HUD 202 Recapitalization

1
HUD 202 Recapitalization

• Utilizing Tax Exempt Bonds and Tax Credits to
  Meet Your Financing Needs

2
The Intent of DHCDS 202 Recapitalization
Initiative

• To use its tax exempt bond resources to assist
  owners in the preservation of HUD 202 projects in
  Maryland.
• To raise capital for multiple projects at once to
  achieve costs savings and processing
  efficiencies. This successful model was used by
  DHCD to benefit Public Housing Authorities
  statewide
• To work collaboratively using a team approach
  in order to meet your processing schedules

3
How Bonds and Tax Credits Work

• Authority to issue tax exempt bonds is awarded to
  States by the federal government based on
  population data
• 4 Low Income Housing Tax Credits are available
  with tax exempt bonds and provide additional
  equity
• DHCD is the administering agency for tax exempt
  bonds and tax credits

4
What Is The Benefit To Me ?

• TAX EXEMPT BONDS
• CDA has sufficient resources available at this
  moment in time to assist projects
• Capital markets are experiencing historically low
  interest rates that are subject to change in the
  future
• Tax exempt bonds can be used to replace current
  debt with a lower interest rate mortgage

5
Benefits (Cont.)

• TAX CREDITS
• Can be sold to investors to generate additional
  equity for your projects
• Value of cash paid in by investors for tax
  credits is currently at a historically high level
• Equity can be used to pay a developer fee to your
  organization
• Equity can be used to pay for eligible project
  costs AND to recapitalize reserve accounts
• Equity can be used to supplement social service
  and tenant service budgets

6
Happy Towers A Case Study Of Funding With or
Without Tax Credits
PRIVATE LOAN (NO LIHTC EQUITY) TAX-EXEMPT BONDS LIHTC EQUITY
Sources Private loan 3.2M (Terms 1.2DCR, 6, 30 yrs, 80LTV) Owner Funds 2.4.0M LIHTC Equity 0 TOTAL SOURCES 5.60M Sources TE Bond loan 4.0M (Terms 1.10 DCR, 5.7, 40 yrs, 90 LTV) Owner Funds 0 LIHTC Equity 2.4M TOTAL SOURCES 6.4M
Costs Pay-off existing loan, repair, and other costs 5.4M Developer Fee 0 Reserves Operating 200K Tenant Svcs. 0 Replacement 0 TOTAL COSTS 5.60M Costs Pay-off existing loan, repair, and other costs 5.4M Developer Fee 430K Reserves Operating 200K Tenant Svcs. 170K Replacement 200K TOTAL COSTS 6.4M
7
What is Required When an Owner Chooses to Utilize
Tax Credits?

• A change of the existing ownership structure is
  required but the current owner can continue to be
  the primary DECISION MAKER for the project
• Long term use and income restrictions much like
  those currently in place
• Property Managers will have additional
  recordkeeping, and compliance duties but will be
  able to access additional training as needed

8
What Are The Next Steps ?

• Assess your total financing needs- Include all
  funds needed to pay off your existing HUD 202
  loan, preliminary construction budget, and an
  estimate of any related fees including estimated
  costs for required third party lender reports.
• Sign and return your Expression of Interest
  letter by June 1st to qualify for your incentive
• Contact DHCD with any questions or for additional
  information whenever you need

9
What Are The Next Steps ? (cont.)

• Choose qualified partners to assist with the
  preparing applications, loan processing and
  securing HUD approval, construction, and property
  management.
• Choose a credit enhancer for the tax exempt
  bonds.
• Choose a tax credit investor.

10
Pre- Application Tasks

• Select the members of your development team or
  choose an experienced development partner to
  assemble the team and oversee the development
  process on your behalf.
• Typical development teams members include the
  Owner/Developer, Contractor, Architect,
  Management Agent, Equity Provider, Attorneys and
  the various Lenders.
• Select vendors to complete all required third
  party Lender reports such as market studies,
  environmental reviews, capital needs assessments
  etc.
• Meet with the appropriate HUD Office to discuss
  the approval process
• Assemble and submit the financing applications.

11
DHCD Application Processing Phases

• Application Review DHCD staff will review the
  application to determine threshold compliance and
  minimum scoring requirements.
• Loan Processing DHCD will be a member of the
  processing team, providing assistance based on
  the experience and needs of the team and the
  project.
• Loan Closing and Construction Start Once your
  credit enhancer and tax credit investor provide
  approvals, DHCD will issue the tax exempt bonds
  and tax credits you need to start construction.

12
Who Are My DHCD Contacts ?

• Patricia Rynn Sylvester, Director, Multifamily
• [phone]
• 202_at_mdhousing.org
• Yvonne Johnson, Director, CDA Marketing and
  Outreach
• [phone]
• johnsony_at_mdhousing.org