Raquel Guglielmetti, Northwest Real Estate Capital Corporation

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  • September 26, 2006
  • Raquel Guglielmetti, Northwest Real Estate Capital Corporation

    1. 1. Partners in Innovation Rural Roundtable Overcoming Challenges, Leveraging RD Resources, and Implementing Solutions
    2. 2. Tax Exempt Bonds – Case Study <ul><li>Conduit Bonds – Private Placement </li></ul><ul><ul><li>Institution Holds Mortgage </li></ul></ul><ul><ul><li>Not Enhanced (No Rating) </li></ul></ul><ul><ul><li>Greater Cost of Issuance (Case Study: 8.4% avg) </li></ul></ul><ul><li>Risk Share Bonds – Agency Program </li></ul><ul><ul><li>OHCS Holds Mortgage ( with RD Mortgage) </li></ul></ul><ul><ul><li>HUD – FHA Enhanced Bonds (AAA Rating) </li></ul></ul><ul><ul><li>Limited Cost of Issuance @ 2.0% or less </li></ul></ul>
    3. 3. Tax Exempt Bond – Case Study <ul><li>4 Family Properties </li></ul><ul><li>145 subsidized units </li></ul><ul><li>Original construction: </li></ul><ul><li>1970 to 1983 </li></ul><ul><li>Rehab per Unit (Average): </li></ul><ul><li>$ 29,700 per unit </li></ul><ul><li>10 ADA units added </li></ul>MAP OF MONTANA WITH PROPERTIES IDENTIFIED Portfolio Details .
    4. 4. Tax Exempt Bond – Case Study Property Type Units Acquisition Cost Rehab-Hard Cost Elderly Independent 30 $ 1,690,000 $ 638,207 Family 26 $ 1,460,000 $ 858,997 Family 39 $ 1,820,000 $ 1,208,661 Family 50 $ 1,840,000 $ 1,594,754
    5. 5. Tax Exempt Bond – Conduit <ul><li>Amortization & Term of Loans: </li></ul><ul><ul><li>Bank: 30 years – early call 15 – 18 years </li></ul></ul><ul><ul><li>RD: 40 years – re-amortized over 40 years </li></ul></ul><ul><li>Debt Coverage Ratio: </li></ul><ul><ul><li>Bank: 1.20 </li></ul></ul><ul><ul><li>USDA-RD: 1.15 </li></ul></ul><ul><li>Limits on Loan Amount: ( lesser of… ) </li></ul><ul><ul><li>Loan to Value: 75% - 85% </li></ul></ul><ul><ul><li>Acquisition plus rehab costs </li></ul></ul>
    6. 6. Tax Exempt Bond – Risk Share <ul><li>Amortization & Term of Loans: </li></ul><ul><ul><li>OHCS: 40 years – fully amortized </li></ul></ul><ul><ul><li>RD: 40 years – existing loan re-amortized </li></ul></ul><ul><li>Debt Coverage Ratio: </li></ul><ul><ul><li>Bank: 1.10 – 1.15 </li></ul></ul><ul><ul><li>USDA-RD: 1.10 – 1.15 </li></ul></ul><ul><li>Limits on Loan Amount: ( lesser of… ) </li></ul><ul><ul><li>Loan to Value: 85% </li></ul></ul><ul><ul><li>Acquisition plus rehab costs </li></ul></ul>
    7. 7. Tax Exempt Bond – Interest Rates <ul><li>Conduit TEB Mortgages </li></ul><ul><ul><li>Market Bond Rates – Based on Bank/Term </li></ul></ul><ul><ul><li>Case Study: 7.5% </li></ul></ul><ul><ul><li>OAHTC Reduces Loan Rate by 4.0% = 3.5% </li></ul></ul><ul><li>Risk Share Mortgages </li></ul><ul><ul><li>OHCS Quotes Rate </li></ul></ul><ul><ul><li>Case Study: 5.75% </li></ul></ul><ul><li>RD 515 Program </li></ul><ul><ul><li>Interest Rates: 1.0% (subsidized) </li></ul></ul>
    8. 8. Tax Exempt Bond – Other Terms <ul><li>Equity Pricing </li></ul><ul><ul><li>Assumption: 4% 1602 Exchange Program </li></ul></ul><ul><ul><li>Case Study: 0.85 Equity Factor </li></ul></ul><ul><ul><li>Syndication: 0.55 Equity Factor (if available) </li></ul></ul><ul><li>RD 515 Program </li></ul><ul><ul><li>Assume $250,000 Existing Loan </li></ul></ul><ul><ul><li>No Loan Origination Fees </li></ul></ul><ul><ul><li>No Debt Service Reserves </li></ul></ul>
    9. 9. Tax Exempt Bonds - Sources SOURCES CONDUIT No OAHTC RISK SHARE   TEB Loans (Conduit: $8,067,121) $ 6,855,000 $ 8,010,000 LIHTC Equity $ 3,606,150 $ 3,524,836 Preservation Grants & Wx Funds $ 3,385,000 $ 1,575,000 RD 515 Existing Loans $ 1,000,000 $ 1,000,000 Owner Contributions $ 290,000 $ 480,000 Total Sources: $ 15,136,200 $ 14,589,836
    10. 10. Tax Exempt Bonds - Uses USES CONDUIT No OAHTC RISK SHARE Acquisition Costs $ 6,810,000 $ 6,810,000 Constr & Dev Costs $ 4,613,950 $ 4,613,950 General Fees (Incl Dev Fees) $ 1,931,152 $ 1,859,887 All Loan Fees $ 45,319 $ 45,319 Bond Cost of Issuance (COI) $ 744,559 $ 160,200 Tax Credit Fees $ 585,415 $ 585,415 Interest Costs $ 197,599 $ 232,567 Reserves & Soft Contingency $ 282,500 $ 282,500 Total Uses of Funds: 15,136,200 14,589,836
    11. 11. Tax Exempt Bonds - Benefits <ul><li>Portfolio of Properties for Preservation </li></ul><ul><ul><li>Capture Subsidized Properties Before Opt Out </li></ul></ul><ul><ul><li>Larger Scale Draws Lenders/Investors </li></ul></ul><ul><li>Scattered Sites Across the State </li></ul><ul><li>Economies of Scale for Financing Costs </li></ul><ul><ul><li>Negotiate costs with similar project financing </li></ul></ul><ul><ul><li>Conduit: Interim TEB Option – Reduces COI </li></ul></ul>
    12. 12. Tax Exempt Bonds - Drawbacks <ul><li>Complex Financing Bond Tests </li></ul><ul><ul><li>Land Test: < 25% of acquisition costs </li></ul></ul><ul><ul><li>Bond Test: > 50% of eligible project costs </li></ul></ul><ul><ul><li>COI Limits: < 2% on bad costs (e.g. attorneys) </li></ul></ul><ul><li>Greater Financing Costs </li></ul><ul><ul><li>Asset Management Fees </li></ul></ul><ul><ul><li>COI – Legal and Trustee Fees </li></ul></ul><ul><ul><li>Risk Share Requires Bank Construction Loan </li></ul></ul>
    13. 13. Tax Exempt Bonds - Drawbacks <ul><li>Limited Investor Pool </li></ul><ul><ul><li>Tax Credits versus Losses </li></ul></ul><ul><ul><li>Small, Rural Projects </li></ul></ul><ul><ul><li>Unlimited Guarantees </li></ul></ul><ul><li>Added Reporting Requirements </li></ul><ul><ul><li>Bond Certification </li></ul></ul><ul><ul><li>Arbitrage Rebate Report </li></ul></ul><ul><ul><li>4% Tax Credit ARRA Reporting (Case Study) </li></ul></ul>
    14. 14. Tax Exempt Bonds - Drawbacks <ul><li>RD 515 Program Considerations </li></ul><ul><ul><li>RD Loans – Parity or Subordination </li></ul></ul><ul><ul><li>Extensive Rehab for 30-year Economic Life </li></ul></ul><ul><ul><li>Regulatory Obstacles – Multiple Agencies </li></ul></ul><ul><ul><li>Timing to Close Multiple Properties </li></ul></ul><ul><li>Market Considerations </li></ul><ul><ul><li>Market rents in Trending Down </li></ul></ul><ul><ul><li>Sellers Expectations of Value </li></ul></ul>
    15. 15. Tax Exempt Bond – Partners <ul><li>OHCS: TEB Bonds, 4% LIHTC, Grants, Weatherization </li></ul><ul><li>USDA-RD: Existing Financing </li></ul><ul><li>HUD – Risk Share – FHA enhanced bonds </li></ul><ul><li>Investor – or 1602 Exchange Funds </li></ul><ul><li>Other Lending/Grant Sources </li></ul><ul><li>Bond Counsel </li></ul><ul><li>Borrowers Counsel </li></ul><ul><li>Other Finance Partners’ Attorneys </li></ul><ul><li>Tax Credit Accountant </li></ul>

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