PIDC/PH FA Af f ord a ble
Housing Seminar
M arch 6, 2013
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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Representative PAID Financings
OPPORTUNITIES
TOWERS I & II
LIMITED
PARTNERSHIP
Non-Rated
BECKETT GARDENS
APARTMENTS II LP
Non-Rated
Non-Rated
Beech International, LLC
$12,100,000
$23,000,000
Multifamily Housing
Revenue Bonds, Series
2012A and 2012B
August 2012
Non-Rated
Multifamily Housing
Revenue Bonds
$17,280,000
November 2012
Revenue Bonds Series
2010A & 2010B and Series
2010C Taxable
September 2010
RIVERSIDE SENIOR
APARTMENTS,L.P.
Non-Rated
AA-/ A-1+
$20,000,000
$15,000,000
Retirement Communities
Variable Rate Demand
Revenue Bonds
Multifamily Housing
Revenue Bonds, Series
2008A and 2008B
February 2008
April 2008
*Rating of Initial Letter of Credit Provider
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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
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–
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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/PIDCphila
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@PIDCphi la
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W W W . P I D C - PA . O R G
PIDC-PHFA WORKSHOP
Affordable Housing Finance –
Tax Exempt Funding
Opportunities
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.
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
Tax-Exempt Bond Term Sheet
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.
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.
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.
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.
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.
Application Process
• In order for projects that are financed with taxexempt 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.
Application Process
• PHFA routinely issues the 42(m) for
applications requesting an allocation of taxexempt 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.
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.
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.
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;
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.)
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.
Additional Information
• Agency is an approved MAP lender.
• Contact the Agency for more information if
interested in pursuing this type of financing.
Contact Information
• Holly Glauser, Director of Development
▫ hglauser@phfa.org
▫ 717-780-3994
• Susan M. Belles, Manager of Loan Programs
▫ sbelles@phfa.org
▫ 717-780-3887
• Brian Shull, Senior Development Officer
▫ bshull@phfa.org
▫ 717-780-3909
Low Income Housing Tax Credits
The Role of Bond Counsel in
4% Low Income Housing Tax Credits
with Tax-Exempt Bond Financings
William C. Rhodes, Partner
Public Finance Department Chair
Ballard Spahr LLP
Rhodes@ballardspahr.com
215.865.8534
The Function of Bond Counsel
• Validity
• Tax Exemption
• Enforceability
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Bond Counsel Tax Diligence
•
•
Who will be the Owner/Borrower?
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For-profit Borrower under Section 142(d)
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Contribution of existing property from a nonprofit entity
What is being financed?
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Residential Rental Housing Units suitable for occupancy on a
non-transient basis
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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:
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15 years after the date on which 50% of the units are occupied
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Bonds are no longer outstanding
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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
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
Doughboy Square apartments
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
Eva P. Mitchell
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
FHA-Insured Mortgage Loan
Existing Reserve for Replacement
Total Sources
$1,327,000
4,400, 000
116,000
$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
West Park Court
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:
LIHTC Equity:
GP/Seller’s Note:
Deferred Developer’s Fee:
Interim Income:
$3,858,500
$1,934,000
$ 580,420
$ 198,768
$ 115,000
Thank you
on behalf of
Ralph A. Falbo, Inc.
PIDC/PHFA Workshop on Affordable Housing:
Tax–Exempt Opportunities
March 6, 2013
Legacy Preservation Initiative
Mission First Housing Group
Building Partnerships, Creating Community Assets
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
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–
–
–
•
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 twobedroom 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
Sources
Tax-exempt Bonds – Philadelphia
Authority for Industrial Development
Construction
Permanent
$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
$334,967
$334,967
$20,844,151
$20,844,151
Existing Operating Reserves
Total Development Cost
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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, nontraditional 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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