Never Say Never Again – Bonds are Back
Current Market Update and Financing Observations
Texas Housing Conference
Tuesday, July 29, 2014
Hilton Hotel
Austin, TX
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Table of Contents

Section A
Interest Rate Overview

Section B
Multifamily Housing – 10 year comparison

Section C
Case Studies
Section A
Interest Rate Overview
10-Year US Treasury/10-year AAA MMD Comparison (2004 to Present)
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
10 Year AAA MMD
10 Year UST
0.00%
07/16/2004
Source: Bloomberg
1
07/16/2005
07/16/2006
07/16/2007
07/16/2008
07/16/2009
07/16/2010
07/16/2011
07/16/2012
07/16/2013
07/16/2014
30-Year US Treasury/30-year AAA MMD Comparison (2004 to Present)
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
30 Year AAA MMD
1.00%
30 Year UST
0.00%
07/16/2004
Source: Bloomberg
2
07/16/2005
07/16/2006
07/16/2007
07/16/2008
07/16/2009
07/16/2010
07/16/2011
07/16/2012
07/16/2013
07/16/2014
10-year AAA MMD as a % of 10-year US Treasury (2004 to present)
200.00%
180.00%
160.00%
Peaked at 186.06% on
12/18/2008
140.00%
Down 95.47% to 90.59%
on 7/16/2014
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
07/16/2004
Source: Bloomberg
3
10 Year AAA MMD as
a Percentage of 10
Year UST
07/16/2005
07/16/2006
07/16/2007
07/16/2008
07/16/2009
07/16/2010
07/16/2011
07/16/2012
07/16/2013
07/16/2014
30-year AAA MMD as a % of 30-year US Treasury (2004 to present)
250.00%
200.00%
Down 109.50% to 100.30%
on 7/16/2014
Peaked at 209.88% on
12/18/2008
150.00%
100.00%
50.00%
30 Year AAA MMD as
a Percentage of 30
Year UST
0.00%
07/16/2004
Source: Bloomberg
4
07/16/2005
07/16/2006
07/16/2007
07/16/2008
07/16/2009
07/16/2010
07/16/2011
07/16/2012
07/16/2013
07/16/2014
MMD Yield Curves (7/15/2004 and 7/15/2014)
6.00%
5.00%
Down
157 bps
4.00%
Down
155 bps
Down
145 bps
Down
143 bps
3.00%
Down
165 bps
2.00%
Down
141 bps
1.00%
07/15/2004
07/15/2014
0.00%
1
2
Source: Bloomberg
5
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
US Treasury Yield Curve (7/15/2004 and 7/15/2014)
6.00%
5.00%
Down
185 bps
Down
214 bps
4.00%
Down
194 bps
3.00%
Down
201 bps
2.00%
Down
215 bps
1.00%
07/15/2004
Down
200 bps
07/15/2014
0.00%
1
Source: Bloomberg
6
2
5
10
20
30
Housing Bonds: Spreads to MMD (2004 to present)
7/30/2008
HERA Legislation enacted. PAB
Housing Bonds become Non-AMT
160
Non-AMT
AMT
140
120
100
80
60
40
AAA Hsg Rate Spreads to comparable AAA MMD 10 yr
20
0
01/06/2004
01/06/2005
01/06/2006
01/06/2007
Source: RBCCM Indicative Housing Rates and Bloomberg
7
01/06/2008
01/06/2009
01/06/2010
01/06/2011
01/06/2012
01/06/2013
01/06/2014
Housing Bonds: Spreads to MMD (2004 to present)
7/30/2008
HERA Legislation enacted. PAB
Housing Bonds become Non-AMT
160
Non-AMT
AMT
140
120
100
80
60
40
AAA Hsg Rate Spreads to comparable AAA MMD 30 yr
20
0
01/06/2004
01/06/2005
01/06/2006
01/06/2007
Source: RBCCM Indicative Housing Rates and Bloomberg
8
01/06/2008
01/06/2009
01/06/2010
01/06/2011
01/06/2012
01/06/2013
01/06/2014
Section B
Multifamily Housing Finance – 10 year
Comparison
Multifamily Housing Finance - 10 year comparison
2004

Public offerings (AAA rated) – Fannie/Freddie/FHA enhanced – long term bonds (15 to 40 years)

Variable rate executions with Fannie Mae and Freddie Mac – Swapped to Fixed

Private Placements with large institutional investors (Charter Mac and MuniMae)-High LTVs, low DSCR, 40
year amortization (45 year amortization in some cases)

S&P Affordable Housing Program, publicly rated sub debt.

Few CRA bank placements
2014
9
•
Long-term (Fannie/Freddie/FHA enhanced) publicly offered bonds are rare
•
Long –term variable rate executions from Fannie/Freddie no longer exist
•
Private Placements with institutional investors are back after a large dip following the Charter Mac/MuniMae
disappearance in 2008/2009. Stricter underwriting.
•
S&P Affordable Housing Program remains, sub debt is less prevalent. New criteria released.
•
CRA bank placements are very prevalent in large CRA markets (FL, DC metro, NY, CA)
Multifamily Housing Financing Options
FHA Risk Share
Sale of tax-exempt bonds enhanced by FHA under the Risk Share Program. Many State
HFAs and a few local issuers have FHA risk share programs. Typically requires LOC
during construction/substantial rehab phase
Multifamily Rated Conduit
Executions
Agency (Fannie Mae and Freddie Mac) and FHA tax-exempt bond structures including
221(d)(4) and 223(f).
Private Placements
Sale of unrated bonds directly to institutional investors, and both local and national banks
as CRA motivated investors. Freddie Mac has a new direct placement program
Tax-Exempt Bonds/
Conventional Loan Hybrid
This hybrid structure requires the sale of short-term cash collateralized bonds
(collateralized with FHA, Fannie/Freddie or conventional loan proceeds).
S&P Affordable Housing
Program
Public Housing Authorities
10
Unenhanced debt supported by the Real Estate. A- ratings. New criteria recently released
by S&P
S&P Issuer Ratings. Typically A rating category
Section C
Multifamily Case Studies
Multifamily Case Study: New Jersey HFMA – Washington Dodd Apartments
$19,755,000
New Jersey Housing and Mortgage Finance Agency
Multifamily Conduit Revenue Bonds
(Washington Dodd Apartments Project), Series 2012F-1 & 2012F-2
Pricing Date:
December 13, 2012
Delivery Date:
December 20, 2012
Bond Ratings:
Moody’s: Aaa
RBC Role:
Transaction Summary
Sole Manager
 Private Activity Bonds with 4% LIHTC issued through NJ
HFMA as a conduit issuer. Two Series: 2012F-1: $18,540,00,
2012F-2: $1,215,000
 Aaa rated Freddie Mac credit enhanced bonds. 2012F-1
structured with 35-year amortization, 15 year term. All-in-rate
was 4.84%
 2012F-2 bonds required to satisfy 50% aggregate basis test for
4% LITHC. Bonds have 1 year maturity (1/1/14) and interest
rate of .50%. Bonds were fully cash collateralized
 Capital Stack included LIHTC equity, deferred developer fee,
existing project reserves, and a Seller Note.
Other Facts
11
 Bonds were issued for permanent financing only. Conventional construction loan from Bank
of America was used for the 2-year rehab. Rehab was completed in November 2012.
 Use of a conventional construction loan provided lower rate and construction interest than
could be realized in a construction/perm tax-exempt bond.
 All NJ HMFA bond transactions are required by state statute to pay NJ Prevailing Wages
which would add approximately 25% to 30% to rehab costs. Conventional construction loan
eliminated the Prevailing Wage requirement.
 2012F-2 Cash Collateral invested in 1 year Treasury maturing 12/31/13 with an interest rate
of .125% reducing negative arbitrage on 2012F-2 bonds to .375%
Multifamily Case Study: New Jersey HFMA – Hampshire House Apartments
$6,400,000
New Jersey Housing and Mortgage Finance Agency
Multifamily Conduit Revenue Bonds
(Hampshire House Apartments Project), Series 2012D
Pricing Date:
January 9, 2013
Delivery Date:
January 11, 2013
Bond Ratings:
Moody’s: Aaa
RBC Role:
Sole Manager
Transaction Summary
 Private Activity Bonds with 4% LIHTC issued through NJ
HFMA as a conduit issuer.
 Aaa rated Fannie Mae credit enhanced bonds structured with
35-year amortization, 18-year term. All-in-rate was 5.30%
 Utilized two term bond structure with term bonds maturing on
January 15, 2023 (2.375%) and January 15, 2031 (3.35%) to
take advantage of steep yield curve
 Capital stack included LIHTC equity and deferred developer
fee
Other Facts
12
 Bonds were issued for the acquisition and moderate rehabilitation of 116 apartments
located in East Orange, NJ. Rehabilitation will be tenant-in-place.
 Project receives rental subsidy for 115 of the units from a project-based Section 8 Housing
Assistance Payments contract which has an expiration date of September 29, 2029.
 Project is entitled to PILOT Agreement which permits the Borrower to make payments in lieu
of taxes in an amount that is anticipated to be less than the amount of real estate taxes that
otherwise would be due for a period of 25 years.
Multifamily Case Study: Minnesota Housing Finance Agency
Concordia Arms Apartments
$5,065,000
Minnesota Housing Finance Agency
Rental Housing Bonds, 2013 Series A-1 & A-2
Pricing Date:
August 6, 2013
Delivery Date:
August 14, 2013
Bond Ratings:
Moody’s: Aa1; S&P: AA+
RBC Role:
Sole Manager
Transaction Summary
 Private Activity Bonds with 4% LIHTC issued by Minnesota
Housing Finance Agency.
 Aa1/AA+ ratings reflect the Agency’s general obligation pledge
to pay debt service if necessary.
 Structured as two series. A-2 bonds are short-term bonds
maturing in 18 months issued to satisfy the 50% aggregate
basis test for 4% LIHTC.
 A-1 Bonds utilized a four term bond structure with term bonds
maturing on August 1, 2023 (3.50%), August 1, 2033 (4.875%),
August 1, 2043 (5.20%) and August 1, 2049 (5.30%) to take
advantage of steep yield curve.
Other Facts
13
 Bonds were issued for the acquisition and rehabilitation of 125 apartments located in
Maplewood, MN. Rehabilitation will be tenant-in-place.
 Project will receive the benefit of a Section 8 Housing Assistance Payments Contract
covering all of the units. Contract expires December 31, 2032.
 The mortgage supporting the Series A-1 Bonds will be insured upon completion under the
HUD Risk-Sharing Program
 Project also received a $4.172M forgivable loan funded from the proceeds of the Agency’s
Housing Infrastructure Bonds.
Multifamily Case Study: Housing Authority of the City of Seattle
Pooled Housing Bonds
$13,855,000
Housing Authority of the City of Seattle
Pooled Housing Revenue and Refunding
Revenue Bonds, 2014
Pricing Date: March 11, 2014
Delivery Date:
March 26, 2014
Bond Ratings:
S&P: AA
RBC CM Role:
Sole Managing Underwriter
Transaction Summary
 Governmental Bonds issued directly by the Housing Authority
 30-year bonds with optional prepayment on or after December 1, 2023
 Bonds refunded the existing tax-exempt bonds and lines of credit for 11
housing authority properties.
 Bond structure mixing serials and term bonds achieved a project DCR of
1.63x and a TIC of 4.660382%
 AA rating supported by general revenue pledge of the Housing Authority
 Reserve Fund equal to 1 year MADS was funded at closing
 Seattle Housing Authority was upgraded to AA from A+ prior to the issuance of the Bonds
Transaction Highlights
 Two series of tax-exempt bonds were currently refunded and one series of bonds was advance
refunded with RBC performing the defeasance calculation.
14