Non-LIHTC Forwards2019 Optigo Targeted Affordable Housing Workshop

Steven Winslow

Manager

Underwriting & Credit

McLean, VA

Senior Producer

Affordable Investments & Sales

McLean, VA

Ryan Sherriff

Key Takeaways

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Reasons for Non-LIHTC Forward

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Product Overview

Affordability Requirements

Property Eligibility

Loan Terms

Success Stories

What is in it for the Sponsor?

2▪ A unique execution with

the ability to hedge

interest rate risk

▪ Can be combined with

multiple financial

investment resources

▪ Affordability requirements

geared towards workforce

housing

The Non-LIHTC Forward combines the use of state and local programs other than LIHTC to promote construction of new affordable and workforce housing and the

substantial rehabilitation of existing properties.

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Construction Costs are on the Rise

▪ Forward locking the interest rate gives construction lenders greater certainty of being refinanced

▪ Greater certainty means construction lenders can be more aggressive with their financing

▪ Greater synergies can be achieved if the construction and permanent lender are the same bank

Larger Construction Loans

What are Non-LIHTC Forwards▪ Provides unfunded forward commitments for:

» Rent and income-restricted affordable housing with a workforce housing component

» Available to for-profit and 501(c)(3) nonprofit sponsors

▪ The Forward Commitments will take out new construction and substantial rehabilitation loans up

to $100 millions

» Substantial rehabilitation must be no less than $35,000 per unit

▪ Conversion requirements same as for LIHTC Forwards

» Except for LIHTC specific requirements (8609s, etc.)

Properties must exhibit: » Public/mission-driven financial

investment

» Affordability requirements

Investment must be from a public or mission-driven

nonprofit source:

» Must be quantified as at least 10% of the first mortgage UPB

» At minimum, must be in place for the term of the mortgage

Public/Mission-Driven Financial Investment – For-Profit Borrowers

Affordability Requirements – For-Profit Borrowers

Additional 80% of units at workforce

rent levels

10% of units at market10% of units restricted

Affordability Requirements – For-Profit Borrowers

▪ The property must have both rent AND income restrictions on at least

10% of the units AND

▪ Those rent AND income restrictions must be part of a state or local

program, according to their affordability requirements (there must be

some level of governmental involvement), AND

▪ Those restrictions must be

» Through a state or local regulatory agreement or recoded use

restriction AND

» Be enforced by a governmental entity AND

» Stick with the property for the loan term or longer

1st Requirement

Affordability Requirements – For-Profit Borrowers

▪ 80% of the units at the property must have rents at or below the following

thresholds:

» Very high-cost or extremely high-cost markets

– At or below 150% of AMI – i.e., NYC, LA, SF

» High-cost markets

– At or below 125% of AMI – i.e., Chicago, San Diego

» Standard-markets

– At or below 100% of AMI – i.e., everywhere else

▪ Detailed list of markets available at:

2nd Requirement

https://mf.freddiemac.com/docs/mf_scorecard_volume_cap_exclusions.pdf

Affordability Requirements – For-Profit Borrowers

*****Workforce housing requirements do not apply if 50% of the units at the property have rent and income restrictions that

meet FHFA rules for TAH uncapped volume.*****

▪ 10% of the units at the property may be at market rents

Nonprofit Borrower Requirements

▪ Nonprofit borrower must be a 501(c)(3) whose public purpose is owning, developing and operating

affordable multifamily housing

▪ The general partner or managing member of the borrower must be a nonprofit

» Being the co-general partner for the purposes of qualifying for a real estate tax abatement (e.g.,

CA Welfare TA) is not sufficient

▪ We expect rents for all units to be at uncapped and workforce housing levels

Loan Terms▪ Credit Parameters

» 1.25x DCR and 80% LTV based on “as-stabilized” value

▪ Borrower Equity

» Minimum 15% cash or policy-compliant subordinate debt from a governmental or nonprofit lender

▪ Prepayment

» Subject to standard cash loan provisions (yield maintenance or defeasance)

▪ Net Worth and Liquidity

» Standard guarantor requirements

▪ 30-year amortization

▪ Up to 36-month forward terms

▪ Standby Fee with “make whole provision” versus Delivery Assurance Fee/Note

Success Stories: Flats on 21

▪ $7.76 million

▪ 82 units

▪ Austin, MN

▪ Tax abatement granted by local municipality

▪ 10% of the units restricted at 60% of AMI

» Documented in local government LURA

▪ 80% of the units affordable at 100% of AMI

Success Stories: Lake Vue at Red Berry Estates Apartments▪ $29.5 million

▪ 330 units

▪ San Antonio

▪ 75-year below-market ground lease provided by the

City of San Antonio

▪ 50% of the units restricted at 80% of AMI

» Documented in Ground Lease Memorandum

Which For-Profit transaction is eligible for a Freddie Non-LIHTC Forward?

The Winds of Winslow (A)

▪ Chicago, IL (Very High-Cost Market)

» 100% AMI Uncapped threshold

» 150% AMI Workforce threshold

▪ 10% of units rent restricted @ 100% AMI

▪ 80% of units with rents affordable @ 150% AMI

▪ 10% of units unrestricted with rents @ 180% AMI

(market rent level)

▪ 10-year loan

▪ 20-year tax abatement (PV of tax savings = 15% UPB)

from county housing agency

▪ Cash equity from borrower = 20% appraised value

The Shoals of Sherriff (B)

▪ Birmingham, AL (Standard Market)

» 60% AMI Uncapped threshold

» 100% AMI Workforce threshold

▪ 20% of units restricted @ 50% AMI

▪ 20% of units restricted @ 60% AMI

▪ 40% of units with rents affordable @ 90% of AMI

▪ 20% of units unrestricted with rents at 120% AMI

(market rent levels)

▪ 15-year loan

▪ 30-year soft sub loan from city housing agency =

30% of appraised value / 40% of UPB

Poll: What is the Best New Name for the NLF?

1) No LIHTC, NO PROBLEM! Forward

2) The Sherriff-Winslow Forward

3) The Winslow-Sherriff Forward

4) The Mixed-Income/Workforce Housing Perm Product (MIWHPP – “My Whip!”)

5) Fear Of Missing Out on Mixed-Income Housing (FOMO MIH)

6) NONE OF THE ABOVE – JUST STOP AND CALL ON MY TABLE AND I’LL GIVE YOU THE NEW

NAME