national housing & rehabilitation association spring ... · nh&ra spring developers forum....

National Housing & Rehabilitation Association

Spring Developers ForumMay 6-7, 2019 Marina del Rey, CA

Kent Neumann, Esq.Tiber Hudson

(202) [email protected]

Cody WilsonStifel, Nicolaus & Company, Incorporated


Kenji TamaokiPrudential


Sydne GarchikMRK Partners(310) 561-9907

[email protected]

Irena EdwardsKeyBank


Sindy SpivakBank of America Merrill Lynch


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mailto:[email protected]






NH&RA Spring Developers Forum

Long Term Yield Curves (as of 04/19/19)

Source: Bloomberg. Thomson Reuters Reflects market conditions as of February 18, 2019Thomson Reuters Municipal Market Data (MMD) AAA curve is a proprietary yield curve that provides the offer-side of AAA rated state general obligation bonds

10-year UST versus 30-year MMD

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

10-YR UST 10-YR UST Average 30-YR MMD 30-YR MMD Average

Historical Average = 3.53%4/19/2019 = 2.56%

Historical Average = 4.09%4/19/2019 = 2.70%

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Short Term Yield Curve (as of 04/19/19)


1.00

1.50

2.00

2.50

3.00

3.50

2-Year UST 2-Year MMD (plus credit spread)

2-Year MMD + credit spread 1.95

Less: 2-year UST (2.39)

Net 2-year Bond Rate (0.44)

Pricing Indications

3


Historically Flat Yield Curve (as of 04/19/19)


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049

MMD UST

1-year MMD = 1.54%

1-year UST = 2.46%

30-year UST = 2.99%

30-year MMD = 2.70%

1-year vs 30-year SpreadUST: 0.53MMD: 1.16

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Case Study: Vista Woods Apartments in Pinole, California

Project Overview• 100 age-restricted (62+) units

• Mix of Studio, 1-Bedroom, and 2-Bedroom units

• 4% Tax Credits with tax exempt bonds, 100% affordable

• Construction budget of $25mm, modular product type

Location Overview • Located on the San Pablo Avenue Transit Corridor

• Recently up zoned to allow for 50 units per acre, “by-right”

• City indicated strong demand for senior housing due to regional pressures, empty nesters, lack of new construction in recent years

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Case Study: Vista Woods Apartments in Pinole, California

Project Features• Indoor and outdoor amenity spaces to be included

• Resident services anticipated to include membership to Pinole Senior Center, onsite health screenings, computer lab, and activities (bingo, gardening, exercise classes, etc.)

• Green building features: photovoltaic system, low-flow plumbing fixtures, energy efficient lighting and appliances, drought tolerant landscaping

Tentative Schedule• Spring 2019 – Entitlements

• Spring/Summer 2020 – Construction

• Fall 2020/Winter 2021 – Grand Opening

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7NH&RA Spring Developers Forum

Construction Loan Aspects of 4% Affordable deals

• Due Diligence Considerations

• Loan Underwriting Considerations

• Serving is multiple roles – Construction, Equity, Bridge Lender, Other

• Taxable vs. Tax Exempt Rate differences

• CRA impact?

• Other variables?

8NH&RA Spring Developers Forum

Loan Terms 1.15 / 90% 35-40 yr amort

1.15 / 90%35 yr amort

1.11-1.15 / 90% 40 yr amort

Net proceeds Loan amount $20,652,000 $18,327,000 $20,139,000 Less interest during construction (2,152,440) (1,481,250) (1,481,250) Plus investment earnings 1,703,438 1,703,438 1,703,438

Plus additional LIHTC equity 314,763 216,611 216,611

Net proceeds $20,517,760 $18,765,799 $20,577,799

Advantages High net proceeds, Processing time

Simplicity,Processing time

Highest net proceeds, New PILOT program

Disadvantages Public offering, Lowest net proceeds on forwards

Davis Bacon, Processing time

FHAFreddie MacFannie Mae

Fannie Mae, Freddie Mac, FHA Comparison


• Short Term Cash-Backed Bonds with Taxable Perm Loan

• Freddie Mac Tax Exempt Loan / New Cash Backed Forward

• Fannie Mae – M-TEM / M-TEB

• FHA Risk Share - 542(c)

• Tax-Exempt Seller “Take Back” Bonds

• Using FHA for 10-year Hold exemption

Tax Exempt Multifamily Housing Financings in the Current Market

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• Taxable construction and/or perm loans still available in the current market at historically low rates including:

• FHA/GNMA (221(d)(4) / 223(f))• Rural Development (538 / 515)• GSE loans (mod/light with in-place rehab)• Other (taxable) State and/or Local loan programs

Short Term Cash-Backed Bonds with Taxable Perm Loan

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• Favorable Underwriting Terms (vary by product) include:

• 35-40 year amortization• Fully amortizing debt / no resizing at conversion (FHA/RD)• Non-recourse & integrated construction and perm• David Bacon wages triggered if federal funds used for sub

rehab / new construction deals• Most are structured as draw-down loans to avoid neg arb• FHA debt qualifies for 10-year hold exemption (for

acquisition credits)• Rates range from low 4% to mid 5%

Short Term Cash-Backed Bonds with Taxable Perm Loan

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• Project still need tax exempt bonds to qualify for 4% Low Income Housing Tax Credits

• At least 50% of aggregate basis (including building and land) must be financed with tax exempt bond proceeds

• Provides a significant (~30% or higher) additional source of funds for affordable housing transactions

• Can be used with other “longer term” bond structures to meet 50% test

4% Low Income Housing Tax Credits: The 50% Test

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Short Term Cash Backed Bonds

Borrower

LP Investor

PermLender

Debt service payments

Lenderfunds

Bond proceeds

Bond proceeds

Trustee

Bond Holders

Cashcollateral

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Bond Amount to meet 50% test < Taxable Loan Amount (see prior slide): No additional collateral needed!

Bond Amount to meet 50% test > Taxable Loan Amount:Need other collateral sources of funds including:

• Subordinate Loan Proceeds• Seller Note• Tax Credit Equity

Short Term Cash Backed Bonds

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Methods to reduce transaction costs and generate more proceeds:

• Pooled financings – multiple projects w/ one aggregate bond issuance

• No long term bond related fees

• Potential for additional tax credit equity due to increased basis

• No net interest cost on bonds and in some cases, additional investment earnings can be used for other project costs

Other Cost Saving Features/Options

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Bond RateAvg Investment Yield

2.39%

1.95%

44 BPS Positive Arbitrage

Bondholders are receiving (tax exempt) interest while bonds are outstanding

Cash collateral can be invested in treasury while held with the Trustee

Trustee

Bond HoldersTreasury Investment

(Needs to go back to IRS)

Negative/Positive Arbitrage

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Case Study: Ainger Place — Washington, DC

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Case Study: Ainger Place — Washington, DC

- 100% affordable housing project in Ward 8

- 34 one-BR, 30 two-BR and 8 three-BR units (72 total)

- Targeting at or below 50% AMI. Also incorporates 8 permanent supportive housing units for women at risk of homelessness

- $29.3M development

- $13.75M bond allocation from DCHFA, $10.1M in 4% LIHTC equity, $5.95M HUD 221d4 loan, $10.69M DHCD Housing Production Trust Fund loan and $400K seller note

- Interest on both FHA loan and Bonds includable in basis through PIS

- ~$550K in earnings on short term investment (bond proceeds)18


Freddie Mac Forward Tax Exempt Loan – Traditional Structure

• Construction Bank (the “Initial” Funding Lender), funds the loan on a drawn downbasis and takes the real estate risk Pre-Conversion.

• At Conversion, the tax exempt loan is sold to the Freddie Mac Seller/Servicer, whothen sells it to Freddie Mac several weeks thereafter.

• New structure developed by Tiber Hudson is now available to further increasesources and reduce certain costs (see next slide)

Tax Exempt Gov’t Lender Note

FundingLender

Governmental Lender

Borrower/Project Owner

$ Funding Loan to Gov’t Lender $ Loan to Borrower

Borrower Note & Mortgage

Est. Construction/Perm Interest Rate Stack

Bond Rate – Construction (VR): LIBOR + 2.50 4.75%

Bond Rate – Permanent (FR): 10-year Treasury + 3.00 5.00%

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Initial Cash-Backed Bond Holder

Borrower

Construction Lender

Permanent Lender

Equity Investor

Upon Conversion

Tax Exempt Bonds

LenderFunds

Bond Proceeds

Bond Proceeds

Trustee

CashCollateral

Cash Backed Forward

BondDebt Service Payments

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Gross Bond Interest through PIS:

Est. Equity %:

$600,000

35.0%

Est. Bond Rate:

Est. Investment Rate:

Est. Positive Earnings:

2.00%

2.50%

0.50%

Cash Backed Forward

Advantages:

Positive Earnings During Cash Backed Mode*:

Est. $20 Million Bond Deal

$200,000 (24 mo.) Additional Equity: $210,000 (18 mo.)

Allows Equity Investor to also serve as Construction Lender without certain tax implications

If Bonds > Perm Loan, allows other funds to be used as collateral (reduced construction loan)

In Texas, significantly reduces interest costs on construction loan due to draw down structure

Disadvantages:

Additional Costs of Issuance for Cash Backed Bonds:

* Subject to Bond Counsel approval Construction Loan is Taxable (if not already due to

relationship of parties)

$130,000 (est)

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Freddie Mac TEL / Short-term BondsEisenhower 66 Apartments

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Project Location Project Description

Property Name ● Eisenhower 66 Apartments

Property Address ● 5628 Eisenhower Avenue● El Paso, TX 79924

Number of Units ● 66

Bond Issuer ● Alamito Public Facilities Corporation

Par Amount ● $8,000,000

Rating ● “MIG 1”

Key Dates ● March 29, 2019 – Dated Date● June 1, 2020 – Optional Redemption ● April 1, 2021 – Initial Mandatory Tender● April 1, 2036 – Maturity

Offer Price ● 100%

Interest Accrual Method ● 30/360

Bond Rate ● 1.95%

Reinvestment Rate ● 2.27%

Additional Proceeds ● $145,000

Source: Bloomberg. Stifel, Nicolaus & Company, Incorporated

Case Study: Mission Trail — San Marcos, TX

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- 352-unit project, 80% LIHTC (@ 60% AMI); 90% of the units are restricted at 140% of AMI due to bond restrictions

- 80 one-BR, 128 two-BR, 112 three-BR, and 32 four-BR

- Located in rapidly growing market, with expanding manufacturing / logistic employment base and one of the largest colleges in Texas. There had not been a new LIHTC project in nearly 7 years

- Unrestricted & 140% AMI units will expanded pool of in an area where a most other residences are geared heavily toward college students.

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- Creative bond structure (first in the country) allowed for the project to be financing entirely with tax credits, TEB/hard debt, and deferred developer fee – which was reduced by over $1 million with new structure

- $44.2M construction loan; bonds issued by CAHFC; $15.5M in LIHTC equity; $36.6M perm take out by Freddie Mac. No soft debt.

- Closed in 145 days from bond approval

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• 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 (see future slide)

• Interest on Construction Loan and Gross Bond Interest includable in Eligible Basis

• Bonds rated “Aaa” or “AA+”

• Fannie to credit 75 bps for Bond related costs (paid upon conversion)

• Negative Arbitrage prior to conversion (~0.75% - 1.00% per year with investments)

• 4.40-4.60% Mortgage Rate: Often results in additional loan proceeds 3-4X upfront costs due to low all in mortgage rate

Fannie Mae MTEB/MTEM — Forward MBS Delivery

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• Flexible interest only period; 35 year amort (40 for some deals)

• Hybrid structure (immediate/forward) available for some mod/sub rehab deals

• Can be structured with Taxable Supplemental or Tax Exempt Earn-out debt

• Total Bonds issued in the amount equal to the greater of:• Permanent Loan – (no other series of tax exempt bonds needed)• 55% of aggregate basis – (second cash backed or other series of tax

exempt bonds needed).• Seller note, equity or other soft funds can be used to securitize cash backed bonds• Yields can often be blended to reduce or eliminate total negative arbitrage for the deal• Fully integrated bond and underwriting documents developed by Tiber Hudson can be

utilized

Fannie Mae MTEB/MTEM — Forward MBS Delivery

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MBS Pass Through Payment

Bond Holder

Borrower

Permanent Lender

Trustee

Construction Lender Equity Investor

Upon Conversion

Tax Exempt Bonds

Bond Payments

LenderFunds

Bond Proceeds

Bond Proceeds

CashCollateral

Fannie Mae Forward MTEB/MTEM

MortgagePayments

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Negative/Positive Arbitrage for Fannie Mae Forward MTEB/MTEM

Bond Rate Avg. Investment Yield

2.40%

3.40%

MTEB/MTEM:100 BPS Negative Arbitrage

Bondholders are receiving (tax-exempt) interest while bonds are outstanding

Cash collateral can be invested in treasury while held with the Trustee

Trustee

BondholdersTreasury Investment

Blended Bond Yield reduces net Negative Arbitrage – not all Bond firms will allow so check early in the deal

2.40%

1.95%

Short-Term:45 BPS Positive Arbitrage

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Case Study: Jordan Downs — Los Angeles, CA

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Case Study: Jordan Downs — Los Angeles, CA

- 135 units (Watts section of L.A.): 38 RAD PVBs, 95 PVBs

- 15 one-BR, 64 two-BR, 44 three-BR, 7 four-BR and 5 five-BR units

- 30, 40 and 50% AMI units (1 80%)

- $25.4M LIHTC equity; $11M taxable construction loan; $32.65M in total bonds ($16.45M MTEB + $16.2M Short Term); $16.45M Fannie Mae MTEBS at conversion; $5.4M HACLA RHF; $9.9M Cap & Trade; $2M AHSC Grant; $1.3M TCC Grant; $4.2M HACLA financing

- Mortgage Rate below 4.5%; Blended bond yield to reduce neg arb.

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Fannie Mae M.TEBThe Vireo

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Project Location Project Description

Property Name ● The Vireo

Property Address ● 12212 Tidwell Road● Houston, TX 77044

Number of Units ● 264

Bond Issuer ● Harris County Housing Finance Corporation

Par Amount ● $23,079,000

Rating ● “AA+”

Method of Delivery ● Forward

Key Dates ● December 1, 2018 – Dated Date● June 1, 2021 – Conversion● December 1, 2026 – Interest Only Ends● December 1, 2039 – Maturity

Term/Amortization ● 21 years / 35 years

Offer Price ● 100%

Interest Accrual Method ● Actual/360

Bond Rate ● 3.80%

Spread ● +90

Source: Bloomberg. Stifel, Nicolaus & Company, Incorporated


Balance Sheet / Private Placement Execution

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• Due Diligence Considerations

• Loan Underwriting Considerations

• Serving is multiple roles – Construction, Perm, Equity, Bridge Lender, Other

• Long Term Hold vs Future Securitization (any differences)?

• CRA impact?

• Other variables?


• FHA insurance program under Section 542(c) of the Housing and Community Development Act of 1992allows state and local HFAs to share the risk and mortgage insurance premium on multifamily housingtransactions.

• Unlike FHA MAP loans (i.e. 221(d) & 223(f)) these loans are currently not eligible to be “wrapped” withGNMA Securities. However, possible balloon after 15 years could reduce perm loan rates by 50+basis points.

• Construction and Permanent Financing & Reduced Costs of Issuance: No separate constructionlender is required. The HFA acts as Issuer and Lender.

• Fast Execution Time: 90 – 120 days. Unlike MAP loans, the HFA provides full underwriting.

• Underwriting Terms: Up to 90% LtV; 1.15 DSCR; 35/40 year amortization / term (balloon feature expected to be available soon); DSRF typically required.

• Non-Recourse, Davis Bacon (depending on structure), Some Negative Arbitrage

FHA Risk Share Loan Program

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

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

Total:

3.75%0.25%*0.75%4.75%

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• Many 4% preservation deals include seller financing inthe form of a subordinate “take-back” note (common inRAD transactions)

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

• Several ways to address this issue with various bondstructures (often with a positive result)

Tax Exempt Seller “Take Back” Note & Bonds

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FHA Refinancing to Re-syndication (R2R)

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GOALS: (1)Lock in today’s rates for future tax

credit deals and/or(2)Qualify for exemption for 10-year

hold rule (for acquisition credits)


FHA Refinancing to Re-syndication (R2R)

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• NEW LOAN: FHA 223(f) loan to refinance existingdebt or purchase project. Keep rehab to a minimum.Structure with flexible prepayment structure.

When ready for Bonds/4% Credits• Step 1: TPA (transfer of physical asset) process• Step 2: Supplemental FHA 241(a) loan• Step 3: Use short term tax exempt bonds to qualify

for 4% tax credits


Contact Information

Kent Neumann, Esq.Tiber Hudson


Cody WilsonStifel, Nicolaus & Company


Kenji TamaokiPrudential


Sydne GarchikMRK Partners(310) 561-9907

[email protected]

Irena EdwardsKeyBank


Sindy SpivakBank of America Merrill Lynch


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