national housing & rehabilitation association spring ... · -pricing is driven by fnma taxable...

National Housing & Rehabilitation Association

Spring Developers ForumMay 7-8, 2018 Marina del Rey, CA

Sponsors:

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NH&RA Spring Developers Forum

TAX EXEMPT DEBT EXECUTIONS

• Private Placements • FHA/GNMA/RD

• Freddie Mac • Fannie Mae

• Tax-Exempt Seller Note/Bonds

• FHA Risk Share

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• Variable Rate drawdown structure during construction with Fixed Rate perm

• Reduced costs of issuance and fewer deal participants

• Faster Execution Time: 90-120 days

• Recourse guarantees typically required during construction and lease up

• More popular in CRA markets

• Potential Substantial User & Program Investment issues if tax exempt purchaser

is related to Borrower

TAX EXEMPT PRIVATE PLACEMENTS

Irena Edwards 801-297-5802 [email protected] 3


Deal Profile – Villa de Guadalupe

§ Total capitalization of $55.2 million

§ LIHTCs, Project-based Section 8, Welfare Tax Exemption

§ $29.0 million Private Placement of Tax Exempt Bonds

§ 15 year term with 2 years of I/O; 35 year amortization schedule. Sizing based on 1.15x DSCR or 90% LTV. Interest rate of 4.95% plus issuer fee.

§ Private Placement with Citibank

Jeffrey E. Jaeger 310-553-5711 [email protected] 4


FREDDIE MAC BRIDGE TO RE-SYNDICATION

2 Tax Exempt Loan

TEL Forward Rate-Lock

§ At Bridge Loan closing, Freddie provides forward rate lock on the TEL for up to 36 months

§ TEL loan locked with flexible sizing

§ 15 to 17 year term, up to 3 years of interest only, 35-year amortization

§ Seller Notes allowed

1 Bridge Closing

Freddie Mac Bridge Loan

§ High Leverage (85%) LTV/1.15 DSCR

§ Low cost variable rate (2.05% spread to 30-day LIBOR); Full Term Interest Only

§ Quick close acquisition Bridge Loan

§ Up to a 36-month term

4 Conversion

TEL Sizing Flexibility

The TEL has an expandability feature allowing:

§ Loan increase at conversion into the TEL of up to 5% at same rate or more than 5% at blended rate

§ Loan decrease of up to 10% without penalty

3 Operations

Cash-flow from Operations

§ Cash-flow from operations service the interest only debtpayments

§ Low pay rate allows attractive ROE during hold period

§ No Rate Cap required

Tim Leonhard 817-310-5800 [email protected] 5


- An existing 280 unit market-rate property for seniors located in the city of Santa Fe Springs, CA

- Constructed in 1988 without any renovations; needed a moderate rehab of $15-20k per unit for long term preservation

- Following the rehab, 20% of the units will be restricted to 50% AMI or less, qualifying for tax exempt financing

Deal Profile – Costa Azul



Financing Challenges- Seller in needed to close quickly- Re-syndication not immediately possible- Buyer wanted to lock in the long term interest rate asap

Program Allowed: - Bridge loan allowed a quick close (~60 days)- Forward rate lock TEL eliminated interest rate risk for the Buyer- Program provided for flexibility (5-10%) of permanent TEL size

based on final in-place operations at TEL closing- Pre-approval of seller note for any shortfall in sources

Deal Profile – Costa Azul



FHA/GNMA & RD TAXABLE LOANS w/SHORT TERM CASH BACKED BONDS

n 35/40-year amortization and term.

n Integrated construction & permanent financing

n Non-recourse

n No new underwriting at “conversion” to permanent.

n New construction/sub rehab requires Davis Bacon wages.

n 6-9+ Months for closing

n 4.00%-4.50% mortgage rates (plus 0.25% MIP for affordable deals)

n Combined with short term bonds to qualify for 4% tax credits

Kenji Tamaoki 415-291-5033 [email protected] 8


FHA Lender

Borrower

LP Investor

Debt service payments

Lenderfunds

Bond proceeds

Bond proceeds

Trustee

Bond Holders

Cashcollateral

Short Term Bonds Flow of FundsFHA Loan > 50% Bonds

Kenji Tamaoki 415-291-5033 [email protected] 9


Deal Profile – Shadley Apartments

§ 119 1 Bedroom / 1 Bathroom Units

§ LIHTCs, FHA 223(f), Seller Note*

§ Located in Belvidere, IL

§ 35 year amort & term; 1.15x DSCR at an underwriting rate of 3.75%

§ Financing provided by FHA

*Portion of Seller Note was structured as tax exempt and applied to the 50% test

Andrew Agetstein 301-998-0437 [email protected] 10


Methods to reduce transaction costs:

•Pooled financings

•No long term bond related fees

•Reduced or no net interest cost on bonds

FHA/GNMA & RD TAXABLE LOANS w/SHORT TERM CASH BACKED BONDS

Kent Neumann 202-973-0107 [email protected] 11


Historical Performance for 2-Year MMD (plus credit spread) and 2-Year UST


2-Year MMD 1.87Add: Credit Spread 0.4Bond Rate 2.27

Less: Reinvestment Rate 2.49Net Bond Rate 0

Pricing Indications

Source: Bloomberg. Thomson Reuters Reflects market conditions as of April 27, 2018Thomson Reuters Municipal Market Data (MMD) AAA curve is a proprietary yield curve that provides the offer-side of AAA rated state general obligation bonds


Bond Yields and Investment Rates on RecentCash-Backed Bond Transactions with Treasury Investments

2.42% 2.58%

Bond RateAvg Investment Yield

2.19% 2.32%

18-Month Term 30-Month Term

23 BPS Positive Spread 26 BPS Positive Spread


2.23%

2.14%

12-Month Term

9 BPS Positive Spread

2.49%2.27%

24-Month Term

22 BPS Positive Spread

2-year bond rate is +22 BPS since 4/1/18 and +31 BPS since 1/1/18

2-year U.S. Treasuries rate is +24 BPS since 4/1/18 and +60 BPS since 1/1/18


FANNIE MAE MTEB – IMMEDIATE MBS DELIVERY

- Bond secured by MBS and structured to mirror MBS. “Aaa” or “AA+” Rated

- Single-term and monthly pay structure

- 1.15 DSCR/90% LTV

- Pricing is driven by FNMA taxable MBS market vs. MMD (Tax-Exempt Index)

- 35 to 50 basis point savings over traditional Tax-Exempt Structure

- Supplemental taxable or tax exempt loan available post rehab at initial closing DSCR, LTV, and G/S Fees

- Up to 3 years of Interest Only available



ISSUER ■ Jacksonville HFA

LOCATION ■ Jacksonville, Florida

LOAN PURPOSE ■ Acquisition/Rehab

LTV/DCR: ■ 90% LTV / 1.15x DSCR

RATING ■ Moody’s: “Aaa”

CREDIT ENHANCEMENT ■ Fannie Mae MBS Pass Through

PAR AMOUNT ■ $16,000,000

BOND INTEREST RATE ■ 3.40% (plus S&G fee)

REFERENCE RATE INDEX ■ 10-Year CMT

SUPPLEMENTAL LOAN ■ Up to $3MM committed within 24 months of closing at a 90% LTV / 1.15x DSCR

Deal Profile – Timberwood Trace

Project Details■ 224 Units■ Constructed in 1994■ Family designation■ 95% Occupancy■ ~$30,000 per unit rehab■ Fannie MTEB; LIHTC



ISSUER ■ California Statewide Communities Development Authority

UNDERWRITER ■ Stifel, Nicolaus & Company

LOCATION ■ Los Angeles, California

LOAN PURPOSE ■ Acquisition/Rehab

TAX EXEMPTION ■ Federal and State

RATING ■ No Rating

CREDIT ENHANCEMENT ■ Fannie Mae MBS Pass Through

PAR AMOUNT ■ $17,080,000

BOND MATURITY ■ 03/01/2034

BOND INTEREST RATE ■ 3.10% (plus S&G fee)

REFERENCE RATE INDEX ■ 10-Year LIBOR Swap

Deal Profile – Watts Arms

Project Details■ 104 Units■ Constructed in 1972■ Family designation■ 97% Occupancy■ 100% Section 8■ Fannie MTEB; LIHTC; seller note

Andrew Agetstein 301-998-0437 [email protected] 16


FANNIE MAE MTEB – FORWARD MBS DELIVERY

- Fannie Mae Lender provides forward commitment

- Construction Lender needed before conversion

- Bond initially secured by cash collateral and construction loan funds and replaced at conversion with MBS

- “Aaa” or “AA+” Rated

- Negative Arbitrage prior to conversion (~1.25% per year with investments)

- Additional loan proceeds generated can result in 2-3 X upfront costs due to low all in mortgage rate



Issuer ● The Health, Educational and Housing Facility Board of the County of Knox

Project Location ● Knoxville, TNBond Underwriter ● Stifel, Nicolaus & CompanyPar Amount ● $14,000000Rating ● S&P Global: “AA+”Security ● Cash/Fannie Mae MBSMBS Delivery ● 30 Month ForwardPricing Date ● 4/18/2018Final Maturity ● 4/1/2036Term ● 18 yearsAmortization ● 35 yearsInterest Rate ● 3.35% (plus S&G fee)Spread: 10-Yr LIBOR Swap ● +48 bpsSpread: 10-Yr UST ● +52 bps

Deal Profile – Southside Village



Tax-Exempt Seller “Take Back” Note & Bonds

• Many 4% preservation deals include seller financingin the form of a subordinate “take-back” note(common in RAD transactions)

• Due to the LIHTC 50% test, tax-exempt bonds inexcess of the permanent financing are often requiredin these deals

• Several ways to address this issue with various bondstructures


• FHA insurance program under Section 542(c) of the Housing and Community Development Act

• Not eligible to be “wrapped” with GNMA Securities

• Can be used for construction and permanent financing; new forward structure available to avoidDavis Bacon and reduce neg arb

• Fast Execution Time: 90 – 120 days; HFA provides full underwriting.

• Underwriting Terms: Up to 90% LtV; 1.15 DSCR; 40 year amortization / term (with possible balloon option; DSRF typically required.

• Non-Recourse, Davis Bacon, Negative Arbitrage

FHA Risk Share Loan Program

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New Const/Sub Rehab - Perm Interest Rate Stack (est.)

Bond Rate:Mortgage Insurance Premium (MIP):Mortgage Spread (varies based on issuer):

Total:

4.00%0.25%

0.75%5.00%

NH&RA Spring Developers ForumKent Neumann 202-973-0107 [email protected]


FHA Refinancing to Re-syndication (R2R)

GOAL: Lock in today’s rates forfuture tax credit deals…..




• NEW LOAN: FHA 223(f) loan to refinance existing

debt or purchase project. Keep rehab to a

minimum

Highlights of 223(f) loan

§ Exempt from LIHTC 10-year rule (Section 42(d)(6))

§ 35+ year full amortization and term

§ 80-90% LTV / 1.11 DSCR

§ ~4.00% all-in rate including 25bps MIP for affordable deals

§ Exemption from Davis-Bacon wages; Non-recourse

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Kent Neumann 202-973-0107 [email protected]


WHEN READY TO INTEGRATE TAX CREDITS (Upon Year15 or otherwise): Owner would simultaneously take 3steps ……

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Kent Neumann 202-973-0107 [email protected]


Step 1: TPA (transfer of physical asset)process.

Highlights of TPA

§ Take 90-120 days

§ Remaining term of FHA loan would be 30+ years

§ No prepayment fees or substantial transfer fees

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Step 2: Supplemental FHA 241(a) loan.

Highlights of 241(a)§ Second position fha loan sized to the lower of (a) 90% of rehabilitation

and related construction costs or (b) 1.11 DSCR for total FHA debt

§ Is a construction loan program (clc/plc) and not limited to 223(f) pilotrehab limits

§ Loan term/amortization can be up to 40 years although default is for itto match the remaining term on the senior FHA loan

§ Possible exemption of Davis-Bacon wage requirements

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Step 3: Use tax exempt bonds to qualify for4% tax credits.

Highlights of Bonds/4% Credits§ Need to pass 50% test to qualify for 4% low income

housing tax credits

§ 95% Bonds need to be spent on “good” costs of project

§ Flexibility structured into original 223(f) loan to account forpotential sizing issues

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