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Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni Austin Hotel Downtown | Austin, Texas Meeting the Challenge: Creating Opportunities and.

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Presentation on theme: "Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni Austin Hotel Downtown | Austin, Texas Meeting the Challenge: Creating Opportunities and."— Presentation transcript:

1 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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 Shaw Capital Area Housing Finance Corporation Matthew Bissonette Citi Community Capital George Littlejohn Novogradac & Company

2 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

3 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

4 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Affordable Housing Overview

5 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Can you lower your rent to $400/month? Developer/ Owner Sorry. “Affordable Housing” Affordable Housing Overview DEBT Total Project Costs

6 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: DEBT Investor Tax Liability Section 42 “Low Income Housing Tax Credit” Developer/ Owner x 10 years Income limits Rent limits Partnership LLC S-Corp Tax Liability Intro to LIHTC and Section 42 Equity Bonds Basic Zoom (out) Total Project Costs Bonds Low-Interest Debt DEBT

7 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: * x 10 = $100 Mil * mathematical potential if nearly all bonds were issued for affordable housing; actual credits utilized will be far less than $100 million Private Activity Tax-Exempt Bonds Section 42 State Allocating Agency Tax Credit Calculation: Eligible Basis LIHTCs Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 Texas population: 2012 Approx x mil $2.20 $56.5 mil LIHTCs Texas population: 2012 Approx x mil $95 $2.44 bil Greater of $95 per capita OR $284,560,000 x 10 = 9%, per capita, “competitive” credits 4% credits $2.44B LIHTCs Developer/ Owner

8 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Tax Credit Calculation: Eligible Basis Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 x x x x x x10 $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 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: $3.96 Mil$4.33 Mil Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 xxxxxx xxxxxx10 $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 $56.5 mil LIHTCs

10 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 Developer/ Owner $56.5 mil LIHTCs

11 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 Developer/ Owner $56.5 mil LIHTCs

12 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: New Constr.Acq / Rehab 9% 3.29% 3.32% Construction Method Financing Method “4% acq/rehab deals” Non-volume- cap-bond debt 3.32% “Federally Subsidized” “9% acq/rehab deals” “9% new construction deals” “4% new construction deals”

13 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs Developer/ Owner Investor Tax Liability Fund Syndicator “Upper Tier” “Lower Tier” LP GP LP

14 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs Developer/ Owner Investor Tax Liability Fund

15 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs

16 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs $3.96 Mil$4.33 Mil xxxxxx xxxxxx10 $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% x

17 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs B A Total project costs = $11.2 Mil $2.5M $11.2 Mil Equity 22% x xxxxxx xxxxxx10 $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%

18 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs B A Total project costs = $11.2 Mil $2.5M $11.2 Mil Equity 22% x xxxxxx xxxxxx10 $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” =

19 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs B A Total project costs = $11.2 Mil $2.5M $11.2 Mil Equity 22% x xxxxxx xxxxxx10 $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” =

20 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs B A Total project costs = $11.2 Mil $11.2 Mil $3.3M Equity 29% x xxxxxx xxxxxx10 $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” =

21 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs Private Activity Tax-Exempt Bonds $2.44B Bonds Private Activity Tax-Exempt Bonds Bonds

22 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

23 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Developer/ Owner Section 42 4% Tax Credits State Allocating Agency Private Activity Tax-Exempt Bonds $2.44B

24 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Public Bonds Interest Payments Airports Student Loans Single-Family Housing Industrial Development Bondholders Private Bonds Interest Payments Private Sector Interest Payments Bonds State Allocating Agency Multi-Family Rental Housing Private Activity Tax-Exempt Bonds Private Activity Tax-Exempt Bonds $2.44B

25 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

26 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: State Allocating Agency Developer/ Owner Bond Application Private Activity Tax-Exempt Bonds Section 42 4% Tax Credit Calculation $2.44B

27 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Bond Issuer (City/County) Borrower Public hearing or “TEFRA” requirement P’ship

28 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Credit Enhancer Purchasers Trustee Bond Proceeds Project Interest Payments “AAA” “Aaa” Interest Payments Underwriter Lender Bond Issuer (City/County)

29 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

30 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Bond Financing Time Line (separate handout provided)

31 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

32 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP 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 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

33 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP Types of Bond Issues 3.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 Bond Application Private Activity Tax-Exempt Bonds

34 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP Financing Alternatives DSCLTVAmort.C/E FeesTimeframeVariable? Credit Enhancement Alternatives FHA / GNMA1.1190%+35-40Low90-150No Fannie Mae and Freddie Mac %30-35Mid60-90Yes Bank Letters of Credit %25-30High60-90Yes Non-Credit Enhanced Executions Stand-Alone Bond Rating1.45n/a30Mid-to-High60-90No Conduit Bond Lender %30-35n/a60Maybe

35 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

36 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs 17% Equity $1.9M 100% B A Total project costs = $11.2 Mil xxxxxx xxxxxx10 $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 x $2.5M $11.2 Mil Equity 22%

37 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: $2.5M $1.9M Private Activity Tax-Exempt Bonds LIHTCs 2,439,100,000 $56.5 mil LIHTCs B A Total project costs = $11.2 Mil $11.2 Mil Equity 22% x xxxxxx xxxxxx10 $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% Equity % 100% % Bonds

38 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: B A Total project costs = $11.2 Mil $2.5M $11.2 Mil Equity 22% x xxxxxx xxxxxx10 $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%

39 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-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%)

40 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: “Aggregate Basis” Fixed Assets $6M “Good Costs/Bad Costs” 95% of proceeds must be used for “good costs” $5.7 mil Good Costs Land and depreciable costs for income tax purposes …paid or incurred after the date of the Inducement Resolution

41 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: “Aggregate Basis” Fixed Assets $6M “Good Costs/Bad Costs” 95% of proceeds must be used for “good costs” ≤ $300k Bad Costs Costs incurred prior to Inducement Resolution Intangible assets Bond issuance costs and underwriting Loan origination fees amortized over the perm loan period Bad Costs Costs incurred prior to Inducement Resolution Intangible assets Bond issuance costs and underwriting Loan origination fees amortized over the perm loan period

42 Copyright © 2012 Novogradac & Company LLP Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: “Good Costs/Bad Costs” 95% of proceeds must be used for “good costs” 60 days “Good Costs” “Bad Costs”

43 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

44 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-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”

45 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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

46 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP So, how are deals getting done ?

47 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP City View Apartments

48 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP City View Apartments

49 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-Conference Workshop: Copyright © 2012 Novogradac & Company LLP

50 Creating Partnerships for Tax-Exempt Multifamily Housing Bonds and 4% Tax Credits Pre-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

51 Copyright © 2012 Novogradac & Company LLP April 25-28, 2012 Omni 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


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