CASE STUDIES: CURRENT MULTIFAMILY BOND STRUCTURES
Dan Dill, Managing Director
Stifel, Nicolaus & Company, Incorporated
• Private activity bond 4% LIHTC deals and 501(c)3 Bond deals
• Multiple financing structures available for each bond type
• The capital stack for most 4% LIHTC deals will include hard debt,
equity, and soft funds – especially for new construction
• Historically low interest rates and historically high tax credit pricing
• Single property and multiple property pool structures available
• The history and variety of 4% Bond structures is extensive
• RAD deal capital stacks will be similar to the 4% deals shown
MULTIFAMILY BOND STRUCTURES
Bond Structures available for the Acquisition or Construction of
Multifamily Housing
CASE STUDY 1: MULTIPLE FUNDING SOURCES
Cypress Springs Apartments – 4% Tax Credits , FHA 221(d)(4) insured mortgage,
multiple “soft” funds
Problem
• Given rent restrictions there is not enough cash flow to provide the amount of
proceeds that can be generated in traditional debt & equity structures used in
market rate developments.
• 9% tax credits provide the largest equity investment for low income properties, but
there are a limited amount of 9% credits available.
Solution
• 4% Low Income Housing Tax Credits facilitate a financing mechanism to provide a
substantial amount of the equity needed to develop affordable housing.
• 4% Tax Credits combined with an FHA 221(d)(4) insured mortgage loan provide most
but not all of the leverage and equity necessary to develop new affordable housing.
• Multiple sources of “soft” money are often needed to cover the gaps.
NEW CONSTRUCTION: FHA 221(D)(4) AND 4% CREDITS
How do you cover shortfalls in financing Affordable Housing?
• To receive the 4% Tax Credits, at least 50% of the Aggregate Basis of a project
must be financed with Tax Exempt Bonds.
• In today’s credit market, long term conventional FHA loans charge a lower
interest rate then a Tax Exempt Bond secured by a GNMA security.
• The short term collateralized bonds:
• significantly reduce negative arbitrage
• achieve the lowest cost of borrowing
• meet the requirements to receive the 4% credits.
NEW CONSTRUCTION: FHA 221(D)(4) AND 4% CREDITS
Achieving the Lowest Interest Rate
• Location: Baton Rouge, LA approximately 15 minutes north of
downtown Baton Rouge
• Units: 144
• Rent Restrictions: 100% of the units at 60% AMI
• Approximate Construction Period: 15 months
NEW CONSTRUCTION: FHA 221(D)(4) AND 4% CREDITS
Cypress Springs Apartments
Cypress
Springs Apartments
• Key Project Information:
• Key Participants:
• Developer: Community Development, Inc.
• Tax Credit Syndicator: WNC Associates, Inc.
• Placement Agent: Stifel – Merchant Capital Division
• FHA Lender: Berkadia Commercial Mortgage LLC
• Issuer: Louisiana Housing Corporation
• Bond Counsel: Foley & Judell, L.L.P.
• Borrower’s Counsel: Coats Rose
• Placement Agent’s Counsel: Sidley Austin LLP
NEW CONSTRUCTION: FHA 221(D)(4) AND 4% CREDITS
Cypress Springs Apartments
• Key Terms of the Bond Issue:
• Closing Date: February 25th, 2015
• Maturity Date: September 1, 2016
• Optional Prepayment: 12 months at Par
• Rating: S&P A-1+ eligible
• Interest Rate: 70bps
NEW CONSTRUCTION: FHA 221(D)(4) AND 4% CREDITS
Bond Structure
SOURCES
Total
Tax Exempt Bonds (FHA Loan)
Tax Exempt Bonds (Home Funds) (Louisiana Housing)
Home Funds (Louisiana Housing)
Foundation for Louisiana Grant
Baton Rouge Redevelopment Agency Loan
AHP Grant (Federal Home Loan Bank of Chicago)
4% LIHTC Equity (WNC & Associates)
Deferred Developer Fee
Total
$
$
8,533,200
716,800
858,680
250,000
1,000,000
500,000
6,184,692
830,564
19,123,750
USES
Land Cost & Site Work
Direct Construction Costs
Capitalized Interest (FHA Loan)
FHA Mortgage Costs
Bond and LIHTC Financing Costs
Other Financing Costs (Subordinate Debt)
Architectural Fees
Building Permit and Impact Fees
General Transaction Costs
HUD Required Reserves
Development Fee
Total
$
$
586,940
12,692,000
265,000
393,999
457,105
385,021
545,000
215,308
698,924
724,639
1,910,000
19,123,750
Total Tax Exmpet Bonds: $
9,250,000
NEW CONSTRUCTION: FHA 221(D)(4) AND 4% CREDITS
Sources & Uses
CASE STUDY 2: ACQUISITION REHAB
WHPC Southern Bond Pool – 4% Tax Credits, 9 Properties, Fannie Mae Guaranteed Loan
Problem
• Properties that have a smaller number of units or have relatively low values
can be difficult to finance using 4% LIHTC and tax exempt bonds because of
the high fixed costs.
• Tax Credit syndicators usually do not have interest unless the potential equity
investment is off a sufficient size.
Solution
• In a pooled structure legal fees and other fixed costs are typically lower than if
the properties were financed individually.
• By creating a portfolio of smaller properties, the size of the equity investment
is sufficient to attract investor interest.
• The loan is structured with one mortgage (as opposed to 9 separate
mortgages). This structured allowed for one tax credit partnership and
significantly decreased reporting requirements and costs.
ACQUISITION REHAB: FANNIE MAE LOAN AND 4% CREDITS
How do you acquire and rehabilitate small properties?
• Key Project Information:
• Location: Multiple locations throughout southern Wisconsin
• Number of Properties: 9
• Units: 537
• Rent Subsidy: Approximately 78% of the units are covered by Section 8
• Rent Restrictions: Varies by property
• Construction Period: Approximately 9 months
ACQUISITION REHAB: FANNIE MAE LOAN AND 4% CREDITS
WHPC Southern Bond Pool
• Key Participants:
• Developer: Wisconsin Housing Preservation Corp
• Tax Credit Syndicator: Boston Capital
• Bond Underwriter: Stifel – Merchant Capital Division
• Fannie Mae Lender: Centerline Capital
• Issuer: Public Finance Authority
• Bond Counsel: Jones Walker LLP
• Underwriters Counsel: Sidley Austin LLP
• Issuer Counsel: Eichner Norris & Neumann PLLC
ACQUISITION REHAB: FANNIE MAE LOAN AND 4% CREDITS
WHPC Southern Bond Pool
• Key Terms of the Bond Issue:
• Closing Date: April 30th, 2014
• Maturity Date: April 1, 2017
• Initial Mandatory Tender Date: April 1, 2015
• Optional Prepayment: 6 months at Par
• Rating: S&P A-1+
• Interest Rate: 35bps
ACQUISITION REHAB: FANNIE MAE LOAN AND 4% CREDITS
Bond Structure
• Key Terms of the Fannie Mae Loan:
• Term: 192 months (16 years)
• Amortization: 35 year
• Interest Rate: 5.19%
• Maximum LTV: 90%
• Minimum DSC: 1.15x
• The loan is structured with one mortgage (as opposed to 9 separate
mortgages). This structured allowed for one tax credit partnership and
significantly decreased reporting requirements and costs.
ACQUISITION REHAB: FANNIE MAE LOAN AND 4% CREDITS
Key Loan Terms
SOURCES
Total
Tax Exempt Bonds (FNMA Loan)
Tax Exempt Bonds (Equity Bridge Loan)
LIHTC Equity
Related Party Loan + Accrued Interest WHPC Debt
Funds from Project Operations
Existing RR and Insurance Escrow
Equity Bridge Loan
Deferred Developer Fee
Accrued Interest
Total
$
$
20,400,000.00
460,000.00
11,075,282.00
11,821,607.00
1,208,314.00
163,163.64
5,539,780.00
50,668,146.64
USES
Acquisition Costs
Rehab / New Construction Costs
Professional Fees / 3rd Party Reports
Capitalized R.E. Purchase & Construction Loan Costs
Financing Fees
Tax Credit Fees
Operating Deficit Reserve and Investor Asset Management Fee Reserve
Insurance Escrow
Deposit for RE Taxes
Net RE Tax
Pay off Equity Bridge Loan
Developer Fee
Accrued Interest
Surplus / (Deficit)
Total
$
$
27,888,115.34
9,511,104.00
538,819.38
2,419,824.50
353,900.00
91,370.00
983,000.00
121,755.00
165,000.00
10,122.61
5,999,780.00
2,577,382.00
7,973.81
50,668,146.64
Total Par Amount of Fannie Mae Loan: $
Total amount of the Equity Bridge Loan: $
Total Tax Exempt Bond Amount: $
20,400,000.00
5,999,780.00
20,860,000.00
ACQUISITION REHAB: FANNIE MAE LOAN AND 4% CREDITS
Sources & Uses
CASE STUDY 3: NEW CONSTRUCTION PRIVATE PLACEMENT
The Waters at Sunrise – 4% Tax Credits, Private Placement, New
Construction in Texas
Problem
• There is a significant shortage of affordable housing in certain fast growing
markets in Texas
• Limited availability of 9% tax credits cannot meet the need
• Land purchase and construction contracts may require a quick closing
Solution
• Work closely with local government officials to identify any concerns and find
mutually agreeable solutions
• Use 4% tax credit financing with “soft funds” to fill the financing gaps
• Structure a private placement with a much shorter financing time frame than
agency financing
NEW CONSTRUCTION: PRIVATE PLACEMENT & 4% CREDITS
How do you finance New Construction in Texas?
• Key Project Information:
• Location: Round Rock, Texas
• Number of Properties: One – New Construction
• Units: 300
• Rent Restrictions: 80 % at 60% AMI or less, 20% at market
• Construction Period: 18 months
NEW CONSTRUCTION: PRIVATE PLACEMENT & 4% CREDITS
Waters at Sunrise
• Key Participants:
• Borrower: Atlantic Housing Foundation
• Tax Credit Syndicator – City Real Estate Advisors, Inc.
• Bond Underwriter: Stifel – Merchant Capital Division
• Construction Lender: JP Morgan Chase, NA
• Issuer: Capital Area Housing Finance Corporation
• Borrower Real Estate Counsel: Locke Lord LLP
• Syndicator’s Counsel – Applegate & Thome-Thomsen
• Bond Counsel: Chapman and Cutler LLP
• Underwriter’s Counsel: Sidley Austin LLP
• Construction Lender’s Counsel – Greenberg Traurig, LLP
• Issuer Co-Financial Advisor: First Southwest
• Issuer Co-Financial Advisor: Ramirez & Co, Inc.
NEW CONSTRUCTION: PRIVATE PLACEMENT & 4% CREDITS
Waters at Sunrise
• Key Terms of the Bond Issue:
• Closing Date: May 6, 2015
• Maturity Date: May I, 2055
• Mandatory Tender: 17 years
• Amortization: 40 years
• Optional Prepayment: May 1, 2031 at par
• Rating: Non Rated
• Interest Rate: SIFMA plus 2.35% during the first 18 months then 5.05%
NEW CONSTRUCTION: PRIVATE PLACEMENT & 4% CREDITS
Bond Structure
SOURCES
Series 2015 A - Tax Exempt
Series 2015 B - Tax Exempt
HOME Funds
HOME Funds Match
LIHTC Equity
General Partner and Special Limited Partner Capital Contributions
Deferred Developer Fee
Total
Total
$
$
$
$
$
$
$
$
25,000,000.00
500,000.00
4,000,000.00
200,000.00
7,877,012.00
200.00
2,225,016.37
39,802,228.37
$
$
$
$
$
$
$
$
$
$
$
$
2,157,961.37
25,799,010.00
1,512,063.96
1,704,908.33
549,546.30
1,425,250.00
469,810.00
1,489,000.00
250,000.00
4,448,455.00
(3,776.59)
39,802,228.37
USES
Land Cost & Site Work
Direct Construction Costs
Indirect Construction Costs
Bond and LIHTC Transaction Costs
General Transaction Costs
Net Construction Period Interest
Construction Period LOC Fees
Initial Operation Deficit Reserve
Debt Service Reserve
Developer Fee
Surplus/(Deficit)
Total
NEW CONSTRUCTION: PRIVATE PLACEMENT & 4% CREDITS
Sources & Uses
CASE STUDY 4: ACQUISITION/MODERATE REHAB - 501(C)3BONDS
Trinity Affordable Housing Corporation – 5 properties, S&P Rated Pool
How does a 501(c)3 acquire multiple properties in multiple states?
Solution
• Structure a cross collateralized pool financing using 501(c)3 Bonds that are
rated under the Standard & Poor’s Affordable Housing Rating criteria
• Issue the bonds through an Issuer such as Public Finance Authority that has
the ability to issue bonds for properties located in multiple states
501(C)3 BONDS – ACQUISITION/MODERATE REHAB
Problem
• What is the best financing structure for a 501(c)3 to maximize proceeds for
the acquisition and rehabilitation of a pool of Section 8 subsidized properties?
• How do you finance multiple small properties in multiple states?
Trinity Affordable Housing
501(C)3 BONDS – ACQUISITION/MODERATE REHAB
• Key Project Information:
• Location: Various sites in Iowa and Missouri
• Number of Properties: 5
• Units: 349
• Rent Subsidy: 100% Section 8 HAP contracts
Trinity Affordable Housing
501(C)3 BONDS – ACQUISITION/MODERATE REHAB
• Key Participants:
• Borrower: Trinity Affordable Housing Corporation
• Borrower’s Real Estate Counsel: Copley Roth & Wilson
• Borrower’s 501c (3) Counsel: Peter B. Nagel, PC
• Borrower’s HUD Counsel: Klein Hornig LLP
• Bond Underwriter: Stifel – Merchant Capital Division
• Issuer: Public Finance Authority
• Bond Counsel: Orrick, Herrington & Sutcliffe LLP
• Underwriters Counsel: Sidley Austin LLP
• Issuer Counsel: Eichner Norris & Neumann PLLC
Bond Structure
• Key Terms
• Maturity: July 1, 2050
• Amortization: 35 years fully amortizing
• Average Interest Rate: 4.88%
• Issue size: $16,960,000
501(C)3 BONDS – ACQUISITION/MODERATE REHAB
• Key Terms of the S&P Rated Bond Issue:
• Closing Date: June 30, 20105
• Maturity Date: July 1, 2050
• Optional Prepayment: July 1, 2025 at par
• Rating: S&P A
• Bond Structure – Term Bonds maturing on July1, 2023 (taxable), July 1,
2035, July 1, 2040, and July 1, 2050
Sources and Uses
Total
Series A - Senior Bonds
Series A - Senior Bonds - OID
Series A-T - Taxable Senior Bonds
Series A-T - Taxable Senior Bonds - OID
Existing Replacement Reserves
Accrued Interest
Total
$
$
$
$
$
$
$
15,170,000.00
(339,786.80)
1,790,000.00
(17,434.60)
172,118.00
16,774,896.60
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13,972,118.00
514,750.00
120,000.00
138,642.00
352,585.00
50,650.00
149,888.00
26,600.00
857,006.33
254,400.00
338,257.27
16,774,896.60
Total Tax Exmpet Bonds: $
16,960,000.00
USES
Acquisition Price
Senior Bonds DSRF - 6 months MADS
Deposit to Operating Fund (30days expenses)
First Year Insurance Premium
Repairs -PCA Northeast View
Repairs -PCA Iowa Properties
Initial Deposit to Replacement Reserves
Real Estate Tax Escrow Northeast View (Approx 6 Months)
Real Estate Costs
Underwriter's Fee
Bond cost of Issuance
Accrued Interest
Surplus/(Deficit)
Total
HEADING
SOURCES
NON AGENCY KEY FINANCING CRITERIA
Private Placements
S&P Rated Transactions
• Stifel has placed bonds with multiple private placement bond purchasers.
We would typically solicit proposals/term sheets from 3 to 6 potential
private placement purchasers.
• Underwriting parameters include
• 1.15x to 1.25x debt service coverage
• 75% to 85% loan to value
• 35 to 40 year amortization (possibly with a shorter term)
• Non-recourse loans
• Standard Replacement Reserves (approximately $300 per unit)
• Debt Service Reserves – Zero to one year (depending on purchaser)
• Operating Deficit Reserves (30 to 90 days)
• Construction Letter of Credit may be required
• Variable rate bonds during construction may be possible
• Draw down bonds may be possible
• Up to 3 years interest only
• Interest rates in the 5% to 6% range
• Can close in 120 to 180 days
PRIVATE PLACEMENT
Private Placement
•
Standard & Poor’s currently rates unenhanced affordable housing projects
investment grade, typically in the “A” category.
• Underwriting assumptions include:
• 1.20x DSC (HAP properties); 1.40x DSC (non-HAP properties)
• Vacancy loss based on historical trends
• Standard & Poor’s will underwrite Section 8 rent “overhang”
• Operating expense savings accepted, but must be validated
• Repair and replacement reserves based on capital needs assessment report
• No minimum rehab per unit
S&P RATED
Standard & Poor’s Rated Transactions
Financing observations include:
• No credit enhancement or mortgage insurance
• Six month Debt Service Reserve for HAP properties, One year Debt Service
Reserve for non-HAP properties
• 35-year amortization
• 35-year term
• 10-year par call
• 35-year interest rate currently approximately 4.75%
• Financial disclosures include annual audit and occupancy data
• 75-90 days for closing
• 100% loan-to-value
• Non-recourse
S&P RATED
Standard & Poor’s Rated Transactions
CONTACT INFORMATION
Dan Dill, Managing Director
[email protected]
425-455-8122