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Transcript of Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni Austin Hotel Downtown | Austin,...
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Creating Partnerships for
Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits
Jim ShawCapital Area Housing Finance Corporation
Matthew BissonetteCiti Community Capital
George LittlejohnNovogradac & Company
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Can you lower your rent to $400/month?
Developer/Owner
$400
$700Sorry.
“Affordable Housing”
DEBT
Total Project Costs
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
DEBT
InvestorTax Liability
‘86
$IRC Section 42
“Low Income Housing Tax Credit”
Developer/Owner
x 10 years
• Income limits• Rent limits
• Partnership• LLC• S-Corp
Tax Liability
TAX CREDITSEquity
Bonds
Total Project Costs
Bonds
Low-Interest Debt
DEBT
DEBT
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
*
x 10 = $1 Bil$100 Mil*
mathematical potential if nearly all bonds were issued for affordable housing;actual credits utilized will be far less than $100 million
Private ActivityTax-Exempt Bonds
IRC Section 42
State Allocating Agency
LIHTCs
Texas population: 2012
ApproxxApprox
25.67 mil$2.20
$56.5 mil
$56.5 mil
LIHTCs
Texas population: 2012
ApproxxApprox
25.67 mil$95
$2.44 bil
Greater of $95 per capita OR $284,560,000
x 10 = $565 Mil
9%, per capita, “competitive” credits
4% credits
$2.44BLIHTCs
Developer/Owner
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
B
= $10.67 Mil
$2.98 Mil
A
Total project costs = $11.2 Mil
Developer/Owner
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
$3.96 Mil $4.33 Mil
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
B
= $10.67 Mil
$2.98 Mil
A
Total project costs = $11.2 Mil
Developer/Owner
9%
$396k
9%
$433k
$8.29 Mil
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Developer/Owner
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Developer/Owner
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Developer/Owner
InvestorTax Liability
$Fund
$
$Syndicator
Losses
Losses“Upper Tier”
“Lower Tier”
$
LP
GP
GP LP
$Credits
Credits
$
$
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Developer/Owner
InvestorTax Liability
Fund
$
$
$8.29 mil
$8.29 mil
65¢ - 95¢85¢
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
$8.29 mil
$8.29 mil
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
$3.96 Mil $4.33 Mil
x
x
x
x
x
x 10
$5.86 Mil
75%
$4.40 Mil
10
$4.81 Mil
100%
$4.81 Mil
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
B
= $10.67 Mil
A
Total project costs = $11.2 Mil
9%
$396k
9%
$433k
$8.29 Mil
$7.0M
$11.2 Mil
Equity 63%
$8.29 mil
85¢x$7.0 mil
$8.29 mil
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
BA
Total project costs = $11.2 Mil
$2.5M
$11.2 Mil
Equity 22%
$2.98 mil
85¢x$2.5 mil
$2.98 mil
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $10.67 Mil
$2.98 Mil
Why go the bond route?
Bonds >50%
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
BA
Total project costs = $11.2 Mil
$2.5M
$11.2 Mil
Equity 22%
$2.98 mil
85¢x$2.5 mil
$2.98 mil
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $10.67 Mil
$2.98 Mil
Bonds >50%
“DDA”
“QCT” =
30%
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
BA
Total project costs = $11.2 Mil
$2.5M
$11.2 Mil
Equity 22%
$2.98 mil
85¢x$2.5 mil
$2.98 mil
x
x
x
x
x
x 10
$1.87 Mil
$7.62 Mil
75%
$5.71 Mil
3.28%
$187k
10
$2 Mil
$6.25 Mil
100%
$6.25 Mil
3.20%
$200k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $13.87 Mil
$3.87 Mil
Bonds >50%
“QCT” =
30%
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
BA
Total project costs = $11.2 Mil
$11.2 Mil
$3.3M Equity 29%
$3.87 mil
85¢x$3.3 mil
$3.87 mil
x
x
x
x
x
x 10
$1.87 Mil
$7.62 Mil
75%
$5.71 Mil
3.28%
$187k
10
$2 Mil
$6.25 Mil
100%
$6.25 Mil
3.20%
$200k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $13.87 Mil
$3.87 Mil
Bonds >50%
“QCT” =
30%
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Developer/Owner
IRC Section 42
State Allocating Agency
Private ActivityTax-Exempt Bonds
$2.44B
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
$
Public Bonds
Interest Payments $
Airports
StudentLoans
Single-FamilyHousing
Industrial Development
Bondholders
Private Bonds
$
Interest Payments $
Private Sector
Taxes
Interest Payments$$
Bonds
State Allocating Agency
Multi-FamilyRental Housing
Private ActivityTax-Exempt Bonds
$2.44B
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
State Allocating Agency
Developer/Owner
BondApplication
Private ActivityTax-Exempt Bonds
4% Credits
IRC Section 42
$2.44B
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Bond Issuer
(City/County)
Borrower
InducementResolution
Public hearing or “TEFRA” requirement
P’ship
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Credit Enhancer
Purchasers
Trustee
Bond Proceeds
Bond Proceeds
Project
Trust Indenture
Interest Payments
MortgageNote
Bonds
DRAW Req
“AAA”“Aaa”
Invoices
Interest Payments
Bond Purchase
Agreement
Underwriter
Loan Agreement
RegulatoryAgreement
Lender
Bond Issuer
(City/County)
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Bond Financing Time Line
(separate handout provided)
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
Types of Bond Issues1. “Essential Function” or “Governmental Purpose” Bonds issued under
Section 103 -- project to be owned by a public body
– Good news: Much less restrictive rules than eitherof 2 other categories
– Bad news: Not eligible for 4% LIHTC
2. “501(c)(3)” Bonds issued under Section 145
– For charitable organization having a designation under IRC Section 501(c)(3) in order to:
• Provide affordable housing for persons of lower income, or
• Provide appropriate housing for the elderly or handicapped
– Good news: Don’t need private activity bond volume allocation
– Bad news: Not eligible for 4% LIHTC
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
Types of Bond Issues3. Private Activity Bonds issued under IRC Section 142(d) -- for profit-
motivated owner
– Usually combined with 4% LIHTC
– This is the most common “new money” category – generally represents 85-90% of “new money” deals
– Main requirements include:• Lower income targeting – 20% at 50% AMI or 40% at 60% AMI• Private activity bond volume allocation (“volume cap”)
“Refunding” Bonds– Proceeds used to pay off bonds previously issued to finance a multifamily
rental housing project– Used to reduce interest rates or change credit enhancement
BondApplication
4% CreditsPrivate Activity
Tax-Exempt Bonds
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
Financing Alternatives
DSC LTV Amort. C/E Fees Timeframe Variable?
Credit Enhancement Alternatives
• FHA / GNMA 1.11 90%+ 35-40 Low 90-150 No
• Fannie Mae and Freddie Mac 1.15-1.20 80% 30-35 Mid 60-90 Yes
• Bank Letters of Credit 1.15-1.25 75-85% 25-30 High 60-90 Yes
Non-Credit Enhanced Executions• Stand-Alone Bond Rating 1.45 n/a 30 Mid-to-High 60-90 No
• Conduit Bond Lender 1.15-1.20 80-85% 30-35 n/a 60 Maybe
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
BA
Total project costs = $11.2 Mil
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $10.67 Mil
$2.98 Mil
$2.98 mil
85¢x$2.5 mil
$2.98 mil$2.5M
$11.2 Mil
Equity 22%
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
$2.5M$1.9M
BA
Total project costs = $11.2 Mil
$11.2 Mil
Equity 22%
$2.98 mil
85¢x$2.5 mil
$2.98 mil
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $10.67 Mil
$2.98 Mil
“Aggregate Basis”Fixed Assets
$10.9 Mil
50%$5.45 Mil
11%Equity49.9999%
$1.49 mil
!
49.9999%
$1.49 mil
$1.49 mil
$1.25 mil
Bonds
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
BA
Total project costs = $11.2 Mil
$2.5M
$11.2 Mil
Equity 22%
$2.98 mil
85¢x$2.5 mil
$2.98 mil
x
x
x
x
x
x 10
$1.44 Mil
$5.86 Mil
75%
$4.40 Mil
3.28%
$144k
10
$1.54 Mil
$4.81 Mil
100%
$4.81 Mil
3.20%
$154k
Ten years
Total tax credits
Eligible basis
Applicable fraction
Qualified basis
Tax credit percentage
Annual tax credits
= $10.67 Mil
$2.98 Mil
Bonds 54%
“Aggregate Basis”
$6M
Fixed Assets
$10.9 Mil
$6M$5.45 Mil
100%
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
“Aggregate Basis”Fixed Assets
Bond issuance costs (BIC) paid from bond proceeds ≤ $120k
2% “Cost of Issuance Limitation”
$6M($6 mil x 2%)
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
“Aggregate Basis”Fixed Assets
$6M
“Good Costs/Bad Costs”95% of proceeds must be used for “good costs”
$5.7 mil
Good CostsLand and depreciable costs for income tax purposes
…paid or incurred after the date of the Inducement Resolution
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
“Aggregate Basis”Fixed Assets
$6M
“Good Costs/Bad Costs”95% of proceeds must be used for “good costs”
≤ $300k
Bad CostsCosts incurred prior to Inducement Resolution
Intangible assets
Bond issuance costs and underwriting
Loan origination fees amortized over the perm loan period
Bad CostsCosts incurred prior to Inducement Resolution
Intangible assets
Bond issuance costs and underwriting
Loan origination fees amortized over the perm loan period
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
“Good Costs/Bad Costs”95% of proceeds must be used for “good costs”
60 days
“Good Costs”“Bad Costs”
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
Soft Debt• When does subordinate debt come in?
• Lien priority
• Senior/subordinate lender
• “Hard debt” vs. “soft debt”
• Combining with new markets or other tax credits?
Total Project Costs
Equity
Bonds
Deferred Developer Fee
Grant, “Soft Loan”
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
So, how are deals gettingdone?
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
City View Apartments
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
City View Apartments
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax CreditsPre-Conference Workshop:
Copyright © 2012 Novogradac & Company LLP
City View Apartments
• Condominium Agreement – Affordable Unit, Market Unit
• 245 Units Total• 49 PH Units, 12 Affordable Units• 184 Units, or 75% Market Rate• Financing:
– HOPE VI– Tax Exempt Bonds– SAHA Construction Loan– City of San Antonio HOME loan– Other Soft Loans– Tax Credit Equity– Deferred Developer Fee
Copyright © 2012 Novogradac & Company LLP
April 25-28, 2012Omni Austin Hotel Downtown | Austin, Texas
Meeting the Challenge:Creating Opportunities and Developing New Solutions in Affordable Housing
Outline
How Tax Credit Financing Works
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Types of Bond Issues
50% Test and Other Bond Requirements
Soft Debt
How to Get Deals Done