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Credit Application for Contract for Deed

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					      CALIFORNIA
      TAX CREDIT
APPLICATION WORKSHOP
        MARCH 2, 2007
       LOS ANGELES, CA


   KEITH STANLEY & JOY HAN
  NOVOGRADAC & COMPANY LLP
                  Agenda
   Introduction
   Review of 9% v. 4%
   Set Asides and Available Credits
   Brief overview of State Credits
   Noteworthy changes – 2007 Regulations
   Underwriting Standards
   Basic Thresholds/Project Scoring
   Deadlines/Requirements
        Credit Percentages
9% Credit
  • New construction

  • Rehabilitation

4% Credit
  • Federally Subsidized

  • Tax-Exempt Bonds

  • Acquisition
Benefit of Bond & 4% Credit
   Lower interest rate on debt
   CDLAC undersubscribed
   CDLAC & TCAC open enrollment
   Higher limits on construction costs
   Higher developer fee
   Higher project size limits
   Automatic 4% credit
     Cost of Bond & 4% Credit
   Complex structure with less equity
   Higher closing costs
   More deferred fees
   Multiple regulatory agreements
         Benefit of 9% Credit
   Simple structure
   Low closing costs
   More equity w/ less debt
            Cost of 9% Credit
   TCAC is oversubscribed
   Scoring criteria more restrictive resulting in lower
    rents
   TCAC mandatory housing type
   Lower limits on construction costs
   Lower developer fee allowed
   Project size limited to 150 units (80 units rural)
   Rehab minimum is $20K per unit.
   Experience required
         Bond & 4% Credit
              Bond Purchase Contract
                Official Statement


  Bond
                                     Bond Issuer
Underwriter
      Bonds
                                                      Indenture
                              Bond Proceeds


                                                                              LIHC
Bond Holder                             Trustee                             Partnership
                                                                            “Borrower”
                                                           Loan Agreement
                 Payments of                                                   Reimbursement
                                                            Deed of Trust
              Principal & Interest         Credit                                Agreement
                                        Enhancement                             Deed of Trust

                                                            Credit
                                                           Enhancer
9% Credit Structure



        LIHC
      Partnership
      “Borrower”
    9% Credit Tiered Structure
General Partner      1%                    99%
  Fund L.P.                                         Corporate
                              L.P.                   Investor
                            Investor
                             Fund


   General Partner        99.99%
                                           General Partner
     501(C)(3)                              S-Corp./LLC


                  .005%                  .005%
                             LIHC
                           Partnership
                           “Borrower”
    2006 Outcomes: 9% Credits
   Funded 71 Projects
       4,249 total units
       4,135 affordable units
   New Construction:            65 projects
   Acquisition/Rehab:            6 projects
   Oversubscription rate:        2.17:1
      9% Credits Awards cont.
   Median federal credit award: $1,029,454
   Median project size:          60 units
   Also receiving State credits: 17 projects
   State credit exchanges:       6 projects
   Median state credit awards: $3,994,918
Demand for 9% Credits
     Projects submitted
       Yr. 2000 - 269
       Yr. 2001 - 174
       Yr. 2002 - 248
       Yr. 2003 - 200
       Yr. 2004 - 141
       Yr. 2005 - 124
       Yr. 2006 - 146
     Awardees: Organizational
              Type
   42 Joint Ventures (59%)
   27 Non-profits    (38%)
   2 For-profits      (3%)
        State Tax Credits/Bond
               Projects
 Total available State credit: $89,542,508
 15% of the available total for 4% Bond Projects
  equals $13,431,376
 Total available for the two 9% Rounds:
  $76,111,132
 State credits available in the first 9% round is
  $38,055,566 (50% total)
(Note: Numbers on Available Credits List differ)
                 Set-Asides
Non-profit            5% (Geographic)
Non-profit Homeless   5%
Rural                 17.2%
Rural RHS             2.8%
Small Development     2% (Geographic)
At-Risk               5% (Geographic)
Special Needs/SROs    2%
Supplemental          3%
Total                 42% (12% Geographic)
    Set Asides: Nonprofit (10%)
            2005                            2006
   7 projects awarded (4          10 projects awarded (3
    family, 1 senior, 1             family, 2 senior, 1
    SRO, 1 special needs)           SRO, 4 special needs)
       2 homeless assistance          5 homeless assistance
        programs                        programs
   Projected Set Aside:           Projected Set Aside:
    $6,685,100                      $6,860,000
   Actual allocation              Actual allocation
       $6,982,018 in federal          $6,920,000 in federal
        credits                         credits
         Set Asides: Rural (20%)
            2005                             2006
   16 projects awarded             13 projects awarded
    (13 family, 3 senior)            (12 family, 1 senior)
       No RHS projects                 No RHS projects
   Projected Set Aside:            Projected Set Aside:
    $13,370,198                      $13,700,000
   Actual allocation               Actual allocation
       $14,360,986 in federal          $13,965,677 in federal
        credits                          credits
Set Asides: Small Develop (2%)
            2005                            2006
   5 projects awarded             4 projects awarded
   Projected Set Aside:           Projected Set Aside:
    $1,325,543                      $1,370,000
   Actual allocation              Actual allocation
       $1,554,313 in federal          $1,500,000 in federal
        credits                         credits
        Set Asides: At-Risk (5%)

            2005                            2006
   3 projects awarded             1 project awarded
   Projected Set Aside:           Projected Set Aside:
    $3,342,550                      $3,400,000
   Actual allocation              Actual allocation
       $1,715,044 million in          $218,300 in federal
        federal credits                 credits
Set Asides: Special Needs/SRO
             (2%)
            2005                            2006
   No projects awarded            2 projects awarded
   Projected Set Aside:           Projected Set Aside:
    $1,325,543                      $1,370,000
   Actual allocation              Actual allocation
       $0 in federal credits          $1,700,000 in federal
                                        credits
                Geographic
Los Angeles         33%
Central             10%
San Diego           10%
East Bay            10%
Orange              8%
Inland              8%
South Bay           6%
Capital             6%
Coastal             5%
San Francisco       4%
    2006 Geographic Results (M)
Region          Appointment   Award   Difference
Los Angeles        $19.5      $22.0     ($2.5)
Central             $2.3       $2.2      $0.1
N&E Bay            $5.5       $4.4       $1.1
San Diego          $4.9       $5.6      ($0.7)
Inland Emp.        $0.9       $1.8      ($0.9)
Orange Co.         $2.6       $3.4      ($0.8)
S&W Bay            $4.7       $4.8      ($0.1)
Capital North      $1.5       $2.4      ($0.9)
Central Coast      $4.9       $5.2      ($0.3)
San Francisco      $4.4       $1.7       $2.7
       Geographic: LA County
              (33%)
   11 projects             20 projects
    awarded                  awarded
   Available credits:      Available credits:
    $14.4 M                  $19.5 M
   Actual allocation:      Actual allocation:
    $13.1 M                  $22 M
    Geographic: Central Region
             (10%)
   6 projects awarded      3 projects awarded
   Available credit:       Available credit:
    $4.5 M                   $2.3 M
   Actual allocation:      Actual allocation:
    $7.7 M                   $2.2 M
     Geographic: North & East
           Bay (10%)
   3 projects awarded      1 project awarded
   Available credit:       Available credit:
    $4.5 M                   $5.5 M
   Actual allocation:      Actual allocation:
    $4.5 M                   $4.4 M
Geographic: San Diego (10%)
   5 projects awarded      3 projects awarded
   Available credit:       Available credit:
    $4.9 M                   $4.9 M
   Actual allocation:      Actual allocation:
    $5.5 M                   $5.6 M
    Geographic: Inland Empire
              (8%)
   5 projects awarded      1 project awarded
   Available credit:       Available credit:
    $3.8 M                   $0.9 M
   Actual allocation:      Actual allocation:
    $7.3 M                   $1.8 M
    Geographic: Orange County
              (8%)
   3 projects awarded      3 projects awarded
   Available credit:       Available credit:
    $3.9 M                   $2.6 M
   Actual allocation:      Actual allocation:
    $5.6 M                   $3.4 M
    Geographic: South & West
           Bay (6%)
   1 project awarded       2 projects awarded
   Available credit:       Available credit:
    $2.3 M                   $4.7 M
   Actual allocation:      Actual allocation:
    $0.9 M                   $4.8 M
Geographic: Capital/Northern
           (6%)
   3 projects awarded       2 projects awarded
   Available credit: $      Available credit:
    ??                        $1.5
   Actual allocation:       Actual allocation:
    $2,957,091                $2.4 M
     Geographic: Coastal (5%)
   1 project awarded       5 projects awarded
   Available credit:       Available credit:
    $2.9 M                   $4.9 M
   Actual allocation:      Actual allocation:
    $0.7 M                   $5.2 M
    Geographic: San Francisco
             (4%)
   2 projects awarded      1 project awarded
   Available credit:       Available credit:
    $3.6 M                   $4.4 M
   Actual allocation:      Actual allocation:
    $3.0 M                   $1.7 M
            2007
    TCAC Regulation Changes
   Scattered Site Scoring
   Contracted Service Off-Site
   Rural 2nd Tiebreaker Eliminated
   Low Scoring Applicants
   Updates to At-Risk Provisions
   4% Tax Credit Applicants: Revised Basis Limit
    Boosts
   9% Credits: Additional Boosts in Selected Areas
    TCAC Regulation Changes
   Scattered Site Scoring
       Section 10325(c): Score scattered site
        proportionately by units within distances.
       Reason: To reward projects wherein most
        residents are proximate to amenities and within
        revitalizing areas.
    TCAC Regulation Changes
   Contracted Services Off-Site
       Section 10325(c)(5)(B): Clarifies that services
        may be contracted if within ½ mile and free to
        residents.
       Reason: To eliminate ambiguous text.
    TCAC Regulation Changes
   Rural 2nd Tiebreaker Eliminated
       Section 10325(c)(12): Location within a QCT or
        other zone no longer a competitive advantage.
       Reason: Could lead to over concentration and
        exclusion of other needy areas, and contribute
        to higher land pricing.
    TCAC Regulation Changes
   Low Scoring Applications
       Section 10325(d)(2): Committee given clear
        authority to decline low-scoring applicants and
        to set a per-round pass point.
       Reason: Clarifying changes provide Committee
        ability to decline low-scoring applications.
    TCAC Regulation Changes
   Updates to At-Risk Provisions
       Section 10325(g)(5): Established a 5 year look
        back condition and specifies that the project
        must be at risk of losing affordability.
       Reason: Incorporates statutory changed and
        clarifies qualifying terms.
        Underwriting Standards
   Contractor profit, OH, and General
    Requirements
       Cost limitation of 14% of site work and
        structures
       Excludes general liability insurance
        Underwriting Standards
   Developer Fee & Consultant Fee - 9%
       New construction
          15% of eligible basis
          $2,000,000 in cost; $1,400,000 in basis

       Acquisition/rehabilitation
          5% of acquisition basis
          15% of rehabilitation basis

          $2,000,000 in cost; $1,400,000 in basis
         Underwriting Standards
   Developer Fee & Consultant Fee - 9%
       New construction
          15% of eligible basis
          $2,000,000 in cost; $1,400,000 in basis

       Acquisition/rehabilitation
          5% of acquisition basis
          15% of rehabilitation basis

          $2,000,000 in cost; $1,400,000 in basis

         (15% for projects with at least $15,000 hard costs per
           unit or where at least 30% of the units are restricted
           at 50% AMGI)
        Underwriting Standards
   Project Feasibility
       Threshold basis limits
       Eligible basis adjustments
       DDAs/QCTs
       Land & building costs limited to appraisal
       Commercial portion separated
        Underwriting Standards
   Permanent Financing
       Loan terms identified in app
       Ceiling rate used on variable rate loans
       Applicant resources
        Underwriting Standards
   Funding gap
       Deferred developer fee
       Deferred fees – not to exceed 7.5% of EB prior
        to Dev fee
       If eligible, may apply for state tax credits to fill
        funding gaps
        Underwriting Standards
   Operating analysis
       Operating expense minimums
       Vacancy factor 5% (family, senior, at risk) or
        10% (special needs, SROs)
       Property taxes at 1% replacement cost, or
        identified 501(c)(3) general partner
       Minimum DCR – 1.10
       Cash flow limited to 25% of debt service or 8%
        of gross income in 1st 3 years
        Underwriting Standards
   Reserve requirements
       $300/unit annually replacement reserve for
        rehabilitation projects
       New construction or senior projects – only
        $250/unit annually
       Operating reserve – 3 months of operating
        expenses and debt service
    California Basic Thresholds
   Housing need and demand (market study)
   Site control (title report)
   Financing commitments
   Local approvals and zoning
   Financial feasibility
    California Basic Thresholds
   Sponsor characteristics
   Minimum construction standards
   Deferred payment financing, grants and
    subsidies
   Project size and credit amount
       150 LIHC unit max, except 80 for Rural set-
        aside
   Rehab minimums
    California Basic Thresholds
   Additional Thresholds
       Large Family
       Senior
       SRO
       Special Needs
       At risk
                Project Scoring
   Leveraging (20 points)
       Cost efficiency
       Credit reduction (at least 2 points)
       Public funds
                   Project Scoring
   Experience (9 points)
       General Partner (CPA certification)
            Previously owned is acceptable
       Management company
            Executed management agreement
               Project Scoring
   Housing needs (10 points)
       Large Family
       SRO
       Special needs
       Seniors
       At-Risk
                 Project Scoring
   Amenities (25 points)
       Site amenities (15 points)
          Transit, park, library, grocery, medical clinic or
           hospital, pharmacy
          School/Senior Center/Special Needs Facility (if
           applicable)
          Color photos, contact info

       Service amenities (10 points)
         10 years, physical space, budget, contract
         TCAC recommends Microsoft Streets and Trips
                Project Scoring
   Neighborhood Revitalization (9 points)
       Plan adopted (2 points)
       3rd party letters (up to 2 points)
       Narrative (2 points)
       Letter from official (up to 3 points)
               Project Scoring
   Balanced communities (9 points)
       Rural set aside – N/A
       Neighborhood revitalization points – N/A
       Local government providing funds of 5% of
        total costs
                Project Scoring
   Sustainable building methods (8 points)
       Exceed Title 24 by 10% (4 points)
       Other energy efficiencies (1-2 points each)
       Architect/engineer certification required
               Project Scoring
   Lowest income targeting (52 points)
       Must score at least 45 points
       Only Rural set-aside can use 55% AMI column
       10% at 30% AMI spread across bedroom sizes
        – 2 add’l points
       Maintain for 55 years
                Project Scoring
   Readiness to Proceed (20 points)
       150 day requirement
       Site plan approval
       Construction financing committed
       Public approvals (except building permits)
       Design review approval


   State credit substitution (2 points)
              Project Scoring
             Tiebreaker Criteria
   First……..Housing Type goals
   Second……..QCT or RC, EZ, or EC (if 8
    points under Revitalization), or if not in one
    of these areas, scored 9 points in
    Revitalization or Communities; or a Rural
    project in a QCT, RC, EZ, EC, or CC
             Project Scoring
             Tiebreaker Criteria
   Third, the application with the lowest ratio
    of requested unadjusted eligible basis to
    total residential project costs, excluding
    developer fee, total land cost, GP/sponsor
    funds or loans from the investor unless the
    loan is the permanent loan. This ratio can
    not increase at placed in service.
          Project Ranking
Beginning with top-ranked:
 Set-asides

 $1 left – set aside gets funded

 Geographic areas – 1 project per area in
  each funding round
 125% and 50% and 5 point considerations
                  Deadline
   March 22, 2007 at 5:00 pm deadline!!!
      (You can FedEx/UPS them now!!!)

   Application fee = $2,000 cashiers check
   One original and one copy of app
   Sign & notarize Applicant Statement
   No missing documents!!!
  QUESTIONS?
          Keith Stanley
        (415) 356-8026
Keith.Stanley@Novoco.com
               Joy Han
        (415) 356-8043
  Joy.Han@Novoco.com
  free tax credit resources: www.novoco.com

				
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