hud 202 recapitalization utilizing tax exempt bonds and tax credits to meet your financing needs
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HUD 202 Recapitalization
Utilizing Tax Exempt Bonds and Tax Credits to Meet Your Financing Needs
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The Intent of DHCD’S 202 Recapitalization Initiative
To use its tax exempt bond resources to assist owners in the preservation of HUD 202 projects in Maryland.
To raise capital for multiple projects at once to achieve costs savings and processing efficiencies. This successful model was used by DHCD to benefit Public Housing Authorities statewide
To work collaboratively using a “team approach” in order to meet your processing schedules
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How Bonds and Tax Credits Work
Authority to issue tax exempt bonds is awarded to States by the federal government based on population data
4% Low Income Housing Tax Credits are available with tax exempt bonds and provide additional equity
DHCD is the administering agency for tax exempt bonds and tax credits
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What Is The Benefit To Me ?
TAX EXEMPT BONDS: CDA has sufficient resources available at this
moment in time to assist projects
Capital markets are experiencing historically low interest rates that are subject to change in the future
Tax exempt bonds can be used to replace
current debt with a lower interest rate mortgage
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Benefits (Cont.)
TAX CREDITS: Can be sold to investors to generate additional
equity for your projects Value of cash paid in by investors for tax credits
is currently at a historically high level Equity can be used to pay a developer fee to
your organization Equity can be used to pay for eligible project
costs AND to recapitalize reserve accounts Equity can be used to supplement social service
and tenant service budgets
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Happy Towers: A Case Study Of Funding With or Without Tax Credits
PRIVATE LOAN (NO LIHTC EQUITY) TAX-EXEMPT BONDS + LIHTC EQUITY
Sources:Private loan: $3.2M(Terms: 1.2DCR, 6%, 30 yrs, 80%LTV)
Owner Funds: $2.4.0MLIHTC Equity: $0TOTAL SOURCES $5.60M
Sources:TE Bond loan: $4.0M(Terms: 1.10 DCR, 5.7%, 40 yrs, 90% LTV)
Owner Funds: $0LIHTC Equity: $2.4MTOTAL SOURCES $6.4M
Costs:Pay-off existing loan, repair, and other costs $5.4MDeveloper Fee $0Reserves Operating $200K Tenant Svcs. $0 Replacement $0TOTAL COSTS $5.60M
Costs:Pay-off existing loan, repair, and other costs $5.4MDeveloper Fee $ 430KReserves Operating $200K Tenant Svcs. $170K Replacement $200KTOTAL COSTS $6.4M
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What is Required When an Owner Chooses to Utilize Tax Credits?
A change of the existing ownership structure is required but the current owner can continue to be the primary DECISION MAKER for the project
Long term use and income restrictions much like those currently in place
Property Managers will have additional recordkeeping, and compliance duties but will be able to access additional training as needed
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What Are The Next Steps ?
Assess your total financing needs- Include all funds needed to pay off your existing HUD 202 loan, preliminary construction budget, and an estimate of any related fees including estimated costs for required third party lender reports.
Sign and return your Expression of Interest letter by June 1st to qualify for your incentive
Contact DHCD with any questions or for additional information whenever you need
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What Are The Next Steps ? (cont.)
Choose qualified partners to assist with the preparing applications, loan processing and securing HUD approval, construction, and property management.
Choose a credit enhancer for the tax exempt bonds.
Choose a tax credit investor.
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Pre- Application Tasks
Select the members of your development team or choose an experienced development partner to assemble the team and oversee the development process on your behalf.
Typical development teams members include the Owner/Developer, Contractor, Architect, Management Agent, Equity Provider, Attorneys and the various Lenders.
Select vendors to complete all required third party Lender reports such as market studies, environmental reviews, capital needs assessments etc.
Meet with the appropriate HUD Office to discuss the approval process
Assemble and submit the financing applications.
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DHCD Application Processing Phases
Application Review DHCD staff will review the application to determine threshold compliance and minimum scoring requirements.
Loan Processing DHCD will be a member of the processing team, providing assistance based on the experience and needs of the team and the project.
Loan Closing and Construction Start – Once your credit enhancer and tax credit investor provide approvals, DHCD will issue the tax exempt bonds and tax credits you need to start construction.
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Who Are My DHCD Contacts ?
Patricia Rynn Sylvester, Director, Multifamily
(410) 514-7460
Yvonne Johnson, Director, CDA Marketing and Outreach
(410) 514-7455