Pendergraph Development, LLCPendergraph Development, LLC

HUD MAP Tune-Up II WorkshopHUD MAP Tune-Up II Workshop

September 19-20, 2007September 19-20, 2007

Frankie W. PendergraphFrankie W. Pendergraph 28+ Years in the Housing Industry28+ Years in the Housing Industry Owner of The Pendergraph Owner of The Pendergraph

CompaniesCompanies Development, Construction, Development, Construction,

Management and Consulting Management and Consulting Headquartered in RaleighHeadquartered in Raleigh

Benefits of HUD 221(d)(4)Benefits of HUD 221(d)(4)

Construction-to-Permanent FinancingConstruction-to-Permanent Financing Great Interest RateGreat Interest Rate Up to 40 year amortizationUp to 40 year amortization 1.11 debt service coverage ratio1.11 debt service coverage ratio Non-recourse debtNon-recourse debt Credit enhancement for bond Credit enhancement for bond

transactionstransactions

Potential Pitfalls of HUD Potential Pitfalls of HUD 221(d)(4)221(d)(4)

Entails a higher level of knowledge and Entails a higher level of knowledge and experienceexperience

Can be more time consuming – may need Can be more time consuming – may need to have HUD commitment in hand prior to to have HUD commitment in hand prior to submission of tax credit applicationsubmission of tax credit application

Number lumping – good versus bad costs Number lumping – good versus bad costs differ for each programdiffer for each program

Interest Expense – automatic conversionInterest Expense – automatic conversion 2530 (non) issue2530 (non) issue Government Regulations – may be less Government Regulations – may be less

flexible if unexpected issues ariseflexible if unexpected issues arise

Tax Credits and 221(d)(4) Tax Credits and 221(d)(4)

Brief explanation of tax creditsBrief explanation of tax credits 221(d)(4) is consistent with Housing Credit 221(d)(4) is consistent with Housing Credit

Agency and Investor desires: (i) long term Agency and Investor desires: (i) long term loan, (ii) favorable interest rate, and (iii) non-loan, (ii) favorable interest rate, and (iii) non-recourse.recourse.

Subordinate debt is allowed with HUD consent Subordinate debt is allowed with HUD consent – usually must be soft debt. This is likely not – usually must be soft debt. This is likely not an issue in the tax credit arena where an issue in the tax credit arena where subordinate debt is often very soft anyway.subordinate debt is often very soft anyway.

Tax Exempt Bonds and Tax Exempt Bonds and 221(d)(4)221(d)(4)

Brief explanation of Tax Exempt BondsBrief explanation of Tax Exempt Bonds Very complex, many players, lots of moving Very complex, many players, lots of moving

partsparts Costly – usually need $10 Million in bond Costly – usually need $10 Million in bond

debt to justify bond issuance costs – around debt to justify bond issuance costs – around 5-7% of bonds issued5-7% of bonds issued

Credit Enhancement – Types: HUD, Fannie Credit Enhancement – Types: HUD, Fannie Mae, RD 538 and Letter of CreditMae, RD 538 and Letter of Credit

Public Offering versus Private PlacementPublic Offering versus Private Placement

USDA Rural Development and USDA Rural Development and 221(d)(4)221(d)(4)

Brief explanation of RD programsBrief explanation of RD programs Not often utilized with HUD Financing Not often utilized with HUD Financing

– because RD itself is a funding – because RD itself is a funding source. Sometimes HUD RA is used source. Sometimes HUD RA is used with RD Financingwith RD Financing

Why use HUD and RD together? If Why use HUD and RD together? If the transaction also utilizes bonds, the transaction also utilizes bonds, credit enhancement is needed.credit enhancement is needed.

HUD & RD: Potential IssuesHUD & RD: Potential Issues

Multiple Government Agencies, many Multiple Government Agencies, many regulationsregulations

Subordination Rules and RequirementsSubordination Rules and Requirements Reserve Accounts – supervisionReserve Accounts – supervision Amount of Rehabilitation – variesAmount of Rehabilitation – varies Surplus Cash vs RD Return to Owner vs Cash Surplus Cash vs RD Return to Owner vs Cash

FlowFlow Good versus Bad Costs (pots of money for Good versus Bad Costs (pots of money for

HUD, RD, Bonds, Tax Credits – a HUD, RD, Bonds, Tax Credits – a multidimensional puzzle) … but doable.multidimensional puzzle) … but doable.

Other IssuesOther Issues

Every State is differentEvery State is different Each State has its own Housing Credit Each State has its own Housing Credit

AgencyAgency Each State has its own Qualified Allocation Each State has its own Qualified Allocation

Plan addressing tax credits and tax exempt Plan addressing tax credits and tax exempt bondsbonds

Each RD office operates a little differentlyEach RD office operates a little differently Each HUD office operates a little differentlyEach HUD office operates a little differently Early and open communication is essential!Early and open communication is essential!

Thank You.Thank You.

For Questions or Consulting Services For Questions or Consulting Services contact:contact:

Frankie W. PendergraphFrankie W. PendergraphThe Pendergraph Companies, LLCThe Pendergraph Companies, LLC

3924 Browning Place3924 Browning PlaceRaleigh, NC 27609Raleigh, NC 27609

(919) 755-0558(919) 755-0558