Learn the Basics: Tax Exempt Bonds

Transcription

1 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Learn the Basics: Ta Eempt Bonds Moderator/Presenter: Charles A. Rhuda, III Novogradac & Company LLP Panelists: John Kelley, Esq. Holland & Knight, LLP Benathan Upshaw CB Emmanuel 1

2 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 2

3 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 3

4 Affordable Housing Sorry. DEBT Developer/ Owner Can you lower your rent to $400/month? Total Project Costs 4

5 10 years Section 42 Ta Liability Investor Low Income Housing Ta Credit Partnership LLC S-Corp DEBT Ta Liability Developer/ Owner Total Project Costs Equity Income limits Rent limits 5

6 10 years Section 42 Ta Liability Investor Low Income Housing Ta Credit Partnership LLC S-Corp DEBT Bonds Ta Liability Developer/ Owner Total Project Costs Equity Low-Interest Debt Income limits Rent limits Bonds 6

7 Section 42 LIHTCs NY population: 2012 Appro Appro mil $2.20 $42.8 mil LIHTCs State Allocating Agency NY population: 2012 Appro Appro mil $95 $1.85 bil $1.85B Greater of $95 per capita OR $284,560,000 Private Activity Ta-Eempt Bonds 7

8 9%, per capita, competitive credits Section 42 LIHTCs LIHTCs State Allocating Agency 4% credits Developer/ Owner $1.85B Private Activity Ta-Eempt Bonds LIHTCs * $108 Mil* 10 = mathematical potential if nearly all bonds were issued for affordable housing; actual credits utilized will be far less than $108 million 8

9 Developer/ Owner A B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits $5.86 Mil 75% $4.40 Mil 3.28% $144k 10 $1.44 Mil $4.81 Mil 100% $4.81 Mil 3.20% $154k 10 $1.54 Mil $2.98 Mil 9

10 Developer/ Owner A B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits $5.86 Mil $4.81 Mil 75% 100% $4.40 Mil $4.81 Mil 9% $396k 9% $433k $3.96 Mil $4.33 Mil $8.29 Mil 10

11 Developer/ Owner 11

12 LP Ta Liability Investor Fund Upper Tier Lower Tier Developer/ Owner 12

13 LP GP Syndicator Ta Liability Investor GP Fund LP Developer/ Owner 13

14 $11.2 Mil $7.0M Equity 63% A B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil Applicable fraction Qualified basis Ta credit percentage Annual ta credits Ten years Total ta credits $5.86 Mil $4.81 Mil 75% 100% $4.40 Mil $4.81 Mil 9% $396k 9% $433k $3.96 Mil $4.33 Mil $8.29 Mil 14

15 $11.2 Mil $2.5M A Equity 22% B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil $5.86 Mil $4.81 Mil Applicable fraction 75% 100% Why go the bond route? Qualified basis Ta credit percentage $4.40 Mil 3.28% $4.81 Mil 3.20% Annual ta credits $144k $154k Ten years Total ta credits $1.44 Mil $1.54 Mil $2.98 Mil 15

16 $11.2 Mil Bonds >50% $2.5M A Equity 22% B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil $5.86 Mil $4.81 Mil Applicable fraction 75% 100% Why go the bond route? Qualified basis Ta credit percentage $4.40 Mil 3.28% $4.81 Mil 3.20% Annual ta credits $144k $154k Ten years Total ta credits $1.44 Mil $1.54 Mil $2.98 Mil 16

17 $11.2 Mil Bonds >50% $3.3M Equity 29% A B Total project costs = $11.2 Mil Eligible basis = $13.87 Mil $7.62 Mil $6.25 Mil QCT = Applicable fraction Qualified basis 75% $5.71 Mil 100% $6.25 Mil Ta credit percentage 3.28% 3.20% Annual ta credits $187k $200k Ten years Total ta credits $1.87 Mil $2 Mil $3.87 Mil 17

18 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 18

19 Public Bonds Bondholders State Allocating Agency 19

20 Public Bonds Interest Payments Bondholders Private Bonds Interest Payments Private Sector 20

21 Bondholders State Allocating Agency Interest Payments $1.85B Multi Family Rental Housing Student Loans Private Activity Ta-Eempt Bonds Single Family Housing Industrial Development Airports 21

22 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 22

23 Section 42 Bond Application Developer/ Owner State Allocating Agency $1.85B Private Activity Ta-Eempt Bonds 23

24 Inducement (City/County) Resolution Bond Issuer Public hearing or TEFRA requirement P ship Borrower 24

25 (City/County) AAA Aaa Credit Enhancer Bonds Underwriter Bond Issuer Bond Purchase Agreement Loan Agreement Trust Indenture Bond Proceeds Purchasers RegulatoryAg reement Trustee Interest Payments Mortgage Note DRAW Req Lender Interest Payments Bond Proceeds Invoices Project 25

26 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 26

27 Types of Bond Issues 1. Essential Function or Governmental Purpose Bonds issued under Section project to be owned by a public body Good news: Much less restrictive rules than either of 2 other categories Bad news: Not eligible for 4% LIHTC (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 27

28 Types of Bond Issues 3. Private Activity Bonds issued under IRC Section 142(d) -- for profitmotivated 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 ) Bond Application Private Activity Ta-Eempt Bonds 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 28

29 Financing Alternatives DSC LTV Amort. C/E Fees Timeframe Variable? Credit Enhancement Alternatives FHA / GNMA % Low No Fannie Mae and Freddie Mac % Mid Yes Bank Letters of Credit % High Yes Non-Credit Enhanced Eecutions Stand-Alone Bond Rating 1.45 n/a 30 Mid-to-High No Conduit Bond Lender % n/a 60 Maybe 29

30 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 30

31 $11.2 Mil 50% Fied Assets Aggregate Basis $2.5M A Equity Equity 22% B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil $5.86 Mil $4.81 Mil Applicable fraction 75% 100% Qualified basis $4.40 Mil $4.81 Mil Ta credit percentage 3.28% 3.20% Annual ta credits $144k $154k Ten years Total ta credits $1.44 Mil $1.54 Mil $2.98 Mil 31

32 $10.9 Mil $11.2 Mil $5.45 Mil % Fied Assets Aggregate Basis $1.9M A Bonds Equity 11% B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil $5.86 Mil $4.81 Mil Applicable fraction 75% 100% Qualified basis $4.40 Mil $4.81 Mil Ta credit percentage 3.28% 3.20% Annual ta credits $144k $154k Ten years Total ta credits $1.44 Mil $1.54 Mil % $2.98 Mil 32

33 $10.9 Mil $11.2 Mil $5.45 Mil 100% $6M $6M $2.5M Bonds 54% Equity 22% Fied Assets Aggregate Basis A B Total project costs = $11.2 Mil Eligible basis = $10.67 Mil $5.86 Mil $4.81 Mil Applicable fraction 75% 100% Qualified basis $4.40 Mil $4.81 Mil Ta credit percentage 3.28% 3.20% Annual ta credits $144k $154k Ten years Total ta credits $1.44 Mil $1.54 Mil $2.98 Mil 33

34 2% Cost of Issuance Limitation $6M Bond issuance costs (BIC) paid from bond proceeds $120k ($6 mil 2%) Fied Assets Aggregate Basis 34

35 Good Costs/Bad Costs 95% of proceeds must be used for good costs Good Costs Land and depreciable costs for income ta purposes paid or incurred after the date of the Inducement Resolution $6M $5.7 mil Fied Assets Aggregate Basis 35

36 Good Costs/Bad Costs 95% of proceeds must be used for good costs $300k $6M Fied Assets Aggregate Basis Bad Costs Costs incurred prior to Inducement Resolution Intangible assets Bond issuance costs and underwriting Loan origination fees amortized over the perm loan period Assumed debt 36

37 Good Costs/Bad Costs 95% of proceeds must be used for good costs Bad Costs Good Costs 60 days 37

38 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16,

39 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16,

40 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16,

41 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16,

42 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Questions? Charles A. Rhuda, III Novogradac & Company LLP (617) John Kelley, Esq. Holland & Knight, LLP (617) Benathan Upshaw CB Emmanuel (716)

43 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Free Ta Credit Resources: 43

44 Building 13 th Annual an Affordable Conference New York Thursday, Wednesday, May May 12, 16, Outline How Ta Credit Financing Works Ta-Eempt Bond Overview Players in a Bond Transaction Types of Bond Issues 50% Test and Other Bond Requirements 44