FOR THOSE PERMISSIONED. Marketing Tax Exempt Bonds Tax Exempt Multifamily Housing Bonds Overview

Transcription

1 FOR THOSE PERMISSIONED Marketing Tax Exempt Bonds Tax Exempt Multifamily Housing Bonds Overview

2 Current Tax-Exempt Multifamily Housing Financing Structures Short Term Fixed Rate Bonds with Taxable FHA/GSA Loans (Cash Collateralized) Freddie Direct Tax Exempt Loan (TEL) Program Long Term Publicly Rated Fixed Rate Loans (S&P/Moody s Program) Stifel Freddie Mac Securitization Product in Progress Bank Private Placements 2

3 Prudential P R U D E N T I A L M O R T G A G E C A P I T A L C O M P A N Y Permanent Loan Options with Bond Financing Peter F. TenEyck WE GET IT. DONE.

4 Disclosure The information contained herein is provided by Prudential Mortgage Capital Company ( PMCC ). This document may contain confidential information and the recipient hereof agrees to maintain the confidentiality of such information. Distribution of this information to any person other than the person to whom it was originally delivered and to such person s advisers is unauthorized, and any reproduction of these materials, in whole or in part, or the divulgence of any of its contents, without the prior consent of PMCC, is prohibited. Certain information in this document has been obtained from sources that PMCC believes to be reliable as of the date presented; however, PMCC cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. PMCC has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to its completeness or accuracy. Any information presented regarding the affiliates of PMCC is presented purely to facilitate an organizational overview and is not a solicitation on behalf of any affiliate. Past performance is not indicative of future results. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. These materials do not constitute investment advice and should not be used as the basis for any investment decision. These materials do not take into account individual client circumstances, objectives or needs. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. The information contained herein is provided on the basis and subject to the explanations, caveats and warnings set out in this notice and elsewhere herein. Any discussion of risk management is intended to describe PMCC s efforts to monitor and manage risk but does not imply low risk. These materials do not purport to provide any legal, tax or accounting advice. These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. All sources are Prudential Internal unless otherwise noted. Prudential and the Rock logo are registered service marks of the Prudential Insurance Company of America and its affiliates. PRUDENTIAL MORTGAGE CAPITAL COMPANY WE GET IT. DONE. Confidential. Not for further distribution.

5 Permanent Loan Executions What are the options to permanently finance an affordable property with 4% tax credits and bonds? New Construction FHA 221(d)(4) Freddie Mac Tax exempt loan (TEL) with Forward Commitment Rehab with Relocation FHA 221(d)(4) FHA 223(f) LIHTC PILOT Freddie Mac TEL with Forward Commitment or Immediate Funding Fannie Mae Taxexempt bond collateral (M.TEB) loan with Forward Commitment or Immediate Funding Rehab with minimal or no Relocation FHA 221(d)(4) FHA 223(f) LIHTC PILOT Freddie Mac TEL; Preservation Loan; Immediate Funding Fannie Mae Taxexempt bond collateral (M.TEB) loan; Preservation Loan; Immediate Funding PRUDENTIAL MORTGAGE CAPITAL COMPANY Confidential. Not for further distribution. WE GET IT. DONE.

6 Considerations for Selecting Capital Source and Loan Program FHA FHA s d 4 progra is for ew construction projects or existing projects which will undergo substantial rehabilitation. Substantial rehabilitation is defined as either (i)exceeding the base dwelling unit limit of $15,000 times the High Cost Factor or the replacement of two or more building systems. If these rehabilitation limits are not exceeded, FHA offers a 223(f) execution. 221(d)(4) parameters are based on debt service coverage and replacement cost. For affordable properties, the parameters are minimum 1.149x DSC and maximum 87% Replacement Cost. For properties offering greater than 90% rental assistance, parameters are minimum 1.111x DSC and 90% Replacement Cost. 223(f) LIHTC PILOT parameters are based on debt service coverage, value, and transaction cost. For affordable properties, the parameters are minimum 1.149x DSC and maximum 87% LTV/LTC. For properties offering greater than 90% rental assistance, parameters are minimum 1.111x DSC and 90% LTV/LTC. HUD s d 4 progra is a fully a ortizi g, 4 year progra. HUD s 223(f) LIHTC PILOT program is a fully amortizing 35 year program (75% of the remaining useful life of the project must be at least 35 years). Freddie Mac The Freddie Ma s forward execution is a forward commitment for new construction or substantial rehab which is originated simultaneously with a construction bank loan. The Freddie Mac loan takes out the construction loan and converts to the permanent financing. Freddie Mac offers affordable programs for forward commitments, immediate funding, and preservation rehabilitations. Parameters are based on debt service coverage and value. Value is based on the restricted rents for the project. For fixed rate loans, parameters are a minimum 1.15x DSC and maximum 90% LTV. Freddie s forward, i ediate, a d rehabilitation programs also cover 9% LIHTC transactions. These programs do not cover market rate transactions. Minimum term is the lesser of 15 years or the remaining LIHTC compliance period up to a maximum of 35 years. Up to 35-years amortization. Fannie Mae Fa ie Mae s M.TEB progra a e used to finance the rehabilitation affordable properties. Fannie Mae issues MBS that can be used as collateral for either i) existing bond refunding or ii) new bond issues in conjunction with 4% Low-Income Housing Tax Credits (LIHTC). Options are available for taxable or taxexempt and fixed- and variable-rate bonds. Offers immediate or standby forward commitments. Parameters for programs are based on debt service coverage and value. Minimum debt service coverage is 1.15x and up to a maximum 90% LTV. Fannie Mae offers a reduced occupancy affordable rehab loan. During the rehab period, the debt service coverage must meet a 1.0x interest-only basis and a 0.75x amortizing basis. Terms range from 5-30 years with up to 35 years amortization. PRUDENTIAL MORTGAGE CAPITAL COMPANY Confidential. Not for further distribution. WE GET IT. DONE.

7 Combining Long Term Taxable Loans with Short-term Tax-Exempt Bonds FHA/GNMA loans currently provide 3.75% % all in borrowing costs with no negative arbitrage and year terms and amortization. Under Section 42 of the Tax Code, in order to qualify for the full value of the 4% Low Income Housing Tax Credits, at least 50% of aggregate basis of the building and land costs must be financed with tax exempt bond proceeds. o 4% tax credits provide a significant (~30% or higher) additional source of funds for affordable housing transactions. Combining long term taxable loans with short-term tax-exempt bonds qualifies for 4% low income housing tax credits, offers a low long-term mortgage rate and results in minimal negative arbitrage. 7

8 Old vs. New Traditional Long-Term Tax- Exempt GNMA Backed Bonds Short-Term Cash-Collateralized Bonds w/ Taxable GNMA FHA Loan Amount $10,000,000 $10,000,000 FHA Loan Term/Tax- Exempt Bond Term 40/40 Years 40/2 Years Mortgage Loan Bonds 4.00% GNMA 3.50% Servicing & GNMA Fee 0.25% Servicing & GNMA Fee 0.25% Total ML Rate 4.25% Total ML Rate 3.75% Negative Arbitrage Deposit Bonds 4.25% CC Structure 3.75% $850,000 (4.25% ML)* $200,000 (1.00% ML)* Investment Earnings $150,000* $150,000* Net Interest Cost $700,000* $50,000* *contemplates two year construction period 8

9 Long Term Publicly Rated Fixed Rate Loans (S&P/Moody s Program) Structure o 35 year level debt amortization o Short-term taxable tail (if needed) Security o Bonds are secured by a first priority mortgage lien o Gross revenue pledge o Debt service reserve fund, sized at ½ maximum annual debt service Loan to Value o Up to 100% o S&P s internal valuation is based on assigned market cap rate and NOI Debt Service Coverage o Section 8 HAP contracts 1.20x o Affordable (no subsidy) 1.40x Optional Redemption o Five years at $105 declining to par in year ten Repair & Replacement Reserve o $300 per unit 9

10 Stifel Freddie Mac Securitization Pooling of loans through a standalone pass through trust type structure which passes through all of the interest and principal payments on other underlying loans through to investors. Freddie MAC M Series Securitization Program o Minimum size $100MM o Freddie TEL program o LIHTC properties typically have year term with balloon maturity o Can be used on 4% LIHTC immediate funding and rehab transactions and as alternative to our rated product. o Permanent financing with 35 year amortization o 1.15x debt service coverage ratio o Up to 90% loan to value o Pricing based off spread over appropriate Treasuries 10

11 Process Work with you lender to see if your transaction works using a bond execution o Size debt o Size equity o Fill gaps Bond Allocation TEFRA o New construction project generally need soft money o Acquisition/Rehab generally do not need soft money o Borrower must obtain for the Issuer an Allocation of the state-by-state volume cap for the full amount of the bonds issued. o 501(C)(3) bonds do not need to receive an allocation of volume cap. o The project must be approved by (i)the Issuer and (ii)an applicable elected representative of the jurisdiction in which the project will be located. Inducement o The proceeds from the bond issue may be used on a tax-exempt basis to finance capital costs of the project incurred after the project is induced. 11

12 Bond Working Group Issuer o Issues bonds on behalf of the Borrower o Typically serves as conduits neither the faith or credit of the Issuer is pledged towards debt service Issuer Counsel o Reviews all legal documents on behalf of the Issuer Bond Counsel o Hired by the Issuer to ensure the proper legal and tax issues of the financing are maintained o Primary responsibility is preparation of the legal documents Indenture, Loan Agreement, Resolutions, TEFRA notice, and Arbitrage Certificate o Renders opinion concerning the validity of the bond issue with respect to statutory authority, constitutionality and exemption of interest from Federal/State income tax o Coordinates the closing and prepares final bond transcript 12

13 Bond Working Group Underwriter Stifel!! o Analyzes financing alternatives for the Borrower o Develops a plan of finance o Manages credit rating process o Markets and prices the bonds o Provides final cash flow analysis and arbitrage analysis o Facilitates the closing of the bonds with DTC ( Underwriter s Counsel Trustee o Represents the Underwriter o Drafts underwriter documents Preliminary Official Statement, Final Official Statement, Bond Purchase Agreement and Continuing Disclosure Agreement o Represents Bondholders interests o Manages Trustee-held bond funds, reserves and construction funds Trustee Counsel o Represents interests of Trustee Rating Agency o Standard & Poor s, Moody s and Fitch Ratings o Ratings have a direct impact on the cost of borrowing o Higher the credit rating, the lower the interest cost o Short term bonds are cash collateralized and 13

14 Contacts Ty Tyson Stifel Pete TenEyck Prudential Mortgage Capital Company 2660 Eastchase Lane, Suite 400 Morrison Blvd, Suite 385 Montgomery, AL Charlotte, NC