Bill Van Vliet financing
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Transcript of Bill Van Vliet financing
Financing Preservation – The Oregon Experience
Moderator: John Epstein, Wells Fargo Bank
Presenters: Patrick Shea, HUD
Bob Gillespie, Oregon Housing & Community Services
Bill Van Vliet, NOAH
MA Leonard, Enterprise
David Fuks, Cedar Sinai
PATRICK SHEA
SUPERVISORY PROJECT MANAGER
US DEPT. HOUSING AND URBAN DEVELOPMENT
HUD Section 8 Contract Renewals
HUD Portland MFH Portfolio
The Portland MFH Program Center has jurisdiction for the States of Oregon and Idaho.
The Portland MFH Portfolio consists of approximately 580 projects of all HUD program types, which are monitored by 8 HUD Project Managers.
There are 276 contracts with 9,922 units of project based Section 8 in Oregon, which are administered by Oregon Housing & Community Services (OHCS).
In Idaho there are 119 contracts with 3,786 units of project based Section 8, which are administered by Idaho Housing Finance Association.
A subset of the Portland Section 8 Portfolio is the Housing Finance Agency (HFA) Section 8 contracts funded under Code of Federal Regulations (CFR) 883.
HUD Portland MFH Portfolio
In Oregon, there were 122 projects and 4, 085 units of Section 8
generated under the 883 program.
In Idaho, there 60 projects and approximately 2,000 units of generated
under the 883 program.
Both OHCS & IHFA have been significant partners with HUD in
generating the bond financed mortgages over 30 years ago, while HUD
has funded the Section 8 Housing Assistance Payments (HAP) contracts
for these projects for the same period.
These 883 projects, whose mortgages and Section 8 contracts began to
expire concurrently in 2006 and will continue to do so for until 2013 in
Oregon and 2020 in Idaho.
883 Contracts
This panel will focus on the Oregon Experience, but the lessons
learned could be applied to other 883 Portfolios in the Nation.
Contract expiration and mortgage maturity date are generally
within 90 days of one another
Two versions of 883 HAP contracts exist:
Old Regulation 883 – pre 1981
New Regulation 883 – post 1981
April 10, 2023
5
The HUD Role
For Acquisition & Rehabilitation Transactions HUD will: Participate in Scoping Meetings to Identify Potential Challenges
and Clarify Roles Coordinate with the OHCS, as the Performance Based Contract
Administrator (PBCA) on Section 8 Contract Renewal Process Hold Additional Meetings with Industry Partners in the
Transaction for update status and review timelines. Process the Determinative Criteria Review Submission The Determinative Criteria Review is the HUD Approval of the
Transaction for Noninsured Projects with Section 8 HAP Contracts.
HUD will approve new 20 year term Contract for Preservation Purposes.
OHCS Role
Similarly, For Acquisition & Rehabilitation Transactions OHCS will:
OHCS, as the mortgagee must approve the prepayment of the bond financed mortgage.
The Prepayment of the OHCS Mortgage can trigger the early termination of the 883 Old Regulation contracts.
Participate in Scoping Meetings to Identify Potential Challenges and Clarify Roles
OHCS, as the PBCA will process the Section 8 Contract Renewal under Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) Guidelines.
OHCS will underwrite the new permanent financing. OHCS will issue Section 42 LIHTC as part the permanent
financing.
Timelines
The Section 8 Contract Expiration Date drives the process, because of the need to have new permanent financing in place with Initial MAHRA Contract Renewal effective date.
Sellers and Buyers should be communicating at least Two Years before the Contract Expiration.
The early termination of the Old Regulation 883 contract must be factored into the process, if OHCS allows prepayment of the mortgagee.
There is the required 1 year notice to tenants of the contract expiration.
In the sale of a project to a Nonprofit the required notice period to tenants of contract expiration is 6 months.
The OHCS timelines associated with the competition for Section 42 LIHTC must be considered.
Oregon Experience Preservation TransactionPotential Resources
OHCS Bond Conduit Financing
Oregon Affordable Housing Tax Credits
Section 42 LIHTC
Oregon Housing Trust Fund
Oregon Weatherization Funds
HUD Section 108 Loans
HUD Section 8 HAP Contracts
Bond Financed Mortgages - Original Players
The Transactions were more simple 30 years ago.
Project Owners
OHCS – Bond Issuer & Mortgage
Bond Holders
OHCS – Traditional Contract Administrator
HUD – Funding the Subsidy Contract
Acquisition & Rehabilitation Players
Things are not so simple now to Preserve Section 8 Contracts. Seller Buyer Interim Finance, such Network for Oregon Affordable Housing OHCS – Bond Conduit Issuer Bond Holders Tax Credits Investors Gap Finance, such HUD CPD, OHCS, City of Portland OHCS - PBCA HUD – Funding the Subsidy Contract Nonprofit Industry Partners
Successful Preservation Transactions
Despite the challenges briefly described here, HUD, OHCS & Our Industry Partners have been successful in Preserving the Project Based Section 8 Contracts, while providing for physical rehabilitation of the projects and generating stable financing for future.
Of the original 4,085 units of the 883 Section 8o 1,083 units Preserved for the Long Termo 798 units – Owners have chosen to stay in the Section 8
Programo 1, 934 unit – Contract Expiration Not Yet Occurredo 270 units – Lost to Contract Opt Out
The Oregon Experience has provided value lessons in how to Preserve Project Based Section 8 Contract and position the projects for another generation.
BOB GILLESPIE
HOUSING DIVISION ADMINISTRATOR
OREGON HOUSING AND COMMUNITY SERVICES
State Policy and Financing Resources
OHCS Early Recognition of need for Preservation
Uninsured Section 8 portfolio
10% of nation’s total
4,085 units
OHCS is the HUD Contracts Administrator for Oregon
Allows department to work with existing owners to renew HAP contracts
798 uninsured Section 8’s renewed
Legislative Support
$11M in Lottery-backed bonds in the ’07 Session
$19M in Lottery-backed bonds in the ’09 Session
Oregon Affordable Housing Tax Credit (OAHTC) CAP raised to $17M Pass-through requirement for
preservation properties and manufactured parks eliminated
Projects preserved during the 07-09 biennium: 27 projects - 1,096 units
Total project costs: $132,128,098
Total Replacement costs (@ $200,000 p/u): $219,200,000
Total Subsidy retained (@ $72,000 p/u over 20 yrs): $78,912,000
18 HUD Section 8 projects were closed/transferred - for a total of 786 units (bond/4% financed projects)
3 more properties received funding – for a total of 120 units; however, in September of 2008, lost lender and investor. Anticipate closing/transferring properties fall of 2010. Funding allocations have remained with the projects. (bond/4% financed projects)
1 project (46 units) received an allocation of preservation dollars for rehabilitation activities, with a commitment to renew for a 20-year HAP contract.
An additional 5 projects, for a total of 144 units, received funding through the Consolidated Funding Cycle.
Note: Preservation projects that received funding through the Spring 09 CFC and some Fall 08 projects will be counted in the 09-11 preserved unit count, as most required TCAP/1602 (ARRA) resources.
Preservation for the 09-11 biennium
Goal is to preserve 1,598 units
Received $19 M in Lottery Backed Bonds for preservation projects
Approx. $11.3 M has been reserved for bond/4% projects
Approx. $4.7 M is available through the 2010 CFC; and, Approx. $3 M for Manufactured Dwelling Parks (RFP is
currently out and can be found on OHCS’ website)
In addition, approx. $20.7 M of TCAP/1602 (ARRA) resources were committed to 8 preservation projects
Preserved To Date: as of May 15, 2010
3 bond/4%/TCAP - RD projects – 138 units
8 CFC projects – 4 RD / 4 Sec 8 (2 RD w/Section 8 units) – 297 units
14 Existing Owners renewed – 348 units 4 one-year renewals 7 five-year renewals 2 twenty-year renewals
Six projects currently working with NOAH for interim short-term financing through the Oregon Housing Acquisition Fund (OHAF)
Anticipated to be preserved by December 2010:
12 bond/4% projects – 9 RD / 3 Section 8 – 440 units
7 (2008 & 2009) CFC projects – 2 RD / 5 Section 8 – 363
By year end, estimated units preserved: 1,238 (excludes existing owner renewals of 348 units) Total project costs: $145,714,951
Total Replacement costs (@ $200,000 p/u): $231,800,000
Total Subsidy retained (@ $72,000 p/u over 20 yrs): $83,448,000
Funding Availability
2011 Consolidated Funding Cycle: Trust Fund/GHAP Funds HOME 9% Low Income Housing Tax Credits Oregon Affordable Housing Tax Credits Weatherization (PGE area only) Housing Preservation (unknown at this time, dependent on 2011
Legislative allocation)
Conduit / Risk Sharing Bond Program / Elderly/Disabled Bond Program
4% Low Income Housing Tax Credits (w/tax exempt bonds)
Oregon Affordable Housing Tax Credits (out-of-cycle, preservation only)
Housing Preservation Funds (unknown at this time, dependent on 2011 Legislative allocation)
BILL VAN VLIET
EXECUTIVE DIRECTOR
NOAH
Interim and Permanent Lending
NOAH Background:
Statewide not for profit lender formed in 1990 to provide interim and permanent financing for affordable multi-family housing projects
Formed by Oregon banks to share risk and develop lending expertise in affordable housing
Received CDFI designation from US Treasury in 2003
$160 Million in loan capital
NOAH Loan Programs
Program Loan Capital Permanent Loan Fund
$119,432,000 Preservation (OHAF) $ 32,700,000 Predevelopment Fund $
4,696,141 TE Bond Fund $ 3,291,546Total Loan Capital: $160,119,687
Preservation Involvement
Permanent Loans
OHAF (interim acquisition) Loans
Administer Oregon Housing Acquisition Project
Policy formation
Preservation Initiative
Oregon Housing Acquisition Project (OHAP) Statewide initiative to maximize preservation of
expiring federally subsidized apartments
Strong collaboration with State of Oregon and City of Portland
Guided by Steering Committee of industry partners
Meyer Memorial Trust launched the program with significant early grant and PRI support
One of 12 programs nationally selected for significant funding by the MacArthur Foundation
Preservation Initiative
Oregon Housing Acquisition Project—Goals:
Collaborate to preserve 80% of federally rent-assisted units
Establish Comprehensive Data Base and Web Site• www.preserveoregonhousing.org
Establish Oregon Housing Acquisition Fund (OHAF)• $32 million fund
Facilitate Intergovernmental Coordination• Two working groups established and meeting
Include Energy Efficiency Features in Projects• Grant money available for non-profits• First projects under construction
Preservation Initiative
Oregon Housing Acquisition Fund $32 Million fund
Interim acquisition financing
Higher loan amounts to expedite closings
Acquisition loans without identified takeout sources
Interest-only to maximize cash flow to support debt
Preservation Initiative
OHAF Funding:
Foundation PRIs: $ 8,500,000
State of OR (OHCSD): $ 2,000,000
Sr. Bank Debt: $22,200,000
Total: $32,700,000
Foundations: MacArthur, Meyer Memorial Trust, Collins
Banks: Wells Fargo, Bank of America, Key Bank, Chase
OHAF Loans Funded
Location Units Loan Amount Bend* 54 $ 2,075,000 Hermiston* 22 499,000 Hermiston* 24 579,500 Medford 56 2,318,000 Milwaukie* 32 1,919,000 Portland* 31 1,558,000 Portland 30 2,498,000 Portland* 38 1,984,000
287 $ 13,430,500
Avg. Loan/Unit: 46,796
* Paid off
OHAF Loan Terms
Rate: 6.75%-7.50%, interest only fixed at funding
Fee: 1%
Term: Lesser of contract term or 36 months, with one year extensions aligned with one year contract renewals
DCR: 1.10 primary at lowest point during term
LTV: 75%-95% of unrestricted as-is market
Rents: Varies. Possibly up to contract. Assume no rent increases during OHAF period (but inflate expenses)
Require borrower-prepared “reasonable” exit strategies
OHAF Loans
Experience to date: Loan amts limited many ways-- cash flow, LTV, or
maximum allowable debt service (some flexibility during OHAF)
LTV (mkt) range: 43%-95%
DCR range: 1.13-2.13
Challenges: Estimating rents at contract renewal
Plausible exit strategies in current environment
Project valuations at different stages
Walnut Park--before
Walnut Park—exterior renovation
Walnut Park-renovated kitchen
Permanent Loans--Preservation
Rate: 7.50% (current floor)
Fee: 1.0-2.0%
Amortization: 25 years
Term: 20 years or contract exp.
DCR: 1.20 primary/1.10 overall
LTV: 75% of restricted (w/HAP contract)
HAP Contract: 20 year required
Rents: Underwrite to contract, perform downside analysis—breakeven at lesser of Mkt/LIHTC rents
Permanent Loans
Experience to Date: LTV: 38%-80% (restricted) DCR: 1.18-1.64
Challenges: Establishing UW rents prior to construction Timing of contract renewals for “new reg”
contracts Analyzing downside risk of future RCS
adjustments Certain operating expenses not recognized
by HUD
Preservation Challenges
Weak capital markets threaten preservation activity limited OHAF take-out strategies Less capital—both tax credits and perm debt Planned financial structures not viable (bonds/4% credits) More rigorous borrower financial capacity requirements Geographic limitations on capital Project scale limitations
Buyers need even more capital Acquisition prices Closing costs Reserves Predevelopment expenses
Preservation Challenges
Sellers waiting for markets to recover
Buyers risk averse
Reliance on future public sector resources
More interim financing needed
Preservation Challenges
Economy has slowed progress
Preservation effort will take more time, money
Creative interim solutions will be required
MA LEONARD
VP & IMPACT MARKET LEADER
ENTERPRISE COMMUNITY PARTNERS
Tax Credit Equity and Preservation
Radical Changes in Market
Availability/Supply of Equity
Pricing
Underwriting
Supply of Equity
Exit of Equity from Market Geographic Focus of Remaining Equity Challenges to Raising Equity The Discriminating Investor
Size Matters No tolerance for Risk In today’s market, investors call the shots
Pricing
Returns have risen rapidly since 2007
Prices have taken a corresponding drop
Syndicators do not buy “on spec”
Losses are no longer as attractive
Underwriting Considerations
Level of Rehabilitation
Needs to be rehabilitated such that is will not need additional rehabilitation for 15 years
Light, moderate and substantial rehabilitation
Sponsor-Investor Fit – talk to your investor early
Serious Capital Needs Assessment
Determine Scope prior to Setting Purchase price
Underwriting Considerations
Revenue and Subsidy Risk
Rent levels Duration of Contract Termination Risk Transition Reserves
Underwriting Considerations
Credit Delivery
Critical to have same understanding as your investor
Know start date Understand delivery dates Ideal project from a delivery perspective
Additional Thoughts
Preservation is good policy Deal type FHA Loans Structuring
Seller Stays in deal Early delivery / Late pay helps pricing
Green retrofit Other assistance
DAVID FUKS
EXECUTIVE DIRECTOR
CEDAR SINAI PARK
Rose Schnitzer Tower Preservation
Rose Schnitzer Tower Preservation
Cedar Sinai Park’s Mission
Cedar Sinai Park provides residential and community-based care to our elders and adults with special needs, allowing them to live with comfort, independence and dignity in a manner and in an environment based on Jewish values.
CSP’s Continuum of Services
Residential Care
Nursing Care
Adult Day Services
Assisted Living
IndependentHousing
Home Care
HomeHealth & Hospice
Vendor Partnerships
SpecialNeeds
Housing
CongregateHousing
Motivations for the Preservation
Seller – As business model moved in another direction, the seller was motivated by maintaining continuity in service to the community and in promoting the growth of a community not-for-profit organization.
Buyer – CSP was motivated by the opportunity to increase service to the community, make affordable housing more appealing to its historical constituency and participate in the creation of a housing with services model that would help low income elders and people with disabilities to remain independent for as long as possible.
Statutory Agencies – Prevention of the conversion of the Rose Schnitzer Tower to private apartments or hotel space assured continuity of services and quality of life for 250 low income residents.
Elements of Transaction
Sources: Low income Housing Tax Credits (4% LIHTC) – resulted in
capital infusion through a limited partner (Wells Fargo Community Development) - $12,160,000
3 bond issues: Construction Financing - $4.1 mil. (Wells Fargo) Long Term Financing - $20 mil. (Chase)
Tax exempt bond Housing Development Revenue Bonds subsidized by Oregon Affordable Housing Tax Credits ($14 mil. at 1.75%)
Unsubsidized housing development revenue bonds ($6 mil. at 5.75%)
Loan from Cedar Sinai Park Foundation to the Limited Partnership secured by a second trust deed – ($ 7 mil. at 2.5%)
PDC Loan - $374,500 Oregon Housing Trust Fund - $374,500 Deferred Developers Fee - $2.160 mil.
Elements of Transaction
Uses: Land and building - $30 mil. Developer Fee - $2.150 mil. Rehabilitation - $4.8 mil. Construction Interest - $1.1 mil. Bond Issuance Cost - $400,000 Required reserves - $2 mil. Pre-paid Annual State Inspection Fee -
$749,000
Sample Description• Approximately 130 residents were assessed, with a response rate of over
50% in each of the language groups. • The summary report does not include the Farsi and Korean speakers. • The mean age of the entire sample was 74 years.• Russian residents were significantly older than other groups (mean age of
82.3).• The Chinese residents are composed of Mandarin and Cantonese speakers,
who tend to differ in immigration and socio-economic characteristics.
Rose Schnitzer Tower Assessment
Summary of Illness Status• RST residents reported a mean total of 4.4 illnesses per person (range of 0
– 10 illnesses).• Russian and English residents reported significantly more illnesses per
person than the Chinese.• 23% of the English, 30% of the Russian speakers and only 2 Chinese
residents reported insufficient resources to pay for medical expenses. • Russian speakers also report a larger number of illnesses that interfere
with their activities than do the other groups.• The top ten illnesses reported by resident groups suggest targets for
intervention.
Rose Schnitzer Tower Assessment
Medication Use of RST Residents• The mean number of prescribed medications was 6.28 per resident with a range
of 0 – 22 (not including over the counter medications, vitamins or non-Western medications).
• 35% of residents do not have a workable strategy for remembering to take their medications on time and in the correct dosage.
• Residents frequently reported voluntarily altering their prescription regimens.• Implications: voluntary and involuntary non-adherence leading to hospitalization
and institutionalization, increased morbidity and mortality, falls increase with more than 4 medications due to interactions.
Resident Scores on the Geriatric Depression Scale by %Normal 74%
Mild depression 18%
Moderate –Severe Depression* 8%
*90% of this level accounted for by English and Russian groups
Rose Schnitzer Tower Assessment
Kudos
Jim Winkler Harold, Arlene and Jordan Schnitzer CSP Board of Directors Wells Fargo Community Development Wells Fargo Trust Dept. – Katie Patricelli & John Epstein Victor Merced and staff, Oregon Housing and Community
Services Dept. KomeKalivar, PDC Commissioner Nick Fish, City of Portland Will White, Portland Housing Bureau Sen. Ron Wyden JP Morgan Chase Steve Nepolitano, MMA Doug Blomgren, Batemen Seidel Michele Silver, CPA Susan Asam, Consultant