SOCIAL FINANCE:AFFORDABLE HOUSING CASE STUDIES

Ministry of Municipal Affairs & Housing (MAH)

777 Bay Street, Boardroom DJanuary 19th, 2011

PRESENTATION SUMMARY NYC ACQUISITION FUND US AFFORDABLE HOUSING BONDS TCHC BOND ISSUE

Central Question:What are examples of social finance or impact investing tools that support the development, acquisition or construction of new affordable housing units?

FUNDSNew York City Acquisition Fund Motivation: formed in 2006 to address the

shortage of affordable housing in New York City Goal: support the development of 30,000 low

income housing units in New York City Target ventures: for-profit and non-profit

affordable housing developers who refurbish existing units or build new housing

Fund size: ~$200 million Investment size and term: Up to $7.5 mil (new

build) or $15 mil (acquisition); lending period of up to three years

Financial return (investor): variable interest rate currently indexed to prime (minus 40 – 60 basis points)

FUNDS Partners/Investors: Collaboration with the City of New

York, major foundations (ie. Ford Foundation, Rockefeller Foundation), and private investment groups (ie. JP Morgan Chase Bank)

Layered: Bank consortium provides senior debt as lending capital while other investors provides guarantees in the form of low-interest subordinated loans

FUNDS Contribution: Borrowers must contribute five (5) per

cent of pre-development or acquisition costs as equity Max. loan value: for-profit developers are eligible for

loans up to 95 per cent of the lesser of appraised value or purchase price while the number goes up to 130 per cent for non-profit developers

Other fund models: JP Morgan Urban Renaissance Property Fund: $175

mil. fund with market returns targeting urban development and redevelopment of affordable using using "green" specs from solar heating to recycled building materials

Serviam Gardens: $3.6 million loan an 83-unit complex for low-income seniors in the Bronx.

BONDSUS Affordable Housing Bonds Long history: concept of a public housing bond first

emerged in New York City in the 1930s Model: Basic structure often meets same characteristics

as other Tax Exempt Municipal Bonds Issuers: cities, counties, special-purpose districts,

and any other governmental entity (or group of governments) below the state level

Exemption: Interest income received by bondholders is exempt from federal and state income tax

Aside: Build America Bonds increasingly popular amongst housing authorities: issuers can choose whether they offer a tax credit for the buyer or a direct payment from the federal government equal to 35% of the interest costs.

BONDSExample: Chicago Housing Authority Federal support through the Capital Fund Financing

Program (CFFP): to raise funds to accelerate major modernization projects. To date, 137 US housing authorities US have HUD-approved transaction bonds or loans totalling more than $3.7 bil.

Purpose: Public housing authority (PHA) bond proceeds provide low-rent housing through new construction, rehabilitation of existing stock, purchases from private builders or developers, and leasing from private owners.

Tax exemption: Interest on the bonds is exempt from federal income taxes and may also be exempt from state and local income taxes.

BONDS HUD Contribution: The agreement provides that the

federal government will loan the local authority a sufficient amount of money to pay principle and interest to maturity. (ie. debt service payments)

Security: The loans or bonds are obligations of the PHA. HUD does not guarantee or ensure these loans or bonds.

Deal: In 2001, CHA became the first PHA to gain HUDs approval for a rated bond transaction. The deal was worth $291 million, with an AA Rating from S&P.

Goal: Support its Plan for Transformation to replace over 18,000 distressed units with 25,000 new or modernized units (Focus: Rehabilitate 9,400 units of seniors housing)

BONDS Challenge: Economic downturn of 2008 slowed

construction plans for CHA On the road to success: As of the end of FY2009, CHA

has completed 17,812 public housing units or 71.25% of the Plan for Transformation’s overall unit delivery goal of 25,000 units. Timeline for achievement moved to 2015.

Toronto Community Housing Corporation (TCHC) Bond:Regent Park Revitalization

BONDSTCHC Bond Issue Regent Park Development Initiative: six phases of

development over 15 years for mixed housing, including 2,083 Rent Geared to Income (RGI) units, 700 affordable rental units, 3,500 market rental units, and 250,000 sq ft. of commercial space

Total cost: $1 billion [TCHC and the City of Toronto: $450 mil., Priv. interests and commercial service providers: $500 mil., Fed. and prov. govts: $60 mil.]

Motivation: flat, fixed revenues; aging buildings with significant capital repair needs; poorly planned community in need of revitalization

Nontraditional financing provided flexibility and scale

BONDSTABLE: ANATOMY OF THE TCHC DEAL

Major partners: Fasken Martineau, Ogilvie Renault, Major Fis, Morrison Park Advisors

BONDSTCHC Bond Issue: Lessons1. Canadian capital markets are supportive.

2. Getting a high credit rating was critical.

3. Canadian banks were very supportive.

4. Process took time, money, and management attention.

5. Scale of the investment and story was extremely important.

6. Support of stakeholders was critical.