national association of local housing finance agencies 2012 annual educational conference april 26,...
TRANSCRIPT
National Association of Local Housing Finance Agencies2012 Annual Educational Conference
April 26, 2012
“New Developments in Multifamily Housing Finance”
John B. Rucker, IIIExecutive Vice PresidentMerchant Capital, LLC
Richard A. (“Ad”) EichnerPartner
Eichner & Norris [email protected]
Overview
■ Standard & Poor’s (“S&P”) defines unenhanced affordable housing projects (“AHP”) as public-purpose real estate supported by below-market rents.
■ While many affordable housing transactions are structured with credit enhancement, AHP projects are sized and rated based on the strength of the underlying real estate.
■ The analysis of AHP projects focuses on the following criteria:
– Real estate quality
– Legal structure
– Property performance
– Strength of Sponsor
– Construction risk (if any) and lease-up risk
■ It usually takes 90-120 days to close (this may be expedited with an experienced team)
Slide | 2
Third party reports and supporting documentation
■ Standard & Poor’s will generally review independent third-party reports as part of the rating process. These reports include:
– Profile reports1
– Appraisal
– Market study
– Phase I Environmental
– Physical needs assessment (PNA)
– Financial audits (most recent three years)
– Original HAP contract and HAP assignment
– Current and historical rent rolls
Notes:1 Profile report templates are provided by Standard & Poor’s and include Sponsor, Property Manager, Asset Manager, and Property
Slide | 3
Financing Assumptions
■ While each AHP is different, Standard & Poor’s will generally look for the following assumptions in the financing:
– DSC of 1.20x1
– Underwriting is based on “stabilized” NOI
– Occupancy assumptions based on historical trends
– Reserve fund funded with proceeds and sized at 50% maximum annual debt service
– Repair and replacement reserves
– $325 to $350 per unit for properties that are 15 to 20 years old
– S&P will also refer to the PNA report
– 35-year amortization
Notes:1 DSC of 1.40x for AHP without Section 8 HAP Contract
Slide | 4
With interest rates below historical averages, the S&P execution is very attractive1,2
Notes:1 Reflects market conditions as of April 20, 20122 Long bonds (30+ years) usually price at a credit spread of 230-250 basis points over MMD
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Apr-91 Apr-94 Apr-97 Apr-00 Apr-03 Apr-06 Apr-09 Apr-12
30-year MMD Historical Average
% timebelow
Current current High Low Ave30-year MMD 3.73 1.01% 7.01 3.53 5.08
Slide | 5
Fixed Rate Underwriting Comparison1,2
Notes:1 Reflects market conditions as of April 20, 20122 DSC for Standard & Poor’s AHP transaction without Section 8 HAP contract is 1.40x
Slide | 6
Criteria
Mode Fixed Fixed
Term 18 years 35 years
Fee Stack
Rate 4.000% 5.500%
Guaranty Fee 1.180% -
Servicing Fee 0.150% -
Trustee Fee 0.050% 0.050%
Issuer Fee 0.125% 0.125%
Underwriting Rate 5.505% 5.675%
Constraints
Amortization 35 years 35 years
DSC 1.15x 1.20x
LTV 90% 100%
Standard &Poor's
Freddie Mac /Fannie Mae
Case Study – GMF Stonybrook Apartments
■ Bond proceeds were used to finance the acquisition and rehabilitation of an 216-unit apartment complex known as Stonybrook Apartments, located in Riviera Beach in Palm Beach County, Florida.
■ Characteristics of the financing include:
– First mortgage lien on the property
– Projected DSC of 1.25x
– Property secured by a Section 8 HAP contract
– Reserve fund sized at 6-months maximum annual debt service
– 35-year amortization
$14,725,000
Florida Capital Trust Agency
(Multifamily Revenue Bonds)
April 11, 2012
Term ($000) Coupon Yield
20151 500 4.25% 4.62%
2025 2,340 4.50% 4.81%
2032 2,415 5.00% 5.24%
2047 9,470 5.50% 5.69%
The Sponsor’s all-in cost of capital for 35-years was 5.44%
Notes:1 Due to 2% cost of issuance test, taxable tail was issued
Slide | 7
Recent Transactions
$43,405,000
Texas State Affordable Housing Corporation
(Multifamily Revenue Bonds)
May 18, 2011
$13,615,000
City of Indianapolis(Multifamily Revenue Bonds)
April 21, 2011
$49,000,000
Louisiana Housing Finance Agency
(Multifamily Revenue Bonds)
August 26, 2009
$7,300,000
Health Education & Housing Facility Memphis(Multifamily Revenue Bonds)
June 18, 2010
$6,250,000
South Carolina State Housing & Finance Agency
(Multifamily Revenue Bonds)
May 18, 2011
$14,725,000
Florida Capital Trust Agency
(Multifamily Revenue Bonds)
April 11, 2012
Slide | 8