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    Bill Van Vliet financing Bill Van Vliet financing Presentation Transcript

    • 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
    • Patrick sheaSupervisory project managerUS Dept. Housing and Urban Development
      HUD Section 8 Contract Renewals
    • 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.
    • 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. 
    • 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
    • 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.
    • 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.
    • 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.
    • 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
    • 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
    • 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
    • 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
      • 798 units – Owners have chosen to stay in the Section 8 Program
      • 1, 934 unit – Contract Expiration Not Yet Occurred
      • 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.
    • Bob gillespiehousing division administratororegon housing and community services
      State Policy and Financing Resources
    • OHCS Early Recognition of need for Preservation
      Uninsured Section 8 portfolio
      10% of nation’s total
      4,085 units
    • 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
    • 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
    • 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.
    • 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
    • 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
      • 7 five-year renewals
      • 2 twenty-year renewals
      Six projects currently working with NOAH for interim short-term financing through the Oregon Housing Acquisition Fund (OHAF)
    • 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
      • Total Replacement costs (@ $200,000 p/u): $231,800,000
      • Total Subsidy retained (@ $72,000 p/u over 20 yrs): $83,448,000
    • Funding Availability
      2011 Consolidated Funding Cycle:
      • Trust Fund/GHAP Funds
      • HOME
      • 9% Low Income Housing Tax Credits
      • Oregon Affordable Housing Tax Credits
      • Weatherization (PGE area only)
      • 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)
    • Bill Van vlietexecutive directorNOAH
      Interim and Permanent Lending
    • 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
    • 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
    • Preservation Involvement
      Permanent Loans
      OHAF (interim acquisition) Loans
      Administer Oregon Housing Acquisition Project
      Policy formation
    • 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
    • Preservation Initiative
      Oregon Housing Acquisition Project—Goals:
      • Collaborate to preserve 80% of federally rent-assisted units
      • Establish Comprehensive Data Base and Web Site
      • www.preserveoregonhousing.org
      • Establish Oregon Housing Acquisition Fund (OHAF)
      • $32 million fund
      • Facilitate Intergovernmental Coordination
      • Two working groups established and meeting
      • Include Energy Efficiency Features in Projects
      • Grant money available for non-profits
      • 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
    • 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
    • OHAF Loans Funded
    • 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
    • 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
    • Walnut Park--before
    • Walnut Park—exterior renovation
    • Walnut Park-renovated kitchen
    • 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
    • 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
    • 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
    • Preservation Challenges
      Sellers waiting for markets to recover
      Buyers risk averse
      Reliance on future public sector resources
      More interim financing needed
    • Preservation Challenges
      Economy has slowed progress
      Preservation effort will take more time, money
      Creative interim solutions will be required
    • MA LeonardVP & Impact Market LeaderEnterprise Community Partners
      Tax Credit Equity and Preservation
    • Radical Changes in Market
      Availability/Supply of Equity
      Pricing
      Underwriting
    • 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
    • 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
    • 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
       
    • Underwriting Considerations
      Revenue and Subsidy Risk
      Rent levels
      Duration of Contract
      Termination Risk
      Transition
      Reserves
    • Underwriting Considerations
      Credit Delivery
      Critical to have same understanding as your investor
      Know start date
      Understand delivery dates
      Ideal project from a delivery perspective
    • 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
    • David FuksExecutive DirectorCedar Sinai Park
      Rose Schnitzer Tower Preservation
    • Rose Schnitzer Tower Preservation
    • 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.
    • CSP’s Continuum of Services
    • 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.
      • 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.
      • 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
      • 3 bond issues:
      • Construction Financing - $4.1 mil. (Wells Fargo)
      • Long Term Financing - $20 mil. (Chase)
      • Tax exempt bond Housing Development Revenue Bonds subsidized by Oregon Affordable Housing Tax Credits ($14 mil. at 1.75%)
      • Unsubsidized housing development revenue bonds ($6 mil. at 5.75%)
      • Loan from Cedar Sinai Park Foundation to the Limited Partnership secured by a second trust deed – ($ 7 mil. at 2.5%)
      • PDC Loan - $374,500
      • Oregon Housing Trust Fund - $374,500
      • Deferred Developers Fee - $2.160 mil.
    • Elements of Transaction
      Uses:
      • Land and building - $30 mil.
      • Developer Fee - $2.150 mil.
      • Rehabilitation - $4.8 mil.
      • Construction Interest - $1.1 mil.
      • Bond Issuance Cost - $400,000
      • Required reserves - $2 mil.
      • 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. 
      • The summary report does not include the Farsi and Korean speakers.
      • The mean age of the entire sample was 74 years.
      • Russian residents were significantly older than other groups (mean age of 82.3).
      • 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).
      • Russian and English residents reported significantly more illnesses per person than the Chinese.
      • 23% of the English, 30% of the Russian speakers and only 2 Chinese residents reported insufficient resources to pay for medical expenses. 
      • Russian speakers also report a larger number of illnesses that interfere with their activities than do the other groups.
      • 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).
      • 35% of residents do not have a workable strategy for remembering to take their medications on time and in the correct dosage.
      • Residents frequently reported voluntarily altering their prescription regimens.
      • 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
    • Kudos
      • Jim Winkler
      • Harold, Arlene and Jordan Schnitzer
      • CSP Board of Directors
      • Wells Fargo Community Development
      • Wells Fargo Trust Dept. – Katie Patricelli & John Epstein
      • Victor Merced and staff, Oregon Housing and Community Services Dept.
      • KomeKalivar, PDC
      • Commissioner Nick Fish, City of Portland
      • Will White, Portland Housing Bureau
      • Sen. Ron Wyden
      • JP Morgan Chase
      • Steve Nepolitano, MMA
      • Doug Blomgren, Batemen Seidel
      • Michele Silver, CPA
      • Susan Asam, Consultant