Bill Van Vliet financing
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Bill Van Vliet financing Presentation Transcript

  • 1. Financing Preservation – The Oregon Experience
    Moderator: John Epstein, Wells Fargo Bank
    Presenters: Patrick Shea, HUD
    Bob Gillespie, Oregon Housing & Community Services
    Bill Van Vliet, NOAH
    MA Leonard, Enterprise
    David Fuks, Cedar Sinai
  • 2. Patrick sheaSupervisory project managerUS Dept. Housing and Urban Development
    HUD Section 8 Contract Renewals
  • 3. HUD Portland MFH Portfolio
    The Portland MFH Program Center has jurisdiction for the States of Oregon and Idaho.
    The Portland MFH Portfolio consists of approximately 580 projects of all HUD program types, which are monitored by 8 HUD Project Managers.
     There are 276 contracts with 9,922 units of project based Section 8 in Oregon, which are administered by Oregon Housing & Community Services (OHCS). 
    In Idaho there are 119 contracts with 3,786 units of project based Section 8, which are administered by Idaho Housing Finance Association.
    A subset of the Portland Section 8 Portfolio is the Housing Finance Agency (HFA) Section 8 contracts funded under Code of Federal Regulations (CFR) 883.
  • 4. HUD Portland MFH Portfolio
    In Oregon, there were 122 projects and 4, 085 units of Section 8 generated under the 883 program.
    In Idaho, there 60 projects and approximately 2,000 units of generated under the 883 program.
    Both OHCS & IHFA have been significant partners with HUD in generating the bond financed mortgages over 30 years ago, while HUD has funded the Section 8 Housing Assistance Payments (HAP) contracts for these projects for the same period. 
    These 883 projects, whose mortgages and Section 8 contracts began to expire concurrently in 2006 and will continue to do so for until 2013 in Oregon and 2020 in Idaho. 
  • 5. 883 Contracts
    This panel will focus on the Oregon Experience, but the lessons learned could be applied to other 883 Portfolios in the Nation.
    Contract expiration and mortgage maturity date are generally within 90 days of one another
    Two versions of 883 HAP contracts exist:
    Old Regulation 883 – pre 1981
    New Regulation 883 – post 1981
    May 10
    5
  • 6. The HUD Role
    For Acquisition & Rehabilitation Transactions HUD will:
    Participate in Scoping Meetings to Identify Potential Challenges and Clarify Roles
    Coordinate with the OHCS, as the Performance Based Contract Administrator (PBCA) on Section 8 Contract Renewal Process
    Hold Additional Meetings with Industry Partners in the Transaction for update status and review timelines.
    Process the Determinative Criteria Review Submission
    The Determinative Criteria Review is the HUD Approval of the Transaction for Noninsured Projects with Section 8 HAP Contracts.
    HUD will approve new 20 year term Contract for Preservation Purposes.
  • 7. OHCS Role
    Similarly, For Acquisition & Rehabilitation Transactions OHCS will:
    OHCS, as the mortgagee must approve the prepayment of the bond financed mortgage.
    The Prepayment of the OHCS Mortgage can trigger the early termination of the 883 Old Regulation contracts.
    Participate in Scoping Meetings to Identify Potential Challenges and Clarify Roles
    OHCS, as the PBCA will process the Section 8 Contract Renewal under Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) Guidelines.
    OHCS will underwrite the new permanent financing.
    OHCS will issue Section 42 LIHTC as part the permanent financing.
  • 8. Timelines
    The Section 8 Contract Expiration Date drives the process, because of the need to have new permanent financing in place with Initial MAHRA Contract Renewal effective date.
    Sellers and Buyers should be communicating at least Two Years before the Contract Expiration.
    The early termination of the Old Regulation 883 contract must be factored into the process, if OHCS allows prepayment of the mortgagee.
    There is the required 1 year notice to tenants of the contract expiration.
    In the sale of a project to a Nonprofit the required notice period to tenants of contract expiration is 6 months.
    The OHCS timelines associated with the competition for Section 42 LIHTC must be considered.
  • 9. Oregon Experience Preservation TransactionPotential Resources
    OHCS Bond Conduit Financing
    Oregon Affordable Housing Tax Credits
    Section 42 LIHTC
    Oregon Housing Trust Fund
    Oregon Weatherization Funds
    HUD Section 108 Loans
    HUD Section 8 HAP Contracts
  • 10. Bond Financed Mortgages - Original Players
    The Transactions were more simple 30 years ago.
    Project Owners
    OHCS – Bond Issuer & Mortgage
    Bond Holders
    OHCS – Traditional Contract Administrator
    HUD – Funding the Subsidy Contract
  • 11. Acquisition & Rehabilitation Players
    Things are not so simple now to Preserve Section 8 Contracts.
    Seller
    Buyer
    Interim Finance, such Network for Oregon Affordable Housing
    OHCS – Bond Conduit Issuer
    Bond Holders
    Tax Credits Investors
    Gap Finance, such HUD CPD, OHCS, City of Portland
    OHCS - PBCA
    HUD – Funding the Subsidy Contract
    Nonprofit Industry Partners
  • 12. Successful Preservation Transactions
    Despite the challenges briefly described here, HUD, OHCS & Our Industry Partners have been successful in Preserving the Project Based Section 8 Contracts, while providing for physical rehabilitation of the projects and generating stable financing for future.
    Of the original 4,085 units of the 883 Section 8
    • 1,083 units Preserved for the Long Term
    • 13. 798 units – Owners have chosen to stay in the Section 8 Program
    • 14. 1, 934 unit – Contract Expiration Not Yet Occurred
    • 15. 270 units – Lost to Contract Opt Out
    The Oregon Experience has provided value lessons in how to Preserve Project Based Section 8 Contract and position the projects for another generation.
  • 16. Bob gillespiehousing division administratororegon housing and community services
    State Policy and Financing Resources
  • 17. OHCS Early Recognition of need for Preservation
    Uninsured Section 8 portfolio
    10% of nation’s total
    4,085 units
  • 18. OHCS is the HUD Contracts Administrator for Oregon
    Allows department to work with existing owners to renew HAP contracts
    798 uninsured Section 8’s renewed
  • 19. Legislative Support
    $11M in Lottery-backed bonds in the ’07 Session
    $19M in Lottery-backed bonds in the ’09 Session
    Oregon Affordable Housing Tax Credit (OAHTC)
    CAP raised to $17M
    Pass-through requirement for preservation properties and manufactured parks eliminated
  • 20. Projects preserved during the 07-09 biennium:27 projects - 1,096 units
    Total project costs: $132,128,098
    Total Replacement costs (@ $200,000 p/u): $219,200,000
    Total Subsidy retained (@ $72,000 p/u over 20 yrs): $78,912,000
    18 HUD Section 8 projects were closed/transferred - for a total of 786 units (bond/4% financed projects)
    3 more properties received funding – for a total of 120 units; however, in September of 2008, lost lender and investor. Anticipate closing/transferring properties fall of 2010. Funding allocations have remained with the projects. (bond/4% financed projects)
    1 project (46 units) received an allocation of preservation dollars for rehabilitation activities, with a commitment to renew for a 20-year HAP contract.
    An additional 5 projects, for a total of 144 units, received funding through the Consolidated Funding Cycle.
    Note: Preservation projects that received funding through the Spring 09 CFC and some Fall 08 projects will be counted in the 09-11 preserved unit count, as most required TCAP/1602 (ARRA) resources.
  • 21. Preservation for the 09-11 biennium
    Goal is to preserve 1,598 units
    Received $19 M in Lottery Backed Bonds for preservation projects
    Approx. $11.3 M has been reserved for bond/4% projects
    Approx. $4.7 M is available through the 2010 CFC; and,
    Approx. $3 M for Manufactured Dwelling Parks (RFP is currently out and can be found on OHCS’ website)
    In addition, approx. $20.7 M of TCAP/1602 (ARRA) resources were committed to 8 preservation projects
  • 22. Preserved To Date: as of May 15, 2010
    3 bond/4%/TCAP - RD projects – 138 units
    8 CFC projects – 4 RD / 4 Sec 8 (2 RD w/Section 8 units) – 297 units
    14 Existing Owners renewed – 348 units
    • 4 one-year renewals
    • 23. 7 five-year renewals
    • 24. 2 twenty-year renewals
    Six projects currently working with NOAH for interim short-term financing through the Oregon Housing Acquisition Fund (OHAF)
  • 25. Anticipated to be preserved by December 2010:
    12 bond/4% projects – 9 RD / 3 Section 8 – 440 units
    7 (2008 & 2009) CFC projects – 2 RD / 5 Section 8 – 363
    By year end, estimated units preserved: 1,238 (excludes existing owner renewals of 348 units)
    • Total project costs: $145,714,951
    • 26. Total Replacement costs (@ $200,000 p/u): $231,800,000
    • 27. Total Subsidy retained (@ $72,000 p/u over 20 yrs): $83,448,000
  • Funding Availability
    2011 Consolidated Funding Cycle:
    • Trust Fund/GHAP Funds
    • 28. HOME
    • 29. 9% Low Income Housing Tax Credits
    • 30. Oregon Affordable Housing Tax Credits
    • 31. Weatherization (PGE area only)
    • 32. Housing Preservation (unknown at this time, dependent on 2011 Legislative allocation)
    Conduit / Risk Sharing Bond Program / Elderly/Disabled Bond Program
    4% Low Income Housing Tax Credits (w/tax exempt bonds)
    Oregon Affordable Housing Tax Credits (out-of-cycle, preservation only)
    Housing Preservation Funds (unknown at this time, dependent on 2011 Legislative allocation)
  • 33. Bill Van vlietexecutive directorNOAH
    Interim and Permanent Lending
  • 34. NOAH Background:
    Statewide not for profit lender formed in 1990 to provide interim and permanent financing for affordable multi-family housing projects
    Formed by Oregon banks to share risk and develop lending expertise in affordable housing
    Received CDFI designation from US Treasury in 2003
    $160 Million in loan capital
  • 35. NOAH Loan Programs
    Program Loan Capital
    Permanent Loan Fund $119,432,000
    Preservation (OHAF) $ 32,700,000
    Predevelopment Fund $ 4,696,141
    TE Bond Fund $ 3,291,546
    Total Loan Capital: $160,119,687
  • 36. Preservation Involvement
    Permanent Loans
    OHAF (interim acquisition) Loans
    Administer Oregon Housing Acquisition Project
    Policy formation
  • 37. Preservation Initiative
    Oregon Housing Acquisition Project (OHAP)
    Statewide initiative to maximize preservation of expiring federally subsidized apartments
    Strong collaboration with State of Oregon and City of Portland
    Guided by Steering Committee of industry partners
    Meyer Memorial Trust launched the program with significant early grant and PRI support
    One of 12 programs nationally selected for significant funding by the MacArthur Foundation
  • 38. Preservation Initiative
    Oregon Housing Acquisition Project—Goals:
    • Collaborate to preserve 80% of federally rent-assisted units
    • 39. Establish Comprehensive Data Base and Web Site
    • 40. www.preserveoregonhousing.org
    • 41. Establish Oregon Housing Acquisition Fund (OHAF)
    • 42. $32 million fund
    • 43. Facilitate Intergovernmental Coordination
    • 44. Two working groups established and meeting
    • 45. Include Energy Efficiency Features in Projects
    • 46. Grant money available for non-profits
    • 47. First projects under construction
  • Preservation Initiative
    Oregon Housing Acquisition Fund
    $32 Million fund
    Interim acquisition financing
    Higher loan amounts to expedite closings
    Acquisition loans without identified takeout sources
    Interest-only to maximize cash flow to support debt
  • 48. Preservation Initiative
    OHAF Funding:
    Foundation PRIs: $ 8,500,000
    State of OR (OHCSD): $ 2,000,000
    Sr. Bank Debt: $22,200,000
    Total: $32,700,000
    Foundations: MacArthur, Meyer Memorial Trust, Collins
    Banks: Wells Fargo, Bank of America, Key Bank, Chase
  • 49. OHAF Loans Funded
  • 50. OHAF Loan Terms
    Rate: 6.75%-7.50%, interest only fixed at funding
    Fee: 1%
    Term: Lesser of contract term or 36 months, with one year extensions aligned with one year contract renewals
    DCR: 1.10 primary at lowest point during term
    LTV: 75%-95% of unrestricted as-is market
    Rents: Varies. Possibly up to contract. Assume no rent increases during OHAF period (but inflate expenses)
    Require borrower-prepared “reasonable” exit strategies
  • 51. OHAF Loans
    Experience to date:
    Loan amts limited many ways-- cash flow, LTV, or maximum allowable debt service (some flexibility during OHAF)
    LTV (mkt) range: 43%-95%
    DCR range: 1.13-2.13
    Challenges:
    Estimating rents at contract renewal
    Plausible exit strategies in current environment
    Project valuations at different stages
  • 52. Walnut Park--before
  • 53. Walnut Park—exterior renovation
  • 54. Walnut Park-renovated kitchen
  • 55. Permanent Loans--Preservation
    Rate: 7.50% (current floor)
    Fee: 1.0-2.0%
    Amortization: 25 years
    Term: 20 years or contract exp.
    DCR: 1.20 primary/1.10 overall
    LTV: 75% of restricted (w/HAP contract)
    HAP Contract: 20 year required
    Rents: Underwrite to contract, perform downside analysis—breakeven at lesser of Mkt/LIHTC rents
  • 56. Permanent Loans
    Experience to Date:
    LTV: 38%-80% (restricted)
    DCR: 1.18-1.64
    Challenges:
    Establishing UW rents prior to construction
    Timing of contract renewals for “new reg” contracts
    Analyzing downside risk of future RCS adjustments
    Certain operating expenses not recognized by HUD
  • 57. Preservation Challenges
    Weak capital markets threaten preservation activity
    limited OHAF take-out strategies
    Less capital—both tax credits and perm debt
    Planned financial structures not viable (bonds/4% credits)
    More rigorous borrower financial capacity requirements
    Geographic limitations on capital
    Project scale limitations
    Buyers need even more capital
    Acquisition prices
    Closing costs
    Reserves
    Predevelopment expenses
  • 58. Preservation Challenges
    Sellers waiting for markets to recover
    Buyers risk averse
    Reliance on future public sector resources
    More interim financing needed
  • 59. Preservation Challenges
    Economy has slowed progress
    Preservation effort will take more time, money
    Creative interim solutions will be required
  • 60. MA LeonardVP & Impact Market LeaderEnterprise Community Partners
    Tax Credit Equity and Preservation
  • 61. Radical Changes in Market
    Availability/Supply of Equity
    Pricing
    Underwriting
  • 62. Supply of Equity
    Exit of Equity from Market
    Geographic Focus of Remaining Equity
    Challenges to Raising Equity
    The Discriminating Investor
    Size Matters
    No tolerance for Risk
    In today’s market, investors call the shots
  • 63. Pricing
    Returns have risen rapidly since 2007
    Prices have taken a corresponding drop
    Syndicators do not buy “on spec”
    Losses are no longer as attractive
  • 64. Underwriting Considerations
    Level of Rehabilitation
    Needs to be rehabilitated such that is will not need additional rehabilitation for 15 years
    Light, moderate and substantial rehabilitation
    Sponsor-Investor Fit – talk to your investor early
    Serious Capital Needs Assessment
    Determine Scope prior to Setting Purchase price
     
  • 65. Underwriting Considerations
    Revenue and Subsidy Risk
    Rent levels
    Duration of Contract
    Termination Risk
    Transition
    Reserves
  • 66. Underwriting Considerations
    Credit Delivery
    Critical to have same understanding as your investor
    Know start date
    Understand delivery dates
    Ideal project from a delivery perspective
  • 67. Additional Thoughts
    Preservation is good policy
    Deal type
    FHA Loans
    Structuring
    Seller Stays in deal
    Early delivery / Late pay helps pricing
    Green retrofit
    Other assistance
  • 68. David FuksExecutive DirectorCedar Sinai Park
    Rose Schnitzer Tower Preservation
  • 69. Rose Schnitzer Tower Preservation
  • 70. Cedar Sinai Park’s Mission
    Cedar Sinai Park provides residential and community-based care to our elders and adults with special needs, allowing them to live with comfort, independence and dignity in a manner and in an environment based on Jewish values.
  • 71. CSP’s Continuum of Services
  • 72. Motivations for the Preservation
    • Seller – As business model moved in another direction, the seller was motivated by maintaining continuity in service to the community and in promoting the growth of a community not-for-profit organization.
    • 73. Buyer – CSP was motivated by the opportunity to increase service to the community, make affordable housing more appealing to its historical constituency and participate in the creation of a housing with services model that would help low income elders and people with disabilities to remain independent for as long as possible.
    • 74. Statutory Agencies – Prevention of the conversion of the Rose Schnitzer Tower to private apartments or hotel space assured continuity of services and quality of life for 250 low income residents.
  • Elements of Transaction
    Sources:
    • Low income Housing Tax Credits (4% LIHTC) – resulted in capital infusion through a limited partner (Wells Fargo Community Development) - $12,160,000
    • 75. 3 bond issues:
    • 76. Construction Financing - $4.1 mil. (Wells Fargo)
    • 77. Long Term Financing - $20 mil. (Chase)
    • 78. Tax exempt bond Housing Development Revenue Bonds subsidized by Oregon Affordable Housing Tax Credits ($14 mil. at 1.75%)
    • 79. Unsubsidized housing development revenue bonds ($6 mil. at 5.75%)
    • 80. Loan from Cedar Sinai Park Foundation to the Limited Partnership secured by a second trust deed – ($ 7 mil. at 2.5%)
    • 81. PDC Loan - $374,500
    • 82. Oregon Housing Trust Fund - $374,500
    • 83. Deferred Developers Fee - $2.160 mil.
  • Elements of Transaction
    Uses:
    • Land and building - $30 mil.
    • 84. Developer Fee - $2.150 mil.
    • 85. Rehabilitation - $4.8 mil.
    • 86. Construction Interest - $1.1 mil.
    • 87. Bond Issuance Cost - $400,000
    • 88. Required reserves - $2 mil.
    • 89. Pre-paid Annual State Inspection Fee - $749,000
  • Rose Schnitzer Tower Assessment
    Sample Description
    • Approximately 130 residents were assessed, with a response rate of over 50% in each of the language groups. 
    • 90. The summary report does not include the Farsi and Korean speakers.
    • 91. The mean age of the entire sample was 74 years.
    • 92. Russian residents were significantly older than other groups (mean age of 82.3).
    • 93. The Chinese residents are composed of Mandarin and Cantonese speakers, who tend to differ in immigration and socio-economic characteristics.
  • Rose Schnitzer Tower Assessment
    Summary of Illness Status
    • RST residents reported a mean total of 4.4 illnesses per person (range of 0 – 10 illnesses).
    • 94. Russian and English residents reported significantly more illnesses per person than the Chinese.
    • 95. 23% of the English, 30% of the Russian speakers and only 2 Chinese residents reported insufficient resources to pay for medical expenses. 
    • 96. Russian speakers also report a larger number of illnesses that interfere with their activities than do the other groups.
    • 97. The top ten illnesses reported by resident groups suggest targets for intervention.
  • Rose Schnitzer Tower Assessment
    Medication Use of RST Residents
    • The mean number of prescribed medications was 6.28 per resident with a range of 0 – 22 (not including over the counter medications, vitamins or non-Western medications).
    • 98. 35% of residents do not have a workable strategy for remembering to take their medications on time and in the correct dosage.
    • 99. Residents frequently reported voluntarily altering their prescription regimens.
    • 100. Implications: voluntary and involuntary non-adherence leading to hospitalization and institutionalization, increased morbidity and mortality, falls increase with more than 4 medications due to interactions.
    Resident Scores on the Geriatric Depression Scale by %
    *90% of this level accounted for by English and Russian groups
  • 101.
  • 102. Kudos
    • Jim Winkler
    • 103. Harold, Arlene and Jordan Schnitzer
    • 104. CSP Board of Directors
    • 105. Wells Fargo Community Development
    • 106. Wells Fargo Trust Dept. – Katie Patricelli & John Epstein
    • 107. Victor Merced and staff, Oregon Housing and Community Services Dept.
    • 108. KomeKalivar, PDC
    • 109. Commissioner Nick Fish, City of Portland
    • 110. Will White, Portland Housing Bureau
    • 111. Sen. Ron Wyden
    • 112. JP Morgan Chase
    • 113. Steve Nepolitano, MMA
    • 114. Doug Blomgren, Batemen Seidel
    • 115. Michele Silver, CPA
    • 116. Susan Asam, Consultant