housing Units – 1,232 units in 263 buildings in Philadelphia
– 440 Southeastern PA master-leased units
– 550 operated units in Washington, D.C.
– 20 operated units in Delaware
• Today, housing for 3,500 individuals: – 1,200 adults living with chronic mental illness
– 1,000 formerly homeless
– Growing veterans population
• 90+ staff members. Seasoned affordable housing professionals.
• $60 million operating budget; $5+ million endowment
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Need for Recapitalization Funds
Problem: Aging Affordable Housing Stock with No Ready
Source of Capital Funding for Reinvestment.
• Deed ownership of 502 housing units acquired from 1989 to 2004.
• GP interests in 216 units (6 developments) that are at least 10
years old.
• Competition for 9% LIHTCs is intense; PHFA also has indicated that it wants to limit 9% credits going to preservation.
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The Project
• Moderate rehabilitation of 13 existing buildings 139 apartment units – 9 efficiency, 102 one-bedroom and 28 two-
bedroom units.
• All Developments were acquired and/or developed by 1260 Housing Development Corporation between 1992 and 2001.
• The vast majority of units are occupied by residents with special needs.
• They are located in various neighborhoods of the City of Philadelphia.
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The Financing
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Sources Construction Permanent
Tax-exempt Bonds – Philadelphia
Authority for Industrial Development $11,700,000
Deferred Developer Fee $467,992
Taxable Loan – Community Lenders $2,000,000
LIHTC Equity – Enterprise $6,558,203
1260 Housing Development
Corporation Loan $4,873,395 $7,547,200
Assumed Soft Debt $1,135,769 $1,135,769
HUD Energy Innovation Funds $2,800,020 $2,800,020
Existing Operating Reserves $334,967 $334,967
Total Development Cost $20,844,151 $20,844,151
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Limitations to 4% Credit
• Equity can only pay roughly 30% costs in non-boost areas.
• PA has limited soft subsidies to supplement equity.
• LIHTC rents in PA are not high enough to support significant amounts of hard debt.
• Lack of soft and hard debt = only light to moderate rehab.
• Transaction costs of bonds means that deals need to be sizable.
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Lessons Learned
• Relatively high value properties help generate
equity for rehab.
• Interface between property management,
maintenance and development are key to
success.
• Prepare a realistic timeline for the bond and
LIHTC review.
• Involve your partners earlier than you think you
need to.
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The Future
• Mission First will be driving most well-maintained LIHTC developments through the tax-exempt/4% credit process.
• We will be seeking increased soft subsidies to enable deeper levels of renovation; i.e. push for statewide funding, non-traditional funding.
• Mission First will work with fellow owner/developers to make the 4% credit path the first stop for preservation deals, understanding that some deals need the deeper rehab that comes with the 9%.
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Mission First Housing Group Opening doors to housing opportunities for 24 years
Thank You!
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