What’s Old Is New: Preservation Projects

Yorkshire Manor & Canterbury Village

Mike Bouchee, Rocky Mountain Development Group

Joint Venture Partners

Canterbury Village

Canterbury Village2513 Willow St, South Sioux CityMultifamily96 Units / 4 Buildings88 Units - Section 8Constructed 1971Developed by Sheldon HarrisManaged by Jim Harris & Pete GodwinOriginal 221(d)(3) Mortgage1994 refinance - subordinate 241(f) LIHPRHA loan

Yorkshire Manor

Yorkshire Manor2600 North Laverna St, FremontMultifamily84 Units / 4 Buildings84 Units - Section 8Constructed 1971Developed by Sheldon HarrisManaged by Jim Harris & Pete GodwinOriginal 236 Mortgage1994 refinance - subordinate 241(f) LIHPRHA loan

The “Twins”Same owner / same management company

Strong seller desire for simultaneous closingsFamily legacy propertiesSame subordinate 241(f) LIHPRHA financing2010 LIHTC ApplicantsContractor – Barry Larson & SonArchitect – Alley Poyner Macchietto ArchitectureSimilar substantial rehabilitation projects

Substantial RehabiliationsNew RoofsNew HVAC SystemsNew Doors and WindowsFoundation WaterproofingNew Kitchens and BathroomsNew Flooring and PaintSite and Safety ImprovementsNew Community BuildingsACM and LBP Abatement

Rent Increase & LIHPRHARehab construction budgets ~ $40,000/unitTotal development budgets ~ $9MMNecessitated rent increase of ~ 15%HAP Contracts: OCAF or BBRILIHPRHA Use Agreements: OCAF or BBRIRecent HUD guidance – new debt service includable

BBRI factor in LIHPRHA projects.Preserving LIHPRHA became project imperative

Original Financing StrategyAssume existing subordinate 241(f) LIHPRHA loans with

Midland BankLIHPRHA loans can only be subordinate to HUD financingPay off existing primary mortgagesCombine with new 221(d)(4) financing from Wells Fargo

BankLIHTC Equity from Midwest Housing Equity Group

Omaha HUD - Production Office: TPA, 221(d)(4), BBRI, HAP Assignment and Extension

Round One ApplicationsJanuary 2010Assumption of 241(f) subordinate loans – Midland BankNew 221(d)(4) loans – Wells Fargo BankSyndicator – Midwest Housing Equity Group

March 2010Both properties failed to pass threshold reviewBack to the drawing board for Round Two

Round Two ApplicationsMarch 2010Assumption of 241(f) subordinate loans – Midland BankNew 221(d)(4) loans – Wells Fargo BankSyndicator – Raymond James Tax Credit Funds

May 2010Canterbury Village awarded tax credits!Yorkshire Manor not awarded tax creditsProjects are now decoupled

Key LIHPRHA DiscoveryMay 2010Previously understood BBRI tied to continued existence

of 241(f) loans.Instead, BBRI is tied to existence of LIHRPHA Use

Agreements; existence of 241(f) loan immaterial.Ability to pay off 241(f) loans opened up new financing

strategies.

Revised Financing StrategyPay off 241(f) LIHPRHA loansOriginal thought - larger 221(d)(4) loans

Too slow and cumbersomeFreddie Mac Mod-Rehab Loans

PNC Multifamily CapitalFreddie Mac Waiver (~$18K/unit vs. ~$40K/unit)

LIHTC EquityBoston Financial Investment Management

Des Moines HUD – Asset Management OfficePreservation, BBRI, HAP Assignment and Extension

Round Three ApplicationYorkshire Manor onlyOpen to all Round 2 unsuccessful applicants

July 2010Pay off 241(f) subordinate loansNew Mod-Rehab loans – PNC Multifamily CapitalSyndicator – Boston Financial Investment Management

September 2010Yorkshire Manor awarded tax credits!

Decoupled TwinsCanterbury Village – May awardAlert NIFA to new Canterbury Village financing and

equity partners/structureSubmit revised Yorkshire Manor application with new

financing and equity partners/structureYorkshire Manor – September awardExtend site control (both)Financing and equity due diligence (both)LIHTC reservation extension (both)

The Closing TableFinalize due diligence and underwritingNegotiate reserves and guaranteesNegotiate partnership and closing documentsReady to close both properties in early December

Fannie Mae decides properties are now de-stabilized!

Both transactions close simultaneously:

December 29, 2010

Rehab is UnderwayNotices to Proceed – December 2912-month construction schedulesProjects will be complete and placed in service in 2011

Canterbury Rehab

Yorkshire Rehab

Preservation “Best Practices”Minimize Subsidy/UnitWork with LIHTC-experienced partnersDevelop sufficient and consistent specificationsGive due diligence highest level of scrutinyFully understand QAP; ensure partners do as well