Structuring Affordable Housing Deals
to
Maximize Profit and Avoid Obstacles
Urban Land Institute
Westchester/Fairfield
January 23, 2015
1
Table of Contents
1. Overview and Timeline of Affordable Housing
Development
2. Funding Affordable Housing
3. Tax Credits
4. Project Factors
5. Joint Venturing
2
What Makes Affordable
Housing Affordable?
• Income restrictions
• Population restrictions (vets, seniors)
• Regulated by a governmental authority
• Subsidized financially by a governmental
entity
3
Overview and Timeline
The Team
•
•
•
•
•
•
4
Attorney(s)
Developer
Architect
Lender(s)
Equity Investor(s)
General Contractor/Subcontractors
Overview and Timeline
Concept/Feasibility Phase
•
5
The concept/feasibility phase is about gathering the
necessary information in order to determine whether or not
an idea has the potential to become a successful project.
1/27/2015
Overview and Timeline
Pre-Development Phase
6
•
The pre-development phase is where the details of your
project are better defined and will be reviewed and subject to
different types of approvals from funders, bankers, city
agencies, the community, and elected officials.
•
Success in this phase will depend on the viability of your
project, both physically and financially, as well as your ability
and willingness to modify the project in response to key
stakeholders and identified requirements.
1/27/2015
Overview and Timeline
Construction Phase
•
7
All the planning has been done, the financing is in place, and
you are ready to begin construction.
1/27/2015
Overview and Timeline
Operation/Management
Phase
•
8
The building is complete, has received its Certificate of
Occupancy (C of O), and is ready for tenants to move in.
1/27/2015
Funding Sources
I.
Federal
•
HUD
II. State
•
HCR (Consolidated Funding Application)
•
HFA
•
HHAC
•
OMH
III. County
9
•
Local IDA and/or Housing Authority
•
Private affordable housing funders (NYCAF, NYAHPF)
The Tax Credit Program –
What is it?
• A housing subsidy program for rental housing
• Created within Section 42 of the Internal
Revenue Code as part of the Tax Reform Act of
1986, as modified by subsequent legislation
• Administered by each state’s housing finance
agency
• Each state receives an annual allotment of tax
credits to allocate to projects
10
What Do Tax Credits Finance?
• New construction and rehab projects, or
acquisition in some limited cases
• Housing for families, special needs tenants,
single room occupancy, and the elderly
• Urban, rural and, suburban locations
• Additional tax incentives for projects in highcost or difficult-to-develop areas
11
Additional Considerations
• LIHTC projects have a 15 year compliance period
• Additionally, there is a 15 year extended use
requirement (investors typically exit after 15 year
compliance period)
• Recapture rules apply in the first 15 years
• For non profit sponsors, right of first refusal
facilitates the transfer of ownership of the project
after the compliance period
- Can purchase the property for the assumption
of debt plus the investor’s exit taxes;
- Improves feasibility of project
12
Affordable Housing Funding in Westchester
(9% Tax Credit Funding)
Applicant
2009
2009
2009
2010
County
2011
2011
2011
2011
2012
2012
13
Award
Units
Ashburton Avenue I, LP
Housing Action
Council, Inc.
Titus Investors LLC
Westchester
LIHC
$1,078,000
49
Westchester
Westchester
Westchester
Westhab, Inc.
Yorktown Housing
Fund, LLC
Chappaqua Station,
LLC
The Richman Group
Development
Corporation
The Community
Builders, Inc.
Greater Centennial
Community
Development Corp.
Westchester
$1,427,857
$899,676
$844,483
$280,000
$1,600,000
$392,966
$560,000
73
43
Maple Center LLC
LIHC
LIHC
LIHC
SLIHC
HTF
LIHC
SLIHC
LIHC
LIHC
HTF
LIHC
$603,889
$792,000
$2,250,000
$1,132,654
60 (REHAB)
HTF
HTF
HWF
$2,400,000
$1,496,295
$1,003,705
56 (NEW)
Grace Terrace LLC
Heritage Homes Phase
II
Westchester
LIHC
LIHC
HTF
LIHC
HTF
$570,507
$1,226,828
$2,400,000
$1,024,648
$1,474,760
2010
2011
Program
Westchester
Westchester
Westchester
Westchester
Westchester
Westchester
109
28
36 (NEW)
126 (NEW)
28 (REHAB)
67(NEW)
56(ADAPTIVE
REUSE)
Affordable Housing Funding in Westchester
(4% Tax Credit Funding)
Applicant
2009
2010
2010
2010
2011
2011
2011
2012
2012
2013
2013
2013
2013
2014
2014
2014
2014
14
County
Program
Construction
Permanent
Units
Grant Park Apartments
Westchester
Section 8 and 9 ACC
$22,500,000
$7,500,000
100
25 State Street Apartments
Roundtop Commons
Apartments
Warburton Riverview
Apartments
Woodstock Manor
Apartments
Heritage Homes
Apartments
Friedrichs Supportive
Apartments
Yonkers Apartments
Bridleside Apartments
Public School 6
Apartments
Westchester
N/A
$8,760,000
$3,900,000
50
Westchester
N/A
$15,500,000
$8,440,000
92
Westchester
N/A
$16,200,000
$10,020,000
92
Westchester
Section 8 HAP
$6,550,000
$4,550,000
60
Westchester
N/A
$18,390,000
$16,490,000
130
Westchester
Westchester
Westchester
N/A
Section 8 HAP
N/A
$8,600,000
$19,260,000
$14,630,000
$3,520,000
$14,760,000
$5,320,000
61
129
64
Westchester
Section 8
$31,100,000
$8,160,000
120
Enclave on 5th Apartments
The Mews at Baldwin
Place Phase II
Winbrook Phase I
188 Warburton Avenue
Apartments
Dorado Apartments
La Porte Apartments
The Modern Apartments
Project
Westchester
N/A
$5,225,000
$2,500,000
39
Westchester
Westchester
N/A
Section 8
$11,000,000
$25,000,000
$6,420,000
$8,200,000
75
103
Westchester
Westchester
Westchester
N/A
Section 8
N/A
NYS Office of Mental
Health
$13,400,000
$17,355,000
$30,000,000
$4,500,000
$6,995,000
$16,500,000
51
188
158
$15,150,000
$11,350,000
80
Westchester
Affordable Housing Funding in Westchester
Summary
15
Units
9% Deals:
4% Deals:
Total:
731
1,592
2,323
Programs
9% Deals:
4% Deals:
Total:
$23,458,268
$278,520,000
$301,978,268
Project Factors
•
Legal Structure – Are you going to use an HDFC structure?
•
If you have commercial space, develop a clear game plan for the
condo process, if necessary
•
Advocate early (and often) for your project with the Agency (“get
in the queue”)
•
Negotiate the Letter of Intent/ term sheets very carefully.
•
Avoid lender/investor guaranty “creep”
•
Where is your tax abatement coming from??
•
16
IDA/Lease Back
Project Factors
17
•
Pay close attention to requirements of community facility (is
there a tax exempt use?)
•
Make certain that all funding is in place at construction
closing.
•
Dissect the Operating Agreement/ LPA
•
If “substantially all the assets”, submit project early to
Attorney General/Court
•
Maintain good communication and closing checklist
•
Lease up, lease up, lease up!
•
Start and stay on top of tax exemption applications
Typical Tax Credit Legal Structure – Nominee
Agreement/Joint Venture
Structure Benefits:
Exemption NYC Transfer Tax (NYC only)
Exemption from Mortgage Recording Tax
Affordable Housing HDFC
(Fee Owner)
Eligible for Sales Tax Exemption
Eligible for the following real estate tax
exemptions:
420-c RPTL (NYC only)
Affordable Housing LLC
(Beneficial Owner)
Article XI PHFL
Article V PHFL
422 RPTL
Affordable Housing Managers LLC
(Managing Member)
.01% interest
Affordable Housing HDFC
(Member)
50% interest
Sponsor
Sole Member of HDFC
18
Tax Credit Syndicator
(Investor Member)
99.99% interest
For-Profit
(Member)
50% interest
Syndicator
(GP)
Investors
(LP)
Overview of Critical
Joint Venture Issues
19
Joint Venture Issues
•
Management Issues
•
Roles and responsibilities – decision making
•
Term of agreement
•
Financial and design specifics of project
•
Selection of professionals
•
Development Agreement(s)
•
Confidentiality, competition and liability
•
Dispute resolution
•
Exit strategies
• Financial Issues
20
•
Pre-development financing
•
Capital contributions and percentage of interest
•
Developer’s fee split
•
Cash flow split
•
Guarantee
Joint Venture Issues
• Operational Issues
•
Marketing, tenant selection and tax credit compliance
•
Tenant services, if applicable
•
Leasing of commercial space or community space, if
applicable
•
Condominium Structure/Master Lease
• Year 15 Exit
• Not-for-profit right of first refusal
• Extended Use requirements after the Compliance Period
21
Project Success
The project known as “The Modern Apartments”, which closed
construction in 2014, developed and constructed 81 dwelling units for
persons of low income and approximately 9,300 square feet of
commercial space.
Budget: $31,349,739
Sources: HTF, NYSERDA, HCR, MRT, CIF,
LIHC, OMH, and HOME
22
Project Success
The project known as “22 Tarrytown”, closed construction in 2013
and converted to permanent financing in 2014, is an energy efficient
“Green” building which includes many features that will enhance
living enjoyment. The project consisted of 28 units intended for rental
to persons of low income.
Budget: $10,116,502
Sources: HTF, FHLBNY AHP, HUD SHP,
LIHC, SLIHC, and HOME
23
Matthew Hall
Partner
[email protected]
Tel.: 646.768.4102
Matthew Hall has substantial experience practicing in the areas of
affordable housing development, governmental affairs, real estate
finance, not-for-profit law and banking and finance. He has broad-based
experience in project development and has represented both for-profit
and nonprofit developers on scores of complex affordable housing
projects utilizing Federal, State and City housing finance programs and
numerous other funding sources. In addition, he has extensive
experience in acquisitions, tax incentive programs, veterans affairs,
faith-based development, not-for-profit organizational restructuring, and
condominium and cooperative law.
Matt has worked on numerous real estate development projects utilizing
sustainable development practices. Matt frequently lectures on
affordable housing for developers, housing professionals, community
development organizations and lenders/investors. He has lectured and
led workshops for numerous organizations, including the Enterprise
Foundation, the Supportive Housing Network of New York (SHNNY),
the Association for Neighborhood and Housing Development (ANHD),
New York State Association for Affordable Housing (NYSAFAH) and
Urban Homesteaders Assistance Board (UHAB).
Matt also serves on several boards of directors of not-for-profit groups
throughout New York City. He is a Commander in the United States
Navy, and is also a Commanding Officer of a Pentagon-based reserve
unit supporting the Assistant Secretary of the Navy for Research,
Development and Acquisition, and a Contracting Officer with DAWIA
Level II certification. Matt is very active in veteran affairs, both in New
York and Washington, D.C
24