Income Targeting for North Carolina Tax-Exempt Bond Deals

HUD defines “very low income households” as households earning less than 50% of Area Median Income (AMI). Tax-exempt bond deals in North Carolina are required to set aside a portion of their units for these lower-income households:

Income Targeting

Developers often ask whether it is possible to group these units into the lowest-rent unit type (1-bedroom versus 2- and 3-bedroom units). State housing finance agencies normally prefer to see the lower-income units distributed proportionally between unit types.

Assuming 50% and 60% rent and income targeting for a 100-unit deal consisting of 1-, 2- and 3-bedroom units, the unit mix would look something like this:

Recommended Unit Mix

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Experienced Development Partner Requirement for North Carolina Tax-Exempt Bond Deals

The 2013 North Carolina Housing Finance Agency (NCHFA) Qualified Allocation Plan (QAP) includes a requirement that all bond deals include at least one principal who has successfully developed, operated and maintained at least one tax credit or bond-financed project in the state of North Carolina (see Section V(B)(4) of the 2013 QAP). All such projects must have been placed in service between December 1, 2006 and January 1, 2012.

Handshake

The experienced principal must be either the general partner or the managing member of the ownership entity and remain responsible for overseeing the operation of the project for at least two years after it is placed in service. The Agency reserves the right to determine whether a principal is, in fact, experienced as required by the QAP.

Allen & Associates has worked with developers on over 300 projects in North Carolina since 2000. Our professional network includes relationships with principals meeting NCHFA’s experienced developer criteria. We can assist in putting together a successful development team for your project.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Bond Financing for Multifamily Housing

State and local governments sell tax-exempt bonds to finance apartments affordable to lower income families. According to the National Council of State Housing Agencies (NCSHA), multifamily housing bonds have been used to produce nearly 1 million affordable apartment units in the United States.

These bonds are “tax-exempt” because the purchasers do not have to pay taxes on interest payments. Consequently, purchasers are generally willing to accept lower interest payments for these bonds because of the tax savings. These bonds are also sometimes referred to as “private activity bonds” because they are used to promote private investment for the benefit of the public (the production of affordable housing). Each state is authorized to issue a set amount of private activity bonds under IRC §142(d)). According to The Bond Buyer, the 2013 volume cap for each state is the greater of $95 per capita or $291,870,000.

2013 Bond Volume Caps

When applying for bonds, a sponsor approaches an issuer (typically a city, or a county, or a housing authority) to petition the state to issue a portion of their volume cap of private activity bonds. Each state has different policies regarding how this process works. Virginia, for example, issues bonds through the state housing finance agency (VHDA). North Carolina, on the other hand, has established a policy of looking to local housing authorities to issue bonds (NCHFA). Issuers often prefer that bond transactions benefit from credit enhancement through a recognized provider (HUD, Fannie Mae, Freddie Mac).

Multifamily housing projects that are financed with tax-exempt bonds are also eligible for 4% housing tax credits. Unlike the 9% credit, there is no “limited pool” for the 4% housing tax credit. To obtain 4% credits, a sponsor must apply to the state housing finance agency for the credits. Local bond issuers are not authorized to allocate the 4% tax credit.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Tax-Exempt Bond Credit Enhancement: Freddie Mac Products

Freddie Mac provides tax-exempt bond credit enhancement for the construction and rehabilitation of multifamily properties. Like Fannie Mae, Freddie Mac products are priced higher than HUD but the application process is more streamlined. Further, there are no Davis-Bacon requirements and you can expect a realistic closing in 90 days with Freddie Mac. Freddie Mac credit enhancement applies to fixed-rate bonds only.

FreddieMac Logo

Typical terms for new construction deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 6.00-6.25% (Fixed / Forward Commitment)
Amortization: 35 years
Term: 15 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

Typical terms for renovation deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 4.50-6.00% (Fixed)
Amortization: 35 years
Term: 15 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

According to the Wall Street Journal, the top six Freddie Mac lenders financed $18.8 billion in multifamily loans last year:

1) CBRE Capial Markets – $6.2 billion
2) Berkadia Commercial Mortgage – $3.6 billion
3) Wells Fargo Multifamily Capital – $2.4 billion
4) Holliday Fenoglio Fowler, LP – $2.4 billion
5) Walker & Dunlop, LLC – $2.3 billion
6) NorthMarq Capital, LLC – $1.9 billion

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Tax-Exempt Bond Credit Enhancement: HUD Products

HUD provides tax-exempt bond credit enhancement for the construction and rehabilitation of multifamily properties. Although HUD products are priced lower than Fannie Mae, the application process is more onerous and Davis-Bacon wage requirements apply in certain cases. Like Fannie Mae, credit enhancement applies to fixed-rate bonds only.

HUD Seal

There are two HUD products for new construction and substantial rehabilitation: 221(d)(3) and 221(d)(4) financing. The 221(d)(4) program applies to for-profit owners; the 221(d)(3) program is for non-profits. Typical terms for transactions in today’s lending environment:

DCR: 1.15
Loan to Cost (Not Value): Up to 87%
Interest Rate: 3.50-3.75% (Fixed)
MIP: 0.45%
Amortization: 40 years
Maximum Loan Amount: HUD Cost Limitation
Non-Recourse: Yes
Davis Bacon Requirement: Yes
Closing Time Frame: 180 days

HUD’s 223(f) program is designed for the acquisition and moderate rehabilitation of multifamily properties. Within this program, HUD has implemented the 223(f) pilot – a product specifically designed for the moderate renovation (less than $15,000/unit) of tax credit properties. The product has also been used to credit enhance bond deals. Typical terms for transactions in today’s lending environment:

DCR: 1.176
Loan to Value (Not Cost): 85%
Interest Rate: 3.50-3.75% (Fixed)
MIP: 0.45%
Amortization: 35 years
Maximum Loan Amount: Purchase Price + Soft Costs + Developer’s Fee + Construction Overhead + $15,000/door in Rehab Costs
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

The main advantages of the 223(f) program over the 221(d)(3) and (4) programs are the faster closing time and the avoidance of Davis-Bacon wage requirements. The lower maximum loan amounts are a disadvantage, however. This is sometimes offset by the availability of tax credit equity on many 223(f) deals. These factors should be carefully considered when choosing the right program for your property.

According to HUD, its lenders have financed $8.5 billion in multifamily loans to date this year. The 10 largest HUD lenders by volume are found below:

1) Red Mortgage Capital
2) Greystone Funding Corporation
3) P/R Mortgage & Investment Corporation
4) Berkadia Commercial Mortgage
5) Wells Fargo Bank NA
6) Walker and Dunlop LLC
7) Love Funding
8) Prudential Huntoon Paige
9) Oppenheimer Multifamily Housing & Healthcare
10) Dougherty Mortgage LLC

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Tax-Exempt Bond Credit Enhancement: Fannie Mae Products

Fannie Mae provides tax-exempt bond credit enhancement for the construction and rehabilitation of multifamily properties. Although Fannie Mae products are priced higher than HUD, the application process is smoother, there are no Davis-Bacon requirements, and you can expect a realistic closing within 90 days. Fannie Mae credit enhancement applies to fixed-rate bonds only.

FannieMae Logo

Typical terms for new construction deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 6.00-6.25% (Fixed / Forward Commitment)
Amortization: 30 years
Term: 18 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

Typical terms for renovation deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 4.50-6.00% (Fixed)
Amortization: 30 years
Term: 7-18 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

According to Housingwire, Fannie Mae and its lenders financed $33.8 billion in multifamily loans last year. The 10 largest Fannie Mae lenders by volume are found below:

1) Walker & Dunlap, LLC
2) Wells Fargo Multifamily Capital
3) Beech Street Capital, LLC
4) CBRE Multifamily Capital, Inc.
5) Berkeley Point Capital, LLC
6) Berkadia Commercial Mortgage, LLC
7) M&T Realty Capital Corporation
8) Arbor Commercial Funding, LLC
9) PNC Real Estate
10) Greystone Servicing Corporation, Inc.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Selecting an Appraiser for North Carolina Bond Applications

An appraisal is required for proposed acquisition/renovation bond transactions in North Carolina. The purpose of the appraisal is to establish the “as is” value of the building to be acquired. According to the North Carolina Qualified Allocation Plan (QAP), applicants must submit an “as is” appraisal with their application that is (a) dated no more than six (6) months from the application deadline, (b) prepared by an independent, state certified appraiser and (c) complies with the Uniform Standards of Professional Appraisal Practice. Appraisals for acquisition/renovation projects must break out the land and building values from the total value.

Apartment-Complex-Photo

If you are looking at using a HUD program (221d4 or 223f) to credit enhance your project, HUD will also require an “as if renovated” appraisal. So be sure to select an appraiser who is HUD-approved.

Normally, the appraisal is ordered by the lender. If you get them involved early enough, your appraiser can work up a “dual purpose” report that makes both NCHFA and your lender happy. You may want to use an appraiser who is a member of the Appraisal Institute (MAI).  The Appraisal Institute has appraisers who specialize in affordable housing who could do a great job with your report.

A “dual purpose” appraisal would include the following values:

  • Value, As If Renovated, Restricted Rents
  • Value, As If Renovated, Market Rents
  • Value, Favorable Financing
  • Value, Tax Credit Equity
  • Value, As Is
  • Value, Vacant Land

A final point. Under new HUD guidelines, the appraiser and market analyst must be different entities. You and your lender should keep this in mind when selecting the best appraiser and market analyst for your North Carolina bond deal.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding the selection of an appraiser for your NC bond application.

Selecting a Market Analyst for North Carolina Bond Applications

With a July 19, 2013 due date, developers are putting the required documentation together for their North Carolina bond applications. Unlike 9% applications, developers contract directly with market analysts on 4% deals in North Carolina. The purpose of this post is to give some pointers to developers in choosing a market analyst for their deals.

Up Arrow Chart

The best place to start is to contact NCHFA to obtain the list of market analysts they contracted with during the most recent 9% round. Tara Hall (market study coordinator) is the best person to speak to. She can be reached at 919-877-5700.

The next step is to consider how you plan to credit enhance your bonds. If you are looking at using a HUD program (221d4 or 223f) then you should make sure the NCHFA analyst is also HUD-approved.

You may want to check to see if the analyst is NCHAMA-certified. The National Council of Affordable Housing Market Analysts (NCAHMA) has established best practices for market analysts. Members are encouraged to follow these best practices 100% of the time. Be sure to ask for references – not all NCAHMA-certified market analysts do NCAHMA-compliant work.

Alternatively, you may want to see if the analyst is a member of the Appraisal Institute (MAI).  The Appraisal Institute has consultants who specialize in affordable housing who could do a great job with your market study.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding the selection of a market analyst for your NC bond application.