national historic tax credit conference 2008 joel cohn reznick group how credits become capital:...
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NATIONAL HISTORIC TAX CREDIT CONFERENCE 2008
JOEL COHN
REZNICK GROUP
How Credits Become Capital: When and How to Syndicate
410-783-4900
Important Elements of a Syndication
Experience
Team
Financing
Financial Capacity of Guarantors
Project Risks - Leasing, Market Etc.
The Sum of These Analyses Results in 'Pricing'
Pricing Can Mean:
Gross Price
Timing When the Developer Receives Funds
Preference Payments
Put Price
Guarantees
Purpose of a Good Set of Projections
Control Cash Flow
Control Depreciation Allocation
Used for Pricing by Credit Buyer
Used by Working Group to Refine Structure
Used as a Blueprint for Preparation of Documents
Attached to the Partnership Agreement as an Exhibit
Role of the Projection Preparer
Develop A Quality Set of Projections
Understand Developer's Goals and Limitations
Understand The Property and the Project
Structure the Deal to Maximize Value of Credits
Minimize Exit Tax Consequences
Structure the Deal to Comply With Laws and Regulations
Respond to Issues and Propose Solutions That
Meet the Objectives of the Various Parties
Major Elements of Pricing
Price Per Dollar of Credit
Preferred Return
Tax Priority Payment
Asset Management Fee
Exit Fee/Put & Call
GENERAL INFORMATION
Capital Contributions
Allocation Percentages
GP/Project Sponsor
Date Amount Through 12/31/2016
As Needed 1,879,000 To Investor
Profits/Losses 99.99%
Total 1,879,000 Cash Flow 99.99%
Residual 99.99%
To GP/Manager
Profits/Losses 0.01%
Tax Credit Equity Pay-in Schedule to Investor Cash Flow 0.01%
Residual 0.01%
Closing 30% 10/01/08 958,200
100% Complete 50% 09/01/08 1,597,000 After 1/1/2017
Part III, Stabilization, Conversion to Perm 20% 01/01/09 638,800 To Investor
Profits/Losses 75.00%
Cash Flow 75.00%
Total 100% 3,194,000 Residual 75.00%
To GP/Manager
Profits/Losses 25.00%
Cash Flow 25.00%
Residual 25.00%
FINANCING ASSUMPTIONS
1st Mortgage 11,000,000
Interest Rate 6.00%
Amortize Yes
Amortization Term 300
Deferred Developer Fee 2,850,000
Interest Rate 0.00%
Amortize yes
Amortization Term 13 Year Maturity
Payable out of cash flow 100.00%
SOURCES AND APPLICATION OF FUNDS
Qualified Depreciable
Rehabilitation Non-QRE Funded
Total Expenditures Basis Expense Other
Tax Credit Equity from Investor 3,194,000
1st Mortgage 14,500,000
Deferred Developer Fee 2,850,000
Developer Equity 1,076,000
TOTAL SOURCES: 21,620,000
Acquisition Costs-Land 600,000 # - - - 600,000
Acquisition Costs- Building 1,700,000 # - 1,700,000 - -
Construction Period Carrying Costs 970,000 284,000 686,000 -
Permanent/Construction Loan Fees & Costs 350,000 66,250 - 283,750 -
Achitectural, Engineering 800,000 270,000 30,000 - -
Construction Contract 12,000,000 11,000,000 1,000,000 - -
Site Improvements 300,000 - 300,000 - -
Contingency 1,100,000 # 1,100,000 - - -
Appliances 350,000 - 130,000 - -
Historic Tax Credit Application Fee 10,000 # 10,000 - - -
Professional Fees 115,000 80,000 25,000 10,000 -
Marketing & Leasing Reserves 400,000 # - - 150,000 250,000
Syndication Costs-Fees & Other 75,000 # - - - 75,000
Development Fee 2,850,000 # 2,400,000 450,000 - -
TOTAL APPLICATIONS: 21,620,000 15,210,250 4,321,000 443,750 925,000
CALCULATION OF FEDERAL TAX CREDITS Federal Rehabilitation Credit Qualified Rehab Expenditures 15,210,250 Credit Rate 20.00%
Total Calculated Credit 3,042,050
Tax Credit Investor Ownership 99.99% Total Credit to Investor 3,041,746 Price Per $1.00 of Credit 1.05
Total Equity Contributed 3,194,000
PROJECTED CASH FLOW
Net Priority Asset Tax To GP: To GP: GP/
Operating 1st Mortgage Replacement Return to Mgt Fee to Priority to Deferred Incentive Cash Manager Investor
Year Income Repayment Reserves Investor Investor Investor Dev Fee Fee Flow Distribution Distribution
2008 1,200,000 (850,478) (40,000) (91,029) (7,500) - (168,794) (42,199) - - -
2009 1,230,000 (850,478) (40,800) (95,820) (7,725) - (188,142) (47,035) - - -
2010 1,260,750 (850,478) (41,616) (95,820) (7,957) - (211,903) (52,976) - - -
2011 1,292,269 (850,478) (42,448) (95,820) (8,195) - (236,262) (59,065) - - -
2012 1,324,575 (850,478) (43,297) (95,820) (8,441) - (261,231) (65,308) - - -
2013 1,357,690 (850,478) (44,163) (95,820) (8,695) (32,146) (261,110) (65,277) - - -
2014 1,391,632 (850,478) (45,046) (95,820) (8,955) (53,591) (270,193) (67,548) - - -
2015 1,426,423 (850,478) (45,947) (95,820) (9,224) (72,244) (282,167) (70,542) - - -
2016 1,462,083 (850,478) (46,866) (95,820) (9,501) (91,612) (294,246) (73,561) - - -
2017 1,498,636 (850,478) (47,804) (95,820) (9,786) (53,649) (352,879) (88,220) - - -
2018 1,536,101 (850,478) (48,760) (95,820) (10,079) (52,301) (323,073) (153,610) 1,981 495 1,486 #
2019 1,574,504 (850,478) (49,735) (95,820) (10,382) (63,017) - (157,450) 347,622 86,905 260,717 #
2020 1,613,867 (850,478) (50,730) (95,820) (10,693) (74,205) - (161,387) 370,554 92,638 277,916 #
2021 1,654,213 (850,478) (51,744) (95,820) (11,014) (85,786) - (165,421) 393,950 98,487 295,463 #
2022 1,695,569 (850,478) (52,779) (95,820) (11,344) (97,878) - (169,557) 417,712 104,428 313,284 #
2023 1,737,958 (850,478) (53,835) (95,820) (11,685) (112,087) - (173,796) 440,257 110,064 330,193 #
2024 1,781,407 (850,478) (54,911) (95,820) (12,035) (127,457) - (175,000) 465,705 116,426 349,279 #
2025 1,825,942 (850,478) (56,010) (95,820) (12,396) (141,876) - (175,000) 494,362 123,591 370,771 #
2026 1,871,590 (850,478) (57,130) (95,820) (12,768) (156,917) - (175,000) 523,477 130,869 392,608 #
2027 1,918,380 (850,478) (58,272) (95,820) (13,151) (172,516) - (175,000) 553,143 138,286 414,857 #
2028 1,966,340 (850,478) (59,438) (95,820) (13,546) (188,813) - (175,000) 583,245 145,811 437,434 #
2029 2,015,498 (850,478) (60,627) (95,820) (13,952) (205,718) - (175,000) 613,903 153,476 460,427 #
2030 2,065,886 (850,478) (61,839) (95,820) (14,371) (223,386) - (175,000) 644,992 161,248 483,744 #
2031 2,117,533 (850,478) (63,076) (95,820) (14,802) (241,730) - (175,000) 676,627 169,157 507,470 #
Total 38,818,846 # (20,411,472) (1,216,874) (2,294,889) (258,199) (2,246,928) (2,850,000) (3,012,953) 6,527,530 1,631,881 4,895,649
PROJECTED TAXABLE INCOME (LOSS) REAL ESTATE OWNER
Net Taxable Investor GP/Mgr
Operating Interest Funded Incentive Income Income Income
Year Income Expense Depreciation Expenses Fee (Loss) (Loss) (Loss)
2008 1,200,000 (654,674) (600,663) (43,350) (42,199) (140,885) (140,871) (14)
2009 1,230,000 (642,597) (654,013) (43,350) (47,035) (156,995) (156,980) (15)
2010 1,260,750 (629,775) (634,523) (43,350) (52,976) (99,874) (99,864) (10)
2011 1,292,269 (616,163) (621,989) (43,350) (59,065) (48,298) (48,294) (4)
2012 1,324,575 (601,711) (619,679) (43,350) (65,308) (5,472) (5,471) (1)
2013 1,357,690 (586,367) (610,091) (11,350) (65,277) 84,604 84,596 8
2014 1,391,632 (570,078) (601,613) (11,350) (67,548) 141,043 141,029 14
2015 1,426,423 (552,783) (601,613) (11,350) (70,542) 190,135 190,116 19
2016 1,462,083 (534,422) (601,643) (11,350) (73,561) 241,107 241,083 24
2017 1,498,636 (514,928) (601,773) (11,350) (88,220) 282,365 211,773 70,592
2018 1,536,101 (494,232) (601,643) (11,350) (153,610) 275,266 206,449 68,817
2019 1,574,504 (472,260) (601,773) (11,350) (157,450) 331,671 248,753 82,918
2020 1,613,867 (448,932) (601,643) (11,350) (161,387) 390,555 292,916 97,639
2021 1,654,213 (424,166) (601,773) (11,350) (165,421) 451,503 338,627 112,876
2022 1,695,569 (397,872) (601,643) (11,350) (169,557) 515,147 386,360 128,787
2023 1,737,958 (369,956) (592,923) (11,350) (173,796) 589,933 442,450 147,483
2024 1,781,407 (340,318) (583,913) (11,350) (175,000) 670,825 503,119 167,706
2025 1,825,942 (308,853) (584,025) (11,350) (175,000) 746,714 560,036 186,678
2026 1,871,590 (275,447) (583,913) (11,350) (175,000) 825,881 619,411 206,470
2027 1,918,380 (239,980) (584,073) (11,350) (175,000) 907,977 680,983 226,994
2028 1,966,340 (202,326) (583,913) (11,350) (175,000) 993,751 745,313 248,438
2029 2,015,498 (162,349) (584,073) (11,350) (175,000) 1,082,726 812,045 270,681
2030 2,065,886 (119,907) (583,913) (11,350) (175,000) 1,175,716 881,787 293,929
2031 2,117,533 (74,847) (584,073) (11,350) (175,000) 1,272,263 954,197 318,066
Total 38,818,846 (10,234,942) (14,420,894) (432,400) (3,012,953) 13,730,609 8,089,563 2,628,093
PROJECTED CONSEQUENCES OF BUYOUT OF INVESTOR
PUT OPTION
Original Capital Contribution 3,194,000
Buyout - Percentage of Original Capital 15.00%
Put Price 479,100
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