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Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

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Presentation on theme: "Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan."— Presentation transcript:

1 Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan

2 Determine Status of Residuals and Replacement Reserve Maximize Funds Available for Neighborhood & Housing Improvement Program Modernize Maplewood Manor 1/18/2014AAB Development Strategies, LLC2 Goals

3 Residuals Available for New Projects Legal Opinion & HUD Concurrence $1 million+ Appraisal = $3.7 million Maplewood Manor (MM) Borrowing Capacity 3.6% Interest over 40 Years – Fannie Mae or FHA 0.87 Loan to Value Ratio $3.2 million Available for New Project & MM Rehabilitation Use Work Plan to Determine Mix Total of $4.2 million Available for Rehab & New Projects + $550,000 Replacement Reserve Available for Rehab Recommend Placing Property in Separate LLC Segregate Residuals, Liability & Profits (Residuals) First – Do Nothing 1/18/2014AAB Development Strategies, LLC3

4 Basis for Appraised Value (Net Operating Income – Residual Value) / Cap Rate Cash Available to Investor Cap Rate = Average Return on Investment Expected from Real Estate Investment Bay City Cap Rate = 9.5% Every $1 Increase in NOI = $10.35 in Value Appraiser Has Significant Professional Discretion Not Totally Dependent on Actual Expenditure Cap Rate is not a Precise Number Appraisal = $3.7 million Final Appraiser Will Be Selected by Lender Analyzing Value 1/18/2014AAB Development Strategies, LLC4

5 Increase Revenue BCHC Pays Rent Decrease Expenditures Compared BCHC Expenditures Versus LIHTC Average Administrative Cost Low (No Services to Seniors) Repair and Maintenance Cost Very High Utilities Same Lack of PILOT (Also Needed for LIHTC Application) Obtain PILOT + Service Agreement with City = No $ Change to City Expenditures May be Reduced Substantially If Changes Can be Made, Value is Increased Possible Increase in Value Up to $5.1 million Possible Debt Available $4.4 million How to Increase Value 1/18/2014AAB Development Strategies, LLC5

6 Two Proposals American Community Developers Housing Partners, Inc. American Community Developers (ACD) Offered Appraised Value - Contingent on LIHTC Award Award Highly Likely For-Profit Excellent Reputation – Primarily Michigan Projects Maplewood Manor will be Updated to 2014 Standards Lease space to BCHC @ $1.00/year for 10 years Services to Seniors Expanded Second – Sell Maplewood Manor 1/18/2014AAB Development Strategies, LLC6

7 Housing Preservation, Inc. (HPI) Offered Appraised Value - $50,000 Down Payment National Nonprofit Relatively New Organization – No Michigan Presence Growing by Substantial National Acquisitions Maplewood Manor May Not be Updated for Some Time Will Have Trouble Scoring MSHDA LIHTC Points BCHC to Relocate – May Be Negotiable Services to Seniors Expanded Funds Available for Other Projects Sales Price of $3,700,000+ +Residuals of $1,000,000 = $4,700,000+ 1/18/2014AAB Development Strategies, LLC7 Second – Sell Maplewood Manor

8 Four Partnership Proposals Volunteers of America – Non-profit Presbyterian Village – Non - profit Lutheran Homes of Michigan - Non-profit Shelborne Development – For-profit Proposals All Similar Form Development Partnership = Roles to be Defined Partner Must Have LIHTC Management Lead 50-50 w For-profit granting 50.1 to BCHC Form Limited Dividend Housing Association LLC LDHA LLC Purchase Property for Appraised Value Apply for LIHTC Award BCHC Continues Stay in Property – Pays Rent - Negotiable BCHC Participates in Development & Management Maplewood Manor will be Significantly Updated to 2014 Standards Services to Seniors Expanded Third – LIHTC Partnership 1/18/2014AAB Development Strategies, LLC8

9 Prepared Work Plan Fusco, Schaffer, Pappas Criteria Bring Property Up to 2014 Building Codes – Essentially Like New Make All Apartment Visitable Improve Barrier Free Apartments Meet Updated Certificate of Needs Assessment Meet New Green Standards Work Plan Priced by Damone Group Major Contractor Key Subs Price Concepts Minimum Hard Costs Required = $20,000/Unit LIHTC Points Granted if > $30,000/Unit Tentatively Added 4 Apartments 1/18/2014AAB Development Strategies, LLC9 Understanding LIHTC

10 1/18/2014AAB Development Strategies, LLC10 Alternative Design Changes

11 1/18/2014 AAB Development Strategies, LLC 11 Use of Funds UsesAmountPercent Acquisition$3,715,00030.03% New Construction/Rehabilitation$6,127,35449.53% Soft Costs$656,6546.94% Reserves$170,0001.37% Developer Fee$1,500,00012.13% Total$12,371,018100.00%

12 1/18/2014 AAB Development Strategies, LLC 12 Calculation of Tax Credit Equity ItemAcquisitionRehabilitation Eligible Basis$3,330,000$8,226,068 QCT Boost1.01.3 Total Qualified Basis$3,330,000$10,693,889 Amount of Tax Credit3.34%9.0% Eligible Annual Credit$111,222$962,450 Total Annual Eligible Credit$1,073,672 Total Tax Credits$10,736,720 Equity Pricex.84 Total Equity Available$9,018,845

13 1/18/2014AAB Development Strategies, LLC13 Sources of Funds Amount LIHTC Sale$9,018,845 Deferred Development Fee$750,000 FHA Guaranteed Loan$2,577,173 Total Source of Funds$12,346,013 Uses of Funds$12,346,018

14 Item / Year12345 15 Net Revenue$1,244,408$1,256,852$1,271,959$1,280,678$1,297,525$1,520,257 Less Expenditures740,331768,191797,226827,491859,0451,088,213 Less reserves 48,00049,572 50,563 51,57452,60661,637 Debt Service$130,352 Net Cash Flow$325,125$308,737$291,280$272,697$252,988 $229,557 Deferred Dev. Fee$325,325$308.737$150,128 Distribution00$141,152$272,697$252,988 $229,557 Revenue Inflation = Expenditure Inflation = Initial 1.0% 3.0% Future 2% 6% Year 6 1/18/2014AAB Development Strategies, LLC14 Projected Cash Flow

15 General Partner Experience >=6 Units, 3 Years Management Agent Experience >=6 Units >= 3 years Project Size Successful Property Points Number of Projects Total Properties Michigan Properties 1 project 4 1-5 Projects 4 Points1 Point 2-4 projects 8 6-11 Projects7 Points2 Points 5-8 projects 12 12-17 Projects10 Points3 Points 9-12 projects 16 18+ Projects12 Points4 Points 13+ projects 20Maximum15Points 1/18/2014AAB Development Strategies, LLC15 Key LIHTC Partnership Points

16 LIHTC CriteriaLIHTC Points PILOT10 Rehab > $30,000/Unit5 Community Space5 All Units Visitable5 10% Modern Barrier Free5 Green Policy10 Community Revitalization Plan10 1/18/2014AAB Development Strategies, LLC16 Some Key LIHTC Points

17 1/18/2014 AAB Development Strategies, LLC 17 Total Funds for New Projects Uses Do Nothing Sale LIHTC Partner Residuals$1.00M Acquisition$0.00M>$3.70M Borrowed Capital>$3.20M$0.00M Development Fee$0.00M $.75M Subtotal>$4.20M>$4.70M>$5.45M Annual Operating Cash Flow$50k/yr$0k/yr $100k -$175k/yr Extent of ModernizationModest ACD = Max HPI = ??? Max

18 Transfer Property to a LLC Take Actions to Increase Net Cash Flow Negotiate PILOT + Service Agreement Reduce Repair & Maintenance Expense - Use Replacement Reserve Interview Potential Developer Partners Agreement for LDHA to Acquire MM for Appraised Value Agreement to 50-50 Development Fee Ask Partner to Define BCHC Staff Roles Agreement to Share in Predevelopment Costs Developer to Describe How They will Maximize LIHTC Points Select Partner Form Limited Dividend Housing Association LLC Apply for LIHTC Award in 2/2014 or 8/2013 Recommendation 1/18/2014AAB Development Strategies, LLC 18

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