Participating in Public Housing Tax
Credit Equity Financing: An
Investment Opportunity for
Community Banks
MRHA VIII/SMHD Mixed Finance Training
MHC 2013
MRHA
Affordable
VIII/SMHD
Housing
MixedConference
Finance Training
I. Introduction
A. Panel Participants:
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Brian Heeger, Managing Director Duvernay + Brooks, LLC
Jennifer Brunetti, Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C.
Don Peterson, Managing Director, Raymond James & Associates, Inc.
Aron Weisner, Enterprise Community Investment
South Mississippi Housing and Development Corporation
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Instrumentality of Mississippi Regional Housing Authority VIII
Mission to Preserve and Develop Affordable Housing
MHC 2013 Affordable Housing Conference
I. Introduction
SMHD Corporate Highlights
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SMHD is a non-profit instrumentality community development corporation established by
MRHA VIII.
SMHD has served as co-developer of more than 1,000 tax credit and public housing units for
families and seniors:
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Azalea Gardens, 900 Camp Street, Lumberton, MS (Under Construction)
McIntosh Homes, 1320 Highway 63 North, Leakesville, MS (Under Construction)
The Preserve at Fairground Village, 14281 County Farm Road, Gulfport, MS
Baywood Place Apartments, 1900 Switzer Road, Gulfport, MS
Highland Springs Apartments, 8100 Seaman Road, Ocean Springs, MS
Morrison Village Apartments, 2503 Old Mobile Hwy., Pascagoula, MS
Regency Way Apartments, 1400 28th Street, Gulfport, MS
Taylor Heights Apartments, 2313 Old Mobile Highway, Pascagoula, MS
The Estates at Juan De Cuevas, 10472 Gorenflo Road, D’Iberville, MS
Timber Grove Apartments, 10687 Auto Mall Pkwy., D’Iberville, MS
Village Place Apartments, 18059 Robinson Road, Gulfport, MS
MHC 2013 Affordable Housing Conference
I. Introduction
Raymond James Corporate Highlights
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Total capital of $11.9 billion; equity capital of more than $3 billion; capacity to underwrite up to $7.1 billion.
More than 14,000 employees, including more than 7,000 financial advisors in the U.S.
100 straight quarters of profitability.
Fixed Income Capital Markets
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More than 180 Public Finance professionals in 26 offices nationwide.
More than 400 Institutional Fixed Income Sales and Trading Professionals.
Top 10 retail network and among 10 largest municipal institutional desks in the industry.
More than 2,800 offices throughout the United States.
Raymond James Tax Credit Funds
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Raymond James Tax Credit Funds, Inc. (“RJTCF”) ranks in top 5 for LIHTC dollars raised and invested.
Since 1986, RJTCF has raised more than $3 billion in equity for more than 1,300 properties in 44 US states.
Experienced professionals focused on regional product and market expertise.
MHC 2013 Affordable Housing Conference
I. Introduction
Enterprise Community Investment Corporate Highlights
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Since 1982, Enterprise has invested more than $12 billion in equity, grants and loans to help build or
preserve nearly 300,000 affordable homes to create vital communities and more than 410,000 jobs.
Enterprise Community Partners is a nonprofit that provides expertise to local developer partners, carries out
policy work and initiatives, provides grants and predevelopment financing to affordable housing developers.
Enterprise Community Investment is vehicle through which we bring capital into projects, including offers
equity for New Markets, Low-Income Housing, and Historic Tax Credit transactions and permanent mortgage
financing for affordable and market rate housing.
Enterprise in the Gulf Coast
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Since 2005, Enterprise has invested nearly $180 million to support the production of more than 6,400
affordable homes in Louisiana and Mississippi.
Enterprise operates nine Impact Markets nationally, including one in New Orleans that covers the Gulf Coast
Region, including the majority of the State of Mississippi.
Enterprise Green Communities supported the development of over 1,300 green homes in the Gulf region.
MHC 2013 Affordable Housing Conference
I. Introduction
D+B Corporate Highlights
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Consultant to public- and private-sector developers of affordable housing, as well as a
developer of urban revitalizations and affordable housing developments
Advised housing authorities and developers on the closing of more than 115 residential and
mixed-use developments in the last ten years, comprising nearly 14,000 rental and
homeownership units, these closings have totaled over $2.1 billion.
D+B’s financial and development advisory services include the following:
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Planning and Structuring Development Programs
Analyzing Government Regulations
Preparing Financing Plans
Feasibility Analysis
Financial Modeling and Analysis
Proposal Evaluation/Due Diligence
Developer Selection and Negotiations
Selecting and Negotiating with Investors, Lenders and Third-Party Professionals
HUD Knowledge and Experience
Advising on and Coordinating Closings
Strategic Advisory Services.
MHC 2013 Affordable Housing Conference
I. Introduction
Baker Donelson Corporate Highlights
•For more than 120 years, Baker Donelson has built a reputation for achieving results for our
clients on a wide range of legal matters. While providing legal services is our focus, it is how we
deliver them that sets us apart. Our goal is to provide clients with more than what they have
come to expect from a law firm.
•Our unique approach to providing legal services is enabled by our extensive support structure.
As the 72nd largest law firm in the U.S., Baker Donelson gives clients access to a team of more
than 600 attorneys and public policy advisors representing more than 30 practice areas, all
seamlessly connected across 18 offices to serve virtually any legal and policy need. The
experience, integrity and commitment we bring to our clients have earned Baker Donelson
numerous distinctions, including:
•76 attorneys across 26 practice areas recognized by Chambers USA as leaders in their field (2012);
•25 practice areas also recognized by Chambers USA as leading practices in individual states (2012);
•229 attorneys in Best Lawyers in America® 2013 edition; and
•150 attorneys recognized as Super Lawyers.
MHC 2013 Affordable Housing Conference
I. Introduction
B. SMHD Mixed Finance Development
 Azalea Gardens, Lumberton, MS
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SMHD General Partner and Co-Developer with Landmark
Development Services, LLC
48 Units for Seniors in Four Two-Story Elevator Buildings
50% Public Housing, 50% Section 8 Project-Based Voucher
Tax-Exempt Bond Financed/4% LIHTC
MRHA VIII Public Housing Capital and Other Funds (RHF, 901)
MHC 2013 Affordable Housing Conference
II. Public Housing Mixed Finance Development
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Role of Housing Authorities
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Self-Develop vs. Third Party Developer
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Owner
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Turn Key vs. Long-term Ownership
Member or Managing Member/GP
Lender
Land Owner and Ground Lessor
Subsidy Provider (ACC and PBV)
MHC 2013 Affordable Housing Conference
II. Public Housing Mixed Finance Development
B.
Legal/Regulatory Framework
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HUD Issues
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Capital and Replacement Housing Funds
 Faircloth Unit Limit
 Formula Based
 Annual Appropriations
 TDC Limits
Public Housing Operating Subsidy
 Formula Based
 Annual Appropriations
PBV Rents
 Section 8 Rent Payment Standards and FMR
 25% of Authority’s Vouchers can be Project-Based
MHC 2013 Affordable Housing Conference
II. Public Housing Mixed Finance Development
B.
Legal/Regulatory Framework
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Procurement
Ownership Structure
Transaction Participants
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Equity Investor
Acquisition, Construction and Permanent Lenders
Bond Underwriters and Purchasers
Credit Enhancers/Mortgage Insurers
MHC 2013 Affordable Housing Conference
II. Public Housing Mixed Finance Development
C.
Azalea Gardens Transaction Participants
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Landmark Development Services Lead Developer
SMHD Co-Developer
SMHD Affiliate Managing Member
MHC Bond Issuer
Investor Member: Enterprise Community Capital
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$2.4 million LIHTC Equity Investment
Underwriter: Raymond James
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$4.5 million Bond Issue
Subordinate Construction and First Priority Permanent Loan: MRHA VIII
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$7.18 million
Cash Collateral
MHC 2013 Affordable Housing Conference
II. Public Housing Mixed Finance Development
B.
Legal/Regulatory Framework
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HUD Approvals
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Public Housing Mixed Finance Approval
 Mixed Finance Submission and HUD Panel Review
 HUD OGC Document (Evidentaries) Review
 Local Office Management and Legal Review
 Design Review
 Environmental Approval
Subsidy Layering Review
MHC 2013 Affordable Housing Conference
III. Unique Issues for Public Housing
LIHTC/Bond Developments
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Equity Syndicator Perspective
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Economics vs. Other LIHTC/Bond Transactions
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Partner Experience, Guarantees, Net Worth/Liquidity
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Track record with mixed-finance/public housing is critical
Five-year operating deficit reserve and long-term tax credit guarantees required
Substantial liquidity necessary (varies depending on the amount of equity invested)
Reserves
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Subsidy/Market Risk
Layering unit types, subsidy programs, and funding sources
Greater Operating Complexity
ACC Reserve for Public Housing funding delays/reductions
Transition Reserve for appropriation risk
Other Investor and Current Equity Market Considerations
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Identify investor and lender early to coordinate and assure execution
Make sure all partners understand and support your target market and operating plan
MHC 2013 Affordable Housing Conference
III. Unique Issues for Public Housing
LIHTC/Bond Developments
B.
Bond Underwriter Perspective
MHC 2013 Affordable Housing Conference
TRADITIONAL MARKET EXECUTIONS
FNMA/Freddie
S&P Unenhanced
Conventional
FHA
Current Market Rates
5.00 – 5.75%
4.50 – 5.50%
4.25 – 5.50%
3.40 – 4.00%*
Criteria
Amort: 30-35 yrs
Amort: 30 yrs
Amort*: 30 yrs
Amort: 40 yrs
Maturity: 18/30 yrs
Maturity: 10-15 yrs
Maturity*: 30 yrs
Maturity: 40 yrs
LTV: 80-90%
LTV: 80-90%
LTV*: 70-90%
LTV: ~90%
Min DSC: 1.15x
Min DSC: 1.25x
Min DSC*: 1.20-2.70x
Min DSC: 1.11-1.20x
Timeline: 90-120 days
Timeline: 60-90 days
Timeline: 90-120 days
Timeline: 6-12 months
* Depends solely on the
strength of the real estate
and/or the sponsors.
*Including MIP.
MHC 2013 Affordable Housing Conference
MISSISSIPPI HOME CORPORATION CMHB
Transaction Highlights
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48-unit senior housing development
located in Lamar County, Mississippi.
Closed on December 21, 2012.
Bond Yield: 0.55% (lowest coupon
recorded as of pricing).
Investment Yield: 0.217%.
Maturity: 18 months.
Rating: AA+ (S&P).
Bonds priced at 2.5x Treasuries.
Real estate not pledged as collateral.
Retail and institutional investor
participation.
MHC 2013 Affordable Housing Conference
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IV. Trends in Public Housing Mixed Finance
Development
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Opportunities with New and On-Going HUD Programs
 RAD
 Choice Neighborhoods
 Refinancings/Refundings
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Year 15
MHC 2013 Affordable Housing Conference
V. Questions/Discussion
MHC 2013 Affordable Housing Conference