HUD s Section 108 Loan Guarantee Program: Financing Infrastructure for Community Resilience. Part 1 of 2. August 2016

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1 HUD s Section 108 Loan Guarantee Program: Financing Infrastructure for Community Resilience Part 1 of 2 August 2016

2 !bout the Section 108 Program Schmidt s Piazza, Philadelphia, PA Provides loan guarantees, not grants Employs the framework of the Community Development Block Grant (CDBG) Program Offers recipients (states, cities and counties, and insular areas) a means of accessing the capital markets

3 !bout the Section 108 Program The program enables HUD to guarantee loans in three basic areas: Economic Development Public Facilities Housing Rehabilitation Philadelphia Wholesale Produce Market, Philadelphia, PA For More Information on Eligible Activities, see 24 CFR

4 Using Section 108 maximizes the impact of grant funds States and local governments may borrow up to five times their most recent annual CDBG award, enabling them to maximize impact of available public funds by leveraging grant resources into loans Paseo Real de la Marina, Aguadilla, PR

5 Using Section 108 maximizes the impact of grant funds < $4 million Average Annual CDBG Allocation (Section 108 Borrowers) over the last 20 years

6 Using Section 108 maximizes the impact of grant funds > $10 million Combined CDBG Funding for Projects < $4 million Average Annual CDBG Allocation (Section 108 Borrowers) over the last 20 years

7 Section 108 Program Statistics Since the Initiation of Section 108: 1,900+ Commitments $9.4 Billion in Commitments $1.7 Billion Portfolio of Loans 119,000 Jobs Created or Retained

8 What makes Section 108 an attractive financing tool for resilience projects? Range of Eligible Activities and Uses Cheap Money with Flexible Terms Acceptable Sources of Repayment + Collateral Availability of Funds

9 Range of Eligible Activities and Uses Funds can be used: for a wide range of eligible activities for higher risk project components (e.g. pre-development costs), projects in high risk areas where conventional lenders might not lend, or as gap financing At a regional scale (through consortium model or State-supported effort) Pre - development for Affordable Housing, High Point, NC

10 Range of Eligible Activities and Uses (Continued) One loan guarantee commitment can be used: To fund several project components (infrastructure, housing rehab, and commercial development) or To finance several project phases over several years or To finance a loan fund targeting specific neighborhoods, communities (for States), or certain types of activities

11 Cheap Money with Flexible Repayment Terms Gives States and local governments access to the capital market while also: Providing a Federal loan guarantee to attract long-term (up to 20 years), reasonably-priced debt. Saving them the transaction costs (e.g. bond counsel, administrative costs) associated with going to the market directly. Eliminating the need for a general obligation debt that could affect their bond rating. Enabling them to structure their repayment terms to meet project-specific needs. (e.g. delaying principal repayments until Year 3 when the project will begin to generate revenue or front-loading cost of essential project to be repaid over extended term with annual grant funds)

12 Cheap Money with Flexible Repayment Terms (Continued) Interim financing is available at 3-month LIBOR + 20 basis points Current: Based on 8/22/16 LIBOR, = 1.02% interest rate Permanent rates are determined through public offering Typically occurs every 12- to 18-months For most recent public offering (May 2015), all-in interest rate for a 20- year loan with equal installments was 2.85% Option exists to pre-pay/defease and refinance loan, with certain restrictions

13 Availability of Funds Non-competitive Rolling application process Funds can be accessed based on project or program needs. Advances can occur on a weekly basis. Unlike grant funds, there are no restrictions on drawing down funds in advance of need. Conserves limited grant funds, to ensure that those funds will be available for non-revenue generating uses (e.g. public services)

14 Acceptable Sources of Repayment + Collateral Applicants can elect to repay the loan with CDBG funds or with other sources. HUD can accept less conventional sources of repayment and collateral Section 108 funds guaranteed funds could be used as the upfront capital used to launch Pay-for-Success projects (e.g. agreed upon outcome = long-term reduction in flood insurance premiums due from LMI households)

15 Acceptable Sources of Repayment + Collateral (Continued) Current and future CDBG funds are required to be pledged as collateral. While additional collateral is also required, HUD will work closely with applicant to determine and underwrite potential sources. HUD is able to accept sources of repayment and collateral that may not be accepted by conventional lenders, such as: Unlike most conventional lenders, HUD can often accept a subordinate position. Revenues generated by special taxing districts (e.g. TIFs and single purpose districts) Repayment of 3 rd party loans financed with Section 108 loan (or other loan portfolios) Liens on other types of revenue available (e.g. parking or casino revenues)

16 So, how much can grantees actually borrow? Annual CDBG Allocation Max available borrowing capacity Outstanding 108 commitments Outstanding 108 loan balance Available borrowing capacity $3,000,000 x 5 = $15,000,000 - $800,000 - $2,000,000 = $12,200,000 Please contact HUD for assistance in figuring out your state s or community s available borrowing capacity.

17 Examples of Existing Section 108 Loan Funds State of Illinois Economic Development Loan Fund, $40M available until Sept Cook County, IL Broadening Urban Infrastructure Investment to Leverage Transportation (BUILT) Loan Fund, $30M available until Sept State of Iowa Community Revitalization Loan Fund, $30M available until Sept Tucson, AZ Economic and Community Development Loan Pool, $20M available until Sept State of New Mexico Economic Development Loan Fund, $42.2M available until Sept Atlantic City and Atlantic County Business Loan Program, $2M (City) and $3.35M (County) available until Sept. 2020

18 Section 108 Available Borrowing Capacity for Participants (based on FY15 grant amounts) State of Massachusetts $140M State of Tennessee $124M State of Louisiana $99M State of California $142M State of Iowa $77M State of Missouri $102M State of North Dakota $18M City of Springfield, MA $7.7M Dauphin Co., PA $4M St. Tammany Parish, LA $4.6M Cook County, IL $15.2M Denver, CO $15.2M Phoenix, AZ $72.6M Augusta, GA $8.4M Oklahoma City, OK - $10.7M

19 Application & Approval Process Notify HUD Field Office (& HQ) Submit Application Concurrent review HUD FO and HQ Revise Application as needed HUD approves commitment to issue a Federal guarantee

20 Meriden, CT Projects: Factory H site (demolition and public improvements) and 116 Cook Ave. rehabilitation Section 108 Assistance: $1.5 million Approved in September 2010 National Objective: Benefit to low- and moderateincome persons on an area basis Eligible Activity: Public Improvements Terms of Guaranteed Loan: 15-year term, level repayment

21 21 Using Section 108 for Resiliency & Development Juliet Burdelski Director of Economic Development City of Meriden, CT (203)

22 Economic Development and Revitalization of a Low/Mod Income Area Economic Disinvestment High poverty, low incomes High concentration of minority residents Lack of job opportunities 140 Distressed Public Housing Units Choice Neighborhood planning grantee (2013) 35+ Brownfield Sites identified (silver manufacturing) History of Flooding

23 Harbor Brook Flood Control Plan Harbor Brook watershed comprises 12.3 square miles & approximately 50% of Meriden s total land area 3.5-mile Harbor Brook is subject to chronic flooding FEMA 100-year floodplain comprises 225 acres including over 300 properties and structures Harbor Brook runs through the historic City Center, Hub and Factory H brownfield sites

24 Harbor Brook Flood Control Plan City has experienced numerous 100- year storm events that have led to significant financial harm to the City and disinvestment 11 major flooding incidents have occurred since late 1800 s $26 million in damage in 1992 & 1996 led to development of local Flood Control Implementation Agency (FCIA) & Harbor Brook Flood Control & Linear Trail Master Plan

25 Key Projects-Harbor Brook Flood Control Plan Flood water detention at Hub brownfield site downtown and upstream 6 Bridge Harbor Brook Property Replacements Channel acquisition, 1 Bridge Improvements demolition and Removal 2 Relief flood proofing Culverts $35 million committed City/state/federal investment Flood Control Plan was permitted and approved in 2013 by CT DEEP, FEMA, Army Corps of Engineers

26 Reduce 100-year floodplain from 225 to 95 acres Remove over 150 properties from 100- year floodplain Reduce cost of flood insurance to property owners Allows for new commercial and housing development without risk of flooding and economic impacts in an economically distressed area Reduces downtown flooding Public Housing

27 Key Benefit: Allows for New Downtown Transit Oriented Development Development of City-owned, underutilized parcels and vacant lots can be pursued Downtown can be developed without risk of economic damage from future floods Development in the heart of downtown is now located outside the 100-year floodplain

28 Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue 10 acre former silver manufacturing located along Harbor Brook $2.4 million cleanup/ demo $1.5 million Section 108 $600,000 USEPA $300,000 CT DECD Community engagement

29 Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue-Before

30 Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue-Before

31 Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue-After

32 Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue Demo of Factory building completed 2012 Cleanup at 116 Cook Ave in process. Removal of selective hazardous materials from inside building prior to redevelopment (asbestos, PCBs, lead) Future redevelopment by POKO Partners-mixed use residential (20% affordable, 80% market rate)

33 Future Plans-Mixed Use Development POKO Partners

34 Redevelopment of Factory H & 116 Cook Ave ,988,908 3,132,354 22,792,517 3,893,744 41,781,426 7,026,097 2,594,194 2,587,018 5,181,212 24,715,456 29,273,278 53,988,735 Conventional Debt 2,981,290 10,362,357 13,343,648 CHAMP Funds 5,000,000 15,000,000 20,000,000 DECO Brownf ield Funds 3,000,000 3,000,000 DECO Urban Act Funds 3,750, ,000 HTC Equity 9,267,139 9,267,139 Deferred Developer Fee 717, ,027

35 Takeaways Provided needed capital with 15-year repayment schedule: $1.5 m Section 108 Loan (15 year repayment) provided needed capital to advance critical demolition/remediation project --part of citywide flood control. Allowed us to take on an all or nothing project: Section 108 Loan leveraged other state & federal funds ($600,000 USEPA Brownfields Assessment and Cleanup, $300,000 CTDECD Brownfields) that allowed City to complete project that could not be completed incrementally Addressed community needs: Demolition of blighted structure in low income area addressed critical community need and improved the neighborhood. HUD allowed us to reprogram unspent funds: Project ended up being under budget, but HUD allowed us to reprogram balance of Section 108 funds to advance cleanup at adjacent 116 Cook Avenue. Project advanced development of blighted/abandoned property: Developer selected to redevelop Factory H and 116 Cook Ave. site with reduced pre-development costs due to City s use of Section 108 loan and other grants.

36 36 Thank you! For additional information, please contact: Juliet Burdelski Director of Economic Development, (203)

37 Mount Vernon, WA Project: Phase II Downtown Flood Control Protection Project Section 108 Assistance: $1 million Approved in November 2012 National Objective: Benefit to low- and moderateincome persons on an area basis Eligible Activity: public improvements Terms of Guaranteed Loan: 10-year term, level repayment