copyright © 2012 novogradac & company llp april 25-28, 2012 omni austin hotel downtown |...

Copyright © 2012 Novogradac & Company LLP

April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas

Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing

Creating Partnerships for

Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits

Jim ShawCapital Area Housing Finance Corporation

Matthew BissonetteCiti Community Capital

George LittlejohnNovogradac & Company




Outline

How Tax Credit Financing Works

Tax-Exempt Bond Overview

Players in a Bond Transaction

Bond Financing Timeline

Types of Bond Issues

50% Test and Other Bond Requirements

Soft Debt

How to Get Deals Done


Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:



Can you lower your rent to $400/month?

Developer/Owner

$400

$700Sorry.

“Affordable Housing”

DEBT

Total Project Costs



DEBT

InvestorTax Liability

‘86

$IRC Section 42

“Low Income Housing Tax Credit”

Developer/Owner

x 10 years

• Income limits• Rent limits

• Partnership• LLC• S-Corp

Tax Liability

TAX CREDITSEquity

Bonds

Total Project Costs

Bonds

Low-Interest Debt

DEBT

DEBT



*

x 10 = $1 Bil$100 Mil*

mathematical potential if nearly all bonds were issued for affordable housing;actual credits utilized will be far less than $100 million

Private ActivityTax-Exempt Bonds

IRC Section 42

State Allocating Agency

LIHTCs

Texas population: 2012

ApproxxApprox

25.67 mil$2.20

$56.5 mil

$56.5 mil

LIHTCs

Texas population: 2012

ApproxxApprox

25.67 mil$95

$2.44 bil

Greater of $95 per capita OR $284,560,000

x 10 = $565 Mil

9%, per capita, “competitive” credits

4% credits

$2.44BLIHTCs

Developer/Owner



x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis

Tax credit percentage

Annual tax credits

B

= $10.67 Mil

$2.98 Mil

A

Total project costs = $11.2 Mil

Developer/Owner



$3.96 Mil $4.33 Mil

x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

B

= $10.67 Mil

$2.98 Mil

A


Developer/Owner

9%

$396k

9%

$433k

$8.29 Mil



Developer/Owner



Developer/Owner


$Fund

$

$Syndicator

Losses

Losses“Upper Tier”

“Lower Tier”

$

LP

GP

GP LP

$Credits

Credits

$

$



Developer/Owner


Fund

$

$

$8.29 mil

$8.29 mil

65¢ - 95¢85¢



$8.29 mil

$8.29 mil



$3.96 Mil $4.33 Mil

x

x

x

x

x

x 10

$5.86 Mil

75%

$4.40 Mil

10

$4.81 Mil

100%

$4.81 Mil

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

B

= $10.67 Mil

A


9%

$396k

9%

$433k

$8.29 Mil

$7.0M

$11.2 Mil

Equity 63%

$8.29 mil

85¢x$7.0 mil

$8.29 mil



BA


$2.5M

$11.2 Mil

Equity 22%

$2.98 mil

85¢x$2.5 mil

$2.98 mil

x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $10.67 Mil

$2.98 Mil

Why go the bond route?

Bonds >50%



BA


$2.5M

$11.2 Mil

Equity 22%

$2.98 mil

85¢x$2.5 mil

$2.98 mil

x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $10.67 Mil

$2.98 Mil

Bonds >50%

“DDA”

“QCT” =

30%



BA


$2.5M

$11.2 Mil

Equity 22%

$2.98 mil

85¢x$2.5 mil

$2.98 mil

x

x

x

x

x

x 10

$1.87 Mil

$7.62 Mil

75%

$5.71 Mil

3.28%

$187k

10

$2 Mil

$6.25 Mil

100%

$6.25 Mil

3.20%

$200k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $13.87 Mil

$3.87 Mil

Bonds >50%

“QCT” =

30%



BA


$11.2 Mil

$3.3M Equity 29%

$3.87 mil

85¢x$3.3 mil

$3.87 mil

x

x

x

x

x

x 10

$1.87 Mil

$7.62 Mil

75%

$5.71 Mil

3.28%

$187k

10

$2 Mil

$6.25 Mil

100%

$6.25 Mil

3.20%

$200k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $13.87 Mil

$3.87 Mil

Bonds >50%

“QCT” =

30%




Outline







Soft Debt




Developer/Owner

IRC Section 42



$2.44B



$

Public Bonds

Interest Payments $

Airports

StudentLoans

Single-FamilyHousing

Industrial Development

Bondholders

Private Bonds

$

Interest Payments $

Private Sector

Taxes

Interest Payments$$

Bonds


Multi-FamilyRental Housing


$2.44B




Outline







Soft Debt





Developer/Owner

BondApplication


4% Credits

IRC Section 42

$2.44B



Bond Issuer

(City/County)

Borrower

InducementResolution

Public hearing or “TEFRA” requirement

P’ship



Credit Enhancer

Purchasers

Trustee

Bond Proceeds

Bond Proceeds

Project

Trust Indenture

Interest Payments

MortgageNote

Bonds

DRAW Req

“AAA”“Aaa”

Invoices

Interest Payments

Bond Purchase

Agreement

Underwriter

Loan Agreement

RegulatoryAgreement

Lender

Bond Issuer

(City/County)




Outline







Soft Debt




Bond Financing Time Line

(separate handout provided)




Outline







Soft Debt




Types of Bond Issues1. “Essential Function” or “Governmental Purpose” Bonds issued under

Section 103 -- project to be owned by a public body

– Good news: Much less restrictive rules than eitherof 2 other categories

– Bad news: Not eligible for 4% LIHTC

2. “501(c)(3)” Bonds issued under Section 145

– For charitable organization having a designation under IRC Section 501(c)(3) in order to:

• Provide affordable housing for persons of lower income, or

• Provide appropriate housing for the elderly or handicapped

– Good news: Don’t need private activity bond volume allocation

– Bad news: Not eligible for 4% LIHTC



Types of Bond Issues3. Private Activity Bonds issued under IRC Section 142(d) -- for profit-

motivated owner

– Usually combined with 4% LIHTC

– This is the most common “new money” category – generally represents 85-90% of “new money” deals

– Main requirements include:• Lower income targeting – 20% at 50% AMI or 40% at 60% AMI• Private activity bond volume allocation (“volume cap”)

“Refunding” Bonds– Proceeds used to pay off bonds previously issued to finance a multifamily

rental housing project– Used to reduce interest rates or change credit enhancement

BondApplication

4% CreditsPrivate Activity

Tax-Exempt Bonds



Financing Alternatives

DSC LTV Amort. C/E Fees Timeframe Variable?

Credit Enhancement Alternatives

• FHA / GNMA 1.11 90%+ 35-40 Low 90-150 No

• Fannie Mae and Freddie Mac 1.15-1.20 80% 30-35 Mid 60-90 Yes

• Bank Letters of Credit 1.15-1.25 75-85% 25-30 High 60-90 Yes

Non-Credit Enhanced Executions• Stand-Alone Bond Rating 1.45 n/a 30 Mid-to-High 60-90 No

• Conduit Bond Lender 1.15-1.20 80-85% 30-35 n/a 60 Maybe




Outline







Soft Debt




BA


x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $10.67 Mil

$2.98 Mil

$2.98 mil

85¢x$2.5 mil

$2.98 mil$2.5M

$11.2 Mil

Equity 22%



$2.5M$1.9M

BA


$11.2 Mil

Equity 22%

$2.98 mil

85¢x$2.5 mil

$2.98 mil

x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $10.67 Mil

$2.98 Mil

“Aggregate Basis”Fixed Assets

$10.9 Mil

50%$5.45 Mil

11%Equity49.9999%

$1.49 mil

!

49.9999%

$1.49 mil

$1.49 mil

$1.25 mil

Bonds



BA


$2.5M

$11.2 Mil

Equity 22%

$2.98 mil

85¢x$2.5 mil

$2.98 mil

x

x

x

x

x

x 10

$1.44 Mil

$5.86 Mil

75%

$4.40 Mil

3.28%

$144k

10

$1.54 Mil

$4.81 Mil

100%

$4.81 Mil

3.20%

$154k

Ten years

Total tax credits

Eligible basis

Applicable fraction

Qualified basis


Annual tax credits

= $10.67 Mil

$2.98 Mil

Bonds 54%

“Aggregate Basis”

$6M

Fixed Assets

$10.9 Mil

$6M$5.45 Mil

100%




Bond issuance costs (BIC) paid from bond proceeds ≤ $120k

2% “Cost of Issuance Limitation”

$6M($6 mil x 2%)




$6M

“Good Costs/Bad Costs”95% of proceeds must be used for “good costs”

$5.7 mil

Good CostsLand and depreciable costs for income tax purposes

…paid or incurred after the date of the Inducement Resolution




$6M


≤ $300k

Bad CostsCosts incurred prior to Inducement Resolution

Intangible assets

Bond issuance costs and underwriting

Loan origination fees amortized over the perm loan period

Bad CostsCosts incurred prior to Inducement Resolution

Intangible assets

Bond issuance costs and underwriting

Loan origination fees amortized over the perm loan period




60 days

“Good Costs”“Bad Costs”




Outline







Soft Debt




Soft Debt• When does subordinate debt come in?

• Lien priority

• Senior/subordinate lender

• “Hard debt” vs. “soft debt”

• Combining with new markets or other tax credits?

Total Project Costs

Equity

Bonds

Deferred Developer Fee

Grant, “Soft Loan”




Outline







Soft Debt




So, how are deals gettingdone?



City View Apartments



City View Apartments

• Condominium Agreement – Affordable Unit, Market Unit

• 245 Units Total• 49 PH Units, 12 Affordable Units• 184 Units, or 75% Market Rate• Financing:

– HOPE VI– Tax Exempt Bonds– SAHA Construction Loan– City of San Antonio HOME loan– Other Soft Loans– Tax Credit Equity– Deferred Developer Fee




Outline







Soft Debt


copyright © 2012 novogradac & company llp april 25-28, 2012 omni austin hotel downtown |...

Documents

novogradac company llp

x x x x x10

affordable housing outline

debt debt slide

approx x

mil lihtcs texas population

bond requirements soft

competitive credits