Global Deal Funding, LLC Shamrock Development

Associates, Inc. Advisory Services

phone: 617.851.2765 | | 288 Grove Street #201 Braintree, MA 02184 |

MEMORANDUM

To: Mary Davis

From: Sean Carpenter

Re: Tax Incremental Financing Request

Date: August 24, 2015

As requested, we have reviewed the submission for Tax Incremental Financing for the Carleton Street affordable

housing project that seeks an operating subsidy of the excess valuation of a “to-be-developed” site at 17 Carleton

Street. The purpose of this memo, at your request, is to evaluate the financial feasibility of the project and the use of

the TIF statute to meet the City’s affordable Housing needs.

Financial Summary

The 37 unit project assumes receipt of roughly $587,279 in Low Income Housing Tax Credits from the Maine State

Housing Agency, as well as an additional soft loan of $310,910. The applicant will also apply to MSHA for a

permanent loan in the amount of $1,062,926. The proceeds of the LIHTC will be used for construction of the project

and a use of bridge financing is intended. Although available every year, LIHTC can be very competitive and final

amounts are contingent on application scoring, basis eligibility and the timing of construction. As a result, the final

amount may be lower or higher. Therefore, it is not unreasonable to assume that the request of additional soft

subsidies may be done as well as a deferral of the developer fee.

Developer Capacity

Avesta Housing is well positioned to handle the execution of this development. Their financial position and

experience in developing affordable housing is significant and should give little concern as to the ability to complete

the project in accordance with its plans. Additionally, since the project will utilize LIHTC and other state funds, the

City should take note that the developer is experienced in layering subsidies on projects. The project as presented to us

meets the growing need for affordable housing in the City while creatively utilizing all available resources to execute

the development.

Development Risk

The development risk for the project is solely based on the receipt, and therefore sale, of Low Income Housing Tax

Credits. Without receipt of the development subsidy, it is unlikely the project will break ground.

Financial Underwriting

When underwriting a transaction, certain areas raise red flags that could extend doubt on the financial viability of a

transaction. These areas include operating expenses, debt service coverage ratios, excessive development costs and

assumptions that do not meet industry standards. This project assumes considerable operating expenses that exceed

76% of income which could cause operating deficits in years of economic retreat. The developer/sponsor accounted for

such a situation through the use of an operating deficit reserve. The underwriting provided by GDF assumes a higher

vacancy rate than the developer which is significantly higher than the market. Therefore the concerns are mitigated by

market conditions. A review of the operating proforma also notes that the debt service coverage ratio falls below 1.15

in GDF assumptions and below 1.0x in the background materials without the TIF reimbursement. There is no

mitigation of this concern as rents are restricted, although the Operating deficit reserve can serve as a stopgap in years

that TIF subsidy is delayed.

Carelton Street Tax Incremental Financing cont’d

Global Deal Funding Advisory Services 288 Grove Street #201 Braintree, MA 02184 617-851-2765

Meets Program Intent

The statute requires that the project meet certain criteria prior to being submitted for regulatory approval.

Most notably the statute requires:

1. An application with narrative be submitted to the appropriate agency outlining the project that

specifically notes that at least 1 public hearing has been held, contain district maps, assed

valuation of the district, proposed valuations and required calculations.

2. Said hearing must be published in a notable written media journal.

3. The project must meet or exceed the City’s need for expansion of Affordable Housing

4. The proposal must account for detrimental claims of surrounding property owners.

5. The project must be approved by the City legislative body. This approval will also contain a

development program noting the financial benefit to the City in increased valuation and the use of

additional tax resources.

Conclusion

A review of the package by GDF notes that all of the above components were dutifully outlined in the

package. The project clearly creates affordable housing in an area of great need. The project

development sits among residential use areas and will provide a benefit to the neighborhood financially

and aesthetically. More than 33% of the units are restricted as affordable (100% affordable) and

committed to remain affordable for an extended use period of 30 years beyond LIHTC compliance of 15

years.

PROPERTY SUMMARY, INCOME & EXPENSES

Operating Subsidy

100%

20/50

Yes

TIF

$0

$0

$0

Efficiency 12 5 $540 4 $675 3 $813 $730 $37 $773 $825

1/1 23 0 $0 14 $725 9 $870 $869 $45 $823 $1,025

2/1 2 2 $1,044 $1,074 $54 $987 $1,400

Totals 37 5 $2,700 18 $12,850 45 $12,357 $27,907

Income Analysis Expense Analysis

0% 2015

per unit Actual

Gross Potential Rent $0 $334,884 $9,051 $0 #DIV/0! $20,029 $541

Vacancy -5.00% $0 -$16,744 $453 $0 #DIV/0! $27,133 $733

Net rental income $0 $318,140 $8,598 $0 #DIV/0! $83,204 $2,249

Laundry income $0 $3,800 $103 $0 #DIV/0! $34,943 $944

Commercial income $0 $0 $0 #DIV/0! $46,106 $1,246

Miscellaneous income* $0 $0 $0 #DIV/0! $11,211 $303

Subtotal other income $0 $3,800 $103 $0 #DIV/0! $12,950 $350

Eff. Gross Income $0 $321,940 $8,701 Other: MIP $0 #DIV/0! $11,911 $322

Stabilized NOI 74,453 Cap Rate 76.87%

Value 1,389,045 5%

Portland, ME HUD

MFI: Year 2015

1 2 3 4 5 6 7 8

27,000$ 30,850$ 34,700$ 38,550$ 41,650$ 44,750$ 47,850$ 50,900$

32,400 37,020 41,640 46,260 49,980 53,700 57,420 61,080

43,200 49,400 55,550 61,700$ 66,650 71,600 76,550 81,450

All Utilities Included Utilities Not Included

Utility Allowance Sec. 42 Rent Limits Sec. 42 Rent Limits

@ 50% @ 60% 80% @ 50% @ 60% @80%

STUDIO 37.00$ 675.00$ 810.00$ 1,080.00$ 638.00$ 773.00$ 1,043.00$

1 BED 45.00$ 723.13$ 867.75$ 1,157.50$ 678.13$ 822.75$ 1,112.50$

2 BED 54.00$ 867.50$ 1,041.00$ 1,542.50$ 813.50$ 987.00$ 1,488.50$

3 BED 1,002.50$ 1,203.00$ 1,604.38$ 1,002.50$ 1,203.00$ 1,604.38$

4 BED -$ 1,118.75$ 1,342.50$ 1,913.75$ 1,118.75$ 1,342.50$ 1,913.75$

5 BED -$ 1,234.38$ 1,481.25$ 1,975.00$ 1,234.38$ 1,481.25$ 1,975.00$

Notes

Section 42 Rent Limits should be All Utilities Included if Tenants pay no out-of-pocket utilities

Per apt

Reserve Deposits

Comments

HUD Mortgage Program:

Proforma YearLine Item

Increase to

Proforma

% Affordable

Set Aside

Utility

Allowance

Balance in replacement reserve

2016

City,State Zip

Total number of apartments

Additional Subsidy? (236, RAP, Rent Supp?)

Tax Implications on sale?

Section 8

FMR 2015

Tax Incremental Financing

Portland, ME

17 Carelton Street

$247,487

Hazard Insurance

Utilities

Real Estate Taxes

Management

Administration

Operating & Maint.

Total Operating Expenses $6,689

Extended Use Restrictions?

2016

40% LIHTC

Rent50 % LIHTC

50% LIHTC

Rent

60 %

LIHTC

60% LIHTC

Rent

NA

Total Units

Any additional Cash from sale?Family

Rent Analysis

40% LIHTC

NA

37

Built

HAP Contract Number

Family, elderly or mixed?

Market

Rent

Max LIHTC

@60%

Carelton Street

2015

UNITS37

Basic Information

Name of Property

Transaction: Acq.

Date Updated: August 25, 2015

Carelton Street

Subsidy/Financial information

Bedrooms

Proforma

Year

Address

Low Income (80%)

30 Year

(Provide a detailed summary of the property and cite sources for above data including FMR's, Utility Allowances, Etc.)

Current

Imputed (60%)

Tax Credit and Median Income Analysis

CITY/STATE

$77,100.00

Persons

Very Low-Income (50%)

$0$0

C:\Users\Sean\Dropbox\RFP\Portland RFP\Carelton Street\Carelton Street 08-25-15 / Income & Expenses

DEVELOPMENT BUDGET

37 Units

2015

200,000 5,405 10.0% % Land

0 0 per unit

Total Acquisition Costs 200,000 5,405

4,229,427 114,309 40,270 per unit

230,050

0 0 0.0% 4,459,477

0 0 6.0% 4,459,477

0 0.0% 4,459,477

4,459,477 120,526

222,974 6,026 5.0% 4,459,477

Total Construction Costs 4,682,451 126,553

328,261 8,872 0.0% 4,459,477

0

0 1.0% 4,459,477

0 2.0% 4,459,477

0

0

31,250 845 0.0%

53,000 1,432

43,500 1,176

15,000 405

10,000 270

6,000 162

3,000 81

3,000 81

0 0

20,524 555 2.0% 4,459,477

12,000 324 2.0% 4,459,477

0 0

0 0

47,000 1,270

0 0 per unit

0 0

40,000 1,081 0.0% 572,535

Total Soft Costs 612,535 16,555

16,800 454 1.3% 1,062,926

30,109 814 1,062,926

93,844 2,536 4.25% 10,100,000

0

15,000 405 4.00% annual credit

41,818 1,130 per unit

0 0.0% 10,100,000

15,000 405

Total Financing Costs 212,571 5,745

155,632 4,206 0 26,330

0 0

28,659 775

0

0

0

0

0 0 62,044

44,524 1,203 0 per unit

Total Reserves 228,815 6,184

606,000 16,378

0 0

0 0

Total Developer's Fee 606,000 16,378

6,542,372 176,82112

Calculation/Source:

Site Work

Construction Hard Costs

Contractor's Gen. Requirements

I. DEVELOPMENT BUDGETTotal Budget Per Unit

Carelton Street

Davis Bacon Premium

Construction Contract

Construction Contingency

Land Acquisition

Building Acquisition

Contractor's Overhead

Civil Engineer

Architect-Design

Landscape Architect

Mechanical Engineer

Permits

Surveys

Legal

Structural

Sprinkler/Electrical Engineer

Insurance during construction

Security

Furniture, Fixtures & Equipment

Market Study

Development Consultants

Taxes during construction

Title & Recording

Appraisal

Soft Cost Contingency

Insurance Escrow

Construction Loan-Interest

Phase I

Resident Services

Operating Reserve

Compliance Monitor Fee

Bond Issuance Costs

Interest Escrow

Other Financing Costs

Permanent Loan-Fees

Construction Loan-Fees

Audit/Cost Cert/Accounting

LIHTC Application Fee

Financial Consulting

MIP

Rent-up & Marketing

Relocation

Construction Period

Initial Operating Deficit Reserve

Rent Phase-in Reserve

Working Capital Reserve

Sensitivity Reserve

Held for Reserves

Deferred Developer Fee

Initial Deposit to Replac. Res.

Developer Fee

Total Development CostsCarelton Street 08-25-15

DEBT & EQUITY

Carelton Street37 units

Per Unit

$321,940 8,701

$247,487 $6,689

$74,453 2,012

74,453

1.20

62,044 Rate + Fees Term Amort

6.442% 5.00% 30 30

963,138

1,111,236 Cap Rate LTV

5.36% 80%

963,138 1.14

1,062,926 1.58

68,472

Rehab Basis Acq Basis Historic

6,162,255 47,200 0

-

90% 20% 0

6,162,255 47,200

QCT/DDA No 100% 6,162,255 47,200

Applicable fraction 100.00% 6,162,255 47,200

Sept.-15 9.00% Annual Credit

Calculated Credit Supported by Basis 554,603 0 554,603

5,545,475 LP %

0.88 99.99%

4,880,018

0.00 99.99%

0

Net Operating Income

Debt Sizing Permanent

DSC Ratio Year 1

DSC Ratio Year 15

Loan Amount

Loan Amount Input

LTV Constraint Loan Amount

Net Income

DSC Constraint Loan Amount

NOI Available For Debt Service

Debt Service Coverage Factor

Operating Expenses

NOI

NOI

Constant

Total Eligible Basis

Tax Credit Calculation

Total Adjusted Basis

Total Basis

(Less: Grants & Other Basis Reductions)

(Less Annual Historic Credit)

State TC Equity to Project

Applicable Credit Rate

Total Annual Credit To Investor

Credit Price Per $1.00

Federal TC Equity to Project

State Credit Price Per $1.00

VALUATION

$ 1,389,045

Month of

Debt Sevice

Total Qualified Basis

37

Amount Per Unit Amount Per Unit

200,000 5,405 1,062,926 28,728

4,682,451 126,553 0 0

612,535 16,555 0 0

212,571 5,745 0 0

228,815 6,184 0 0

606,000 16,378 0 0

6,542,372 176,821 1,062,926 28,728

Debt Financing Amount Per Unit Debt Financing Amount Per Unit

1,062,926 28,728 1,062,926 28,728

0

1,062,926 28,728 1,062,926 28,728

Amount Per Unit Amount Per Unit

0 0

0 0 0

0 0

0 0 0 0

Amount Per Unit

246,351 6,658 1,062,926 28,728

310,910 8,403

0 00 SURPLUS/ (Gap) 0 -

0

0

557,261 15,061

Amount Per Unit

42,167 1,140

4,880,018 131,892

0 0

0

4,922,185 133,032

Amount Per Unit

0 0

0

0

0 0

TOTAL SOURCES OF FUNDS 6,542,372 176,821

SURPLUS/ (Gap) (0) (0.01)

USES OF FUNDS DURING CONSTRUCTION

SOURCES OF FUNDS DURING CONSTRUCTION

Carelton Streetunits

Total Acquisition Costs

Total Construction Costs

TOTAL USES OF FUNDS

Total Soft Costs

Total Financing Costs

Total Reserves

Total Developer's Fee

Deferred Development Fee Loan

Construction Financing

Subtotal: Debt Financing

Existing Resources

Replacement Reserve

Deferred Reserves

Deferred Contingency

Subtotal: Existing Reserve

Soft Loans

LIHTC State

MSHA

AHTEnergy

Operating Cash

Subtotal: Soft Loans

Equity

GP Capital Contribution

LIHTC Federal

Seller Note

Subtotal: Grants/Subsidies

New Pathways

Subtotal: Equity

Grants/Subsidies

Additional Investor

USES OF FUNDS STABILIZATION

Construction Loan Principal

Interest Reserve

Reserves

SOURCES & USES

TOTAL SOURCES OF FUNDS

Replacement Reserve

Residual Receipts

Operating Cash for Development

Subtotal: Existing Reserve

SOURCES OF FUNDS STABILIZATION

Permanent Mortgage

Excess Development Costs

Subtotal: Debt Financing

Existing Resources

Investor Return

Initial Reserves

Deferred Developer Fee

TOTAL USES OF FUNDS

Model- Cash Flow

Carelton Street

37

Escalation Year Escalation Year

Projected 2016 2017 2018 2019 2020 4% 2022 2023 2024 2025 4% 2027 2028

Stabilization Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr

Annual Increase Yr. 2 3 4 5 6 7 8 9 10 11 12 13

Gross Potential Rent 2.0% $334,884 $341,582 $348,413 $355,382 $362,489 $376,989 $384,529 $392,219 $400,064 $408,065 $424,387 $432,875 $441,533

Vacancy 2.0% -$16,744 -$17,079 -$17,421 -$17,769 -$18,124 -$18,487 -$18,857 -$19,234 -$19,618 -$20,011 -$20,411 -$20,819 -$21,236

Net rental income $318,140 $324,503 $330,993 $337,613 $344,365 $358,502 $365,672 $372,985 $380,445 $388,054 $403,976 $412,056 $420,297

Laundry income 0.0% $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800

Commercial income 0.0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Miscellaneous income 0.0% $3,734 $14,093 $16,276 $16,789 $17,126 $17,470 $17,815 $18,175 $18,536 $18,904 $19,288 $19,672 $20,063

Subtotal other income $7,534 $17,893 $20,076 $20,589 $20,926 $21,270 $21,615 $21,975 $22,336 $22,704 $23,088 $23,472 $23,863

Eff. Gross Income $325,673 $342,396 $351,069 $358,201 $365,290 $379,772 $387,287 $394,961 $402,781 $410,758 $427,064 $435,527 $444,160

Proforma Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr

Annual Increase Yr. 2 3 4 5 6 7 8 9 10 11 12 13

Management 2.0% $20,029 $20,430 $20,838 $21,255 $21,680 $22,114 $22,556 $23,007 $23,467 $23,937 $24,415 $24,904 $25,402

Administration 2.0% $27,133 $27,676 $28,229 $28,794 $29,370 $29,957 $30,556 $31,167 $31,791 $32,426 $33,075 $33,736 $34,411

Maintenance and Operating 3.0% $83,204 $85,700 $88,271 $90,919 $93,647 $96,456 $99,350 $102,330 $105,400 $108,562 $111,819 $115,174 $118,629

Utilities 3.0% $34,943 $35,991 $37,071 $38,183 $39,329 $40,509 $41,724 $42,975 $44,265 $45,593 $46,960 $48,369 $49,820

Real estate taxes 2.0% $46,106 $47,028 $47,969 $48,928 $49,907 $50,905 $51,923 $52,961 $54,021 $55,101 $56,203 $57,327 $58,474

Hazard insurance 3.0% $11,211 $11,547 $11,894 $12,251 $12,618 $12,997 $13,387 $13,788 $14,202 $14,628 $15,067 $15,519 $15,984

RR deposits 3.0% $12,950 $13,339 $13,739 $14,151 $14,575 $15,013 $15,463 $15,927 $16,405 $16,897 $17,404 $17,926 $18,464

Other op.ex.(Res. Services) 2.0% $11,911 $12,149 $12,392 $12,640 $12,893 $13,151 $13,414 $13,682 $13,956 $14,235 $14,519 $14,810 $15,106

Total Operating Expenses 3.0% $247,487 $253,860 $260,403 $267,121 $274,018 $281,100 $288,372 $295,838 $303,505 $311,378 $319,463 $327,764 $336,290

0

NOI Pre-Construction $78,186 $88,536 $90,666 $91,081 $91,272 $98,672 $98,915 $99,122 $99,275 $99,380 $107,601 $107,763 $107,871

Valuation $528,340 1,954,657.87 $2,213,396 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340 $2,238,340

Mil Rate $20 20.60 $21 $21 $22 $22 $23 $23 $24 $24 $25 $25 $26 $26Tax $10,667 $40,266 $46,503 $47,968 $48,930 $49,915 $50,900 $51,929 $52,959 $54,011 $55,108 $56,205 $57,324 $58,465

TIF Payment @35% $3,734 $14,093 $16,276 $16,789 $17,126 $17,470 $17,815 $18,175 $18,536 $18,904 $19,288 $19,672 $20,063 $20,463

Permanent Mortgage $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472 $68,472

Additional Payments

Cash Flow After Debt Service $9,714 $20,064 $22,194 $22,608 $22,800 $30,200 $30,443 $30,650 $30,803 $30,907 $39,129 $39,291 $39,399

DSCF 1.14 1.29 1.32 1.33 1.33 1.44 1.44 1.45 1.45 1.45 1.57 1.57 1.58

Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr

1 2 3 4 5 6 7 8 9 10 11 12 13

Balance $1,062,926 $1,047,600 $1,031,508 $1,014,611 $996,869 $978,241 $958,681 $938,142 $916,577 $893,934 $870,158 $845,194 $818,982

Interest $53,146 $52,380 $51,575 $50,731 $49,843 $48,912 $47,934 $46,907 $45,829 $44,697 $43,508 $42,260 $40,949

Principal Payments $15,326 $16,092 $16,897 $17,742 $18,629 $19,560 $20,538 $21,565 $22,643 $23,775 $24,964 $26,212 $27,523

Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr

1 2 3 4 5 6 7 8 9 10 11 12 13

Balance $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Interest @ 4% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Payments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Net Balance $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Sell in year 5 $91,272

Cap Rate 6% $1,521,204

Sale Costs 3% ($45,636)

Fix-ups 0 per apt $0

Assume Market Expense -25% ($978,241)

$497,327

Amortization Schedule 1st Mortgage

Income

Expenses

Net Operating Income

Debt Service

Rehab

Outstdng Debt

Net Proceeds

Seller Note

Residual Valuation Net Sale Proceeds

NOI

Gross Proceeds

Sale Costs