Transcription
Ten Things Every Developer Should KnowBefore They Do their First Tax Credit Deal1)Tax Credit Pricing is Important but it is not the only thing that matters – Customer Service is the most important thing to me. Is your investor /syndicator / lender focused on giving you a good experience? Are underwriters / asset managers / construction people and attorneys difficult to deal with?Can they move quickly and be respectful your timeframe?2)Is your Investor / Syndicator /Lender flexible or by the book? - Things won’t go perfectly, so you want a partner who will stand by you, sharethe pain and accommodate you even if it’s not in the written agreement.3)Don’t Allow your Investor / Syndicator / Lender to change the deal at the last minute - This is a big one. You negotiate the deal and then atthe last minute they come back with materially different terms. Negotiate your deal upfront and hold them to it. Don’t be afraid to walk if your financial partnertries to pull a fast one.4)Focus on Building Relationships, Not getting the last half cent – I think you have to do some shopping to keep your financial partners on theirtoes, to satisfy your Board of Directors and to make sure you are getting a market deal. However, in the midst of all this you should develop deeperrelationships with a few key partners who can help you figure out tough deals, refer you business, and come to your aid when you need it.5)Be Realistic about what your skill level is – It takes experience and knowledge to execute these transactions. Most organizations andindividuals should consider a Joint venture if they lack expertise6)Understand the Guaranties before you sign them – There are a multitude of guaranties that lenders and investors require. You shouldunderstand them and negotiate the best deal for yourself before you sign anything. This is more important than tax credit pricing, in my opinion.7)Be Realistic about your compensation / fee sharing in a Joint Venture – If you are not in a position to sign guaranties, you cannot expect 80%of the fee. If you are inexperienced, you cannot expect 80% of the fee8)Developers should hire a construction professional – the biggest mistake I made as a syndicator was not insisting that developers hirecapable owner’s representatives. The biggest risk is construction risk and you mitigate that by having a strong experienced construction person involved.9)Strong Personnel is more important than fancy projects – The best developers have the best personnel. Reinvest your fees in hiring the besttalent. If you have good people, you will distinguish yourself as a developer10)Don’t try to do everything. Pass on Projects that seem messy or problematic – Saying no to things that don’t make sense or require toomuch work for too little reward is critical. The worst thing is to invest a lot of time in a project that ends up producing very little financial benefit – and a lot ofheadaches.
Learn the Basics:The Low Income Housing Tax Credit PanelNYSAFAH ConferenceMay 15, 201260 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Project Feasibility/Evaluating your project New Construction Preservation/ Acquisition Rehab 9%, 4%, SLIHC, other low incomedevelopment options60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:New Construction What is your market? What can you build? What are your costs (predevelopment,acquisition, construction, soft costs) Putting together the numbers Timing60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Preservation/Acquisition Rehab What are the physical needs of the project?Market?Putting together the numbersTiming60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Development Team ArchitectAttorneyAccountantConsultantsDevelopment PartnerProperty ManagerContractorExperience Counts60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Evaluating Financing Needs How much permanent debt can the projectsupport? What is the projected equity raise? Has any other funding been made available to theproject? Know your subsidy need before asking for it.60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Subsidy Needs Is the project a priority for one of the funding agencies?Are your development costs in line with industry standards?Are you asking for subsidy to cover acquisition or development fee?Are you providing supportive services?Are you building with Green or innovative technology?60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Evaluating 9% vs. 4%Example Previously Provided:Total Development Budget:Qualified Basis: 9,632,000 11,140,3509% Annual Tax Credits:4% Annual Tax Credits: 1,002,631 357,6059% Equity Raise (@ .80):4% Equity Raise (@ .80): 8,021,048 2,860,84060 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:9% vs. 4% Allocation9% Allocation NYSHCR – Capitol Programs (NYS and NYC City Deals) NYC HPD (primarily not-for-profit supportive housing deals)4% Allocation NYSHCR/HFA NYCHDC Local IDA’sSLIHC – NYSHCR60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:The Qualified Allocation Plan (QAP)The QAP sets the goals and requirements for the allocating agency: NYSHCR: http://www.nyshcr.org/Publications/QAP/ NYSHFA: http://www.nyshcr.org/assets/documents/4875.pdf NYCHPD: http://www.nyc.gov/html/hpd/html/developers/low income.shtml60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Completing the ApplicationWhen to file an applicationWhat is needed:1. Site Control2. Market Study3. Appraisal4. Phase I5. Financial Commitments6. Schematic Plans & Specifications7. Cost Estimates8. Operating Assumptions9. Time60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
Learn the Basics:Sources of Permanent FinancingDebt Service Coverage RequirementsIncome to Expense Requirements4% SONYMA, REMIC Fannie/Freddie9% NYSHCR-HFA Traditional Lenders HUD FHA 223f60 East 42nd Street, Suite 1822, New York, NY 10165 www.rockabilladvisors.com
New York State Affordable HousingPre-ConferenceNYSAFAH – May 16, 2012Investor Deal Termsthe Letter of IntentDOMINICK BUFFAFIRST STERLING FINANCIAL
WHO TYICALLY BUYS CREDITS FINANCIAL INSTITUTIONS– TRADITIONAL BANKS– INVESTMENT BANKS INSURANCE COMPANIES FORTUNE 500 COMPANIES SYNDICATORS
WHAT ARE THE DIFFERENCESFINANCIAL INSTITUTIONS SPECIFIC GEOGRAPHIC AREA – CRACUSTOMERS OF THE BANKLESS LIKELY TO STRUCTURECOMPLETE PACKAGESCOMPETITIVE PRICING
WHAT ARE THE DIFFERENCESINSURANCE & FORTUNE 500 Cos SIMILAR TO LENDERS EXCEPT HAVE WIDERGEOGRAPHIC RANGE MOSTLY MIF – LIMIT ON % THEY CAN OWN ECONOMIC INVESTOR WHEN PURCHASING DIRECT EXPERIENCED DEVELOPERS, LARGEDEAL MAY HAVE 3RD PARTY DUE DILIGENCE LESS LIKELY TO STRUCTURE SPECIALTY CREDITS – HTC MAY IMPOSE DEVELOPMENT CONDITIONS
WHAT ARE THE DIFFERENCESSYNDICATOR BUYS WITH INTENTION OF PLACING IN AFUND PROPRIETARY & MIF FUNDS WIDE GEOGRAPHIC AREA PERFORM DUE DILIGENCE & AM KNOWLEDGEABLE BUYER WITH IN-HOUSEEXPERTS
WHAT ARE THE DIFFERENCESSYNDICATOR WILL ASSIST IN APPLICATION STAGE ASSIST WITH STRUCTURING DEAL CAN WORK WITH A WIDE VARIETY OF CREDITSAND DEAL SRUCTURES CAN CLOSE QUICKLY
WHEN SHOULD YOU SOLICITPROPOSALSPRELIMINARY/APPLICATION STAGE SYNDICATORS WILL ASSIST HELP RUN NUMBER,STRUCTURES AND PRICING THE EQUITY BEST TO START WITH A CONSULTANT WHO ISFAMILIAR WITH THE PROGRAMS AND CAN ZEROIN ON THE RIGHT ONE LENDER NEEDED FOR DEBT
A PROJECT IS READY TO GO WHEN . . SITE CONTROLCREDIT AWARD OR BOND VOLUME CAPFINANCING IN PLACEPLANS READY FOR BIDSTHIRD PARTY REPORTSBUILDING PERMITS ZONING APPROVALS ULURP IS DONE IN NYC
INFORMATION NEEDED FROM THEDEVELOPERPROJECT DESCRIPTION NUMBER OF UNITS & UNIT MIXPOPULATION TO BE SERVEDRENT STRUCTURE – GROSS & NETAMI LIMITSPROJECT AMENITIESNUMBER OF BUILDINGS
INFORMATION - CONTINUEDORGANIZATION NAME OF PARTNERSHIP OR COMPANY NAME OF GENERAL PARTNER OR MANAGINGMEMBER FOR PROFIT OR NOT FOR PROFIT (501 (C)(3)) GUARANTORS DEVELOPER MANAGING AGENT
INFORMATION - CONTINUEDDEVELOPMENT BUDGET SOURCES AND USES CONSTRUCTION AND PERMANENT PHASE
INFORMATION -CONTINUEDBASIC SOURCES & USESSOURCESTax Credit ProceedsDeveloper equityHard DebtSoft DebtFederal GrantsState GrantsDeferred Developer FeeUSESLandBuilding AcquisitionHard Construction CostSoft CostsDeveloper FeeRrserves
INFORMATION - CONTINUED 30-YEAR OPERATING PRO-FORMA OPERATIING EXPENSESCONTROLLABLEAdministrativePayroll & RelatedRepairs & MaintenanceContract Services MANAGEMENT FEEUNCONTROLLABLEUtilitiesReal Estate TaxesInsurance
INFORMATION - CONTINUEDKEY DATES: CLOSING DATECONSTRUCTION STARTFIRST UNITS PLACED IN SERVICEFINAL UNTIS PLACED IN SERVICE100% OCCUPANCY
INFORMATION - CONTINUEDEXPECTED EQUITY CAPITAL CONTRIBUTIONS: AT CLOSING/ADMISSIONDURING CONSTRUCTIONAT PLACED IN SERVICEAT 100% OCCUPANCYCLOSING INTO PERMANENT LOAN - BEOAT 8609FIRST YEAR CREDIT DELIVERY
THIS INFORMATION IS NECESSARY SOTHAT. . . BUYER CAN ESTIMATE PRICE MULTIPLE BIDS ON SIMILAR TERMS CAN BEOBTAINED COMPARISONS CAN BE MADE BETWEEN OFFERS
THE OFFER SHOULD INCLUDE . . . INDENTIFICATION OF PARTIES INVOLVED IDENTIFICATION OF PROJECT DESCRIPTION OF FINANCING KEY DATES – Closing, Completion, 100% Leased
THE OFFER SHOUD ALSO INCLUDE . . PARTNERSHIP INTEREST CREDIT DELIVERY SCHEDULE BY YEAR TOTAL AMOUNT OF EQUITY DETAILED BREAKDOWN OF CAPITALCONTRIBUTIONS
THE OFFER - CONTINUEDEQUITY CONTRIBUTIONS AT THE FOLLOWINGSTAGES OF DEVELOPMENT: CLOSING (ADMISSION)DURING CONSTRUCTION - BENCHMARKSCOMPLETION - PLACED IN SERVICE100% OCCUPANCYCLOSING INTO PERM LOAN8609 & TAX RETURN
THE OFFER - CONTINUED CONDITIONS TO BE MET FOR EACH CAPITALCONTRIBUTION DEVELOPMENT FEE AND PAY SCHEDULE SHARING OF TAX AND CASH BENEFITSCHEDULES
THE OFFER - CONTINUEDSHARING OF CASH FLOW PRIORITY OF DISBURSEMENTS SPLITS BETWEEN GP AND LPo SPLIT OF CASH TO PAY DEFERRED FEEo SPLIT OF CASH FOR GP INCENTIVE FEEo SPLIT FOR REMAINING CASH
THE OFFER - CONTINUEDBENEFITS FROM SALE OR DISTRIBUTION PRIORITY OF DISTRIBUTIONS FEES FOR REFINANCING OR SALE SPLIT OF REMAINING CASH
THE OFFER - CONTINUEDGUARANTEES – ONLY MAJOR ONES ARESUMARIZED IN LOI COMPLETIONOPERATING DEFICITSREPURCHASETAX CREDIT BENEFITSo TOTAL AMOUNT OF CREDITSo TIMING OF DELIVERYo LOSS OF CREDITS DURINGOPERATIONS
THE OFFER - CONTINUEDREPLACEMENT RESERVES AMOUNT, DURATION, DISPOSITIONOPERATING RESERVE AMOUNT, DURATION, DISPOSITIONDEPRECATION HOW CALCULATED
THE OFFER - CONTINUEDADJUSTERS HOW ARE THEY CALCULATEDRIGHT TO PURCHASERight of First RefusalPurchase OptionsForced SaleINSURANCE REQUIREMENTSCONDITIONAL OFFER
THE OFFER - CONTINUEDFEES AND COMPENSATIONDEVELOPMENT SERVICES FEEPROPERTY MANAGEMENT FEEANNUAL SYNDICATOR FEEINCENTIVE FEES TO GP/MMDUE DILIGENCE FEES
THE OFFER - CONTINUEDKEY PROVISIONS THAT WILL BE LATER DETAILEDIN THE LPA OWNERSHIP STRUCTUREREMOVAL PROVISIONSWITHDRAWAL PROVISIONSDETAILS ON THE GUARANTEESDETAILED REPURCHASE PROVISIONSDETAILED OBLIGATIONS OF PARTIESTO THE TRANSACTION DETAILED DUE DILIGENCE LISTS
CONCLUSION PRICE IS ONLY ONE FACET OF THE OFFER EQUITY PROVIDERS ARE NOT LENDERS WE ARE YOUR PARTNERS FOR 15 OR MOREYEARS CONSIDER THE ENTIRE OFFER BEFORE MAKINGA DECISION
Learn the Basics:The Low Income Housing Tax Credit PanelNYSAFAH ConferenceMay 14, 201244 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Know Your Funding Sources44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
I.Federal HUD DOT (new)II.State HCR (Consolidated Funding Application) HFA HHAC OMHIII. City HPD HDC EDC (commercial) Private affordable housing funders (NYCAF, NYAHPF)44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
What Makes AffordableHousing Affordable?44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Income restrictions Population restrictions Regulated by a governmental authority Subsidized financially by a governmental entity44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Tax Credit Applications:Things to Consider44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Deciding between 9% and 4% Tax Credits Deciding between which Agency to apply to Legal Structure Site Control Documentation Regulatory Period44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Project Financing Project Population Tenant Ownership Option Tax Abatement Documentation44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
GHDeveloping Your Project:Critical Factors44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
What’s your project – Preservation vs. New Construction Cost of acquisition Community Support Putting your Team together Financial Capacity - Do you need to joint venture?44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Legal Structure – Are you going to use a HDFC? Commercial Space, develop a clear game plan for the condoprocess (if necessary) Advocate early (and often) for your project with HPD & HDC(“get in the queue”) Negotiate the LOIs/ term sheets very carefully Avoid lender/investor guaranty “creep”44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
GH Pay close attention to requirements of community facility (taxexempt use?) Make certain that all funding is in place at construction closing Dissect the Operating Agreement/ LPA If “substantially all the assets”, submit project early toAG/Court Maintain good communication and closing checklist44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Lease up, lease up, lease up Certificate of Completion immediately after TCO Stay on top of tax exemption applications44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Legal Structure44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
Typical Tax Credit Legal Structure – Nominee Agreement/Joint VentureStructure Benefits:Exemption NYC Transfer Tax (NYC only)Affordable Housing HDFC(Fee Owner)Exemption from Mortgage Recording TaxEligible for Sales Tax ExemptionEligible for the following real estate tax exemptions:420-c RPTL (NYC only)Affordable Housing LLC(Beneficial Owner)Article XI PHFLArticle V PHFL422 RPTLAffordable Housing Managers LLC(Managing Member).01% interestAffordable Housing HDFC(Member)50% interestSponsorSole Member of HDFCTax Credit Syndicator(Investor Member)99.99% interestFor-Profit(Member)50% interestSyndicator(GP)Investors(LP)44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
44 Wall Street 12th Floor, New York, NY 10005Telephone: 212.461.2338Email: dgoldstein@goldsteinhall.comDavid A. GoldsteinManaging MemberDavid A. Goldstein, the managing member of Goldstein Hall PLLC, has over 20 years ofexperience in the legal field, with expertise in affordable housing development, real estatefinance, government affairs, general corporate/business law and litigation. In particular, Mr.Goldstein has extensive experience in negotiating joint ventures between not-for-profits and forprofit developers, as well as structuring complex affordable housing transactions. Many of theseaffordable housing transactions involve financing by federal, state and local agencies through theissuance of tax-exempt bonds and low-income housing tax credits. Additionally, Mr. Goldsteinhas experience representing limited equity cooperatives, HDFC co-ops and tenant associations inlitigation and general corporate issues.Prior to entering private practice, Mr. Goldstein worked at Southern Tier Legal Services in Bath,New York and Queens Legal Services as a litigator representing tenants in eviction proceedings.While at Southern Tier Legal Services, Mr. Goldstein led the first independent study of thehomeless population in Steuben County, New York.Mr. Goldstein is the President of the Board of Directors of Groundswell Community MuralProject, a local not-for-profit organization that uses art as a tool for social change by creating highquality works of public art in under-represented neighborhoods. Mr. Goldstein also serves as amember of Berkeley College's Paralegal Advisory Board. In Mr. Goldstein's spare time he is apracticing potter and was featured in the award-winning PBS documentary series Craft inAmerica.44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
GOLDSTEIN HALL PLLC44 Wall StreetNew York, New York 10005Tel: (212) 461-2338Fax: (646) 219-2450www.goldsteinhall.com44 Wall Street, 12th Floor, New York, NY 10005 P: 212.461.2338 www.goldsteinhall.com
SONYMA, REMIC Fannie/Freddie 9% NYSHCR-HFA Traditional Lenders HUD FHA 223f . New York State Affordable Housing Pre-Conference NYSAFAH – May 16, 2012 Investor Deal Terms the Letter of Intent DOMINICK BUFFA
