ten things every developer should know before they do
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Ten Things Every Developer Should Know
Before They Do their First Tax Credit Deal
1) 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, share
the 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 at
the 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 partner
tries 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 their
toes, 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 deeper
relationships 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 and
individuals should consider a Joint venture if they lack expertise
6) Understand the Guaranties before you sign them – There are a multitude of guaranties that lenders and investors require. You should
understand 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 fee
8) Developers should hire a construction professional – the biggest mistake I made as a syndicator was not insisting that developers hire
capable 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 best
talent. If you have good people, you will distinguish yourself as a developer
10) 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 too
much 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 of
headaches..
60 East 42nd Street, Suite 1822, New York, NY 10165 • www.rockabilladvisors.com
Learn the Basics: The Low Income Housing Tax Credit Panel
NYSAFAH Conference May 15, 2012
60 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 income
development options
60 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
• Timing
60 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 numbers
• Timing
60 East 42nd Street, Suite 1822, New York, NY 10165 • www.rockabilladvisors.com
Learn the Basics: Development Team
• Architect
• Attorney
• Accountant
• Consultants
• Development Partner
• Property Manager
• Contractor
• Experience Counts
60 East 42nd Street, Suite 1822, New York, NY 10165 • www.rockabilladvisors.com
Learn the Basics: Evaluating Financing Needs
• How much permanent debt can the project
support?
• What is the projected equity raise?
• Has any other funding been made available to the
project?
• 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
Evaluating 9% vs. 4%
Example Previously Provided:
Total Development Budget: $9,632,000
Qualified Basis: $11,140,350
9% Annual Tax Credits: $1,002,631
4% Annual Tax Credits: $357,605
9% Equity Raise (@ $.80): $8,021,048
4% Equity Raise (@ $.80): $2,860,840
Learn the Basics:
60 East 42nd Street, Suite 1822, New York, NY 10165 • www.rockabilladvisors.com
9% vs. 4% Allocation
9% 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’s
SLIHC – NYSHCR
Learn the Basics:
60 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.shtml
60 East 42nd Street, Suite 1822, New York, NY 10165 • www.rockabilladvisors.com
Learn the Basics: Completing the Application
When to file an application
What is needed:
1. Site Control
2. Market Study
3. Appraisal
4. Phase I
5. Financial Commitments
6. Schematic Plans & Specifications
7. Cost Estimates
8. Operating Assumptions
9. Time
60 East 42nd Street, Suite 1822, New York, NY 10165 • www.rockabilladvisors.com
Learn the Basics: Sources of Permanent Financing
Debt Service Coverage Requirements
Income to Expense Requirements
4%
•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
FIRST STERLING FINANCIAL
WHO TYICALLY BUYS CREDITS
• FINANCIAL INSTITUTIONS
– TRADITIONAL BANKS
– INVESTMENT BANKS
• INSURANCE COMPANIES
• FORTUNE 500 COMPANIES
• SYNDICATORS
WHAT ARE THE DIFFERENCES
FINANCIAL INSTITUTIONS
• SPECIFIC GEOGRAPHIC AREA – CRA
• CUSTOMERS OF THE BANK
• LESS LIKELY TO STRUCTURE
• COMPLETE PACKAGES
• COMPETITIVE PRICING
WHAT ARE THE DIFFERENCES
INSURANCE & FORTUNE 500 Cos…
• SIMILAR TO LENDERS EXCEPT HAVE WIDER
GEOGRAPHIC RANGE
• MOSTLY MIF – LIMIT ON % THEY CAN OWN
• ECONOMIC INVESTOR
• WHEN PURCHASING DIRECT
• EXPERIENCED DEVELOPERS, LARGE
DEAL
• MAY HAVE 3RD PARTY DUE DILIGENCE
• LESS LIKELY TO STRUCTURE
• SPECIALTY CREDITS – HTC
• MAY IMPOSE DEVELOPMENT CONDITIONS
WHAT ARE THE DIFFERENCES
SYNDICATOR
• BUYS WITH INTENTION OF PLACING IN A
FUND
• PROPRIETARY & MIF FUNDS
• WIDE GEOGRAPHIC AREA
• PERFORM DUE DILIGENCE & AM
• KNOWLEDGEABLE BUYER WITH IN-HOUSE
EXPERTS
SYNDICATOR
WILL ASSIST IN APPLICATION STAGE
ASSIST WITH STRUCTURING DEAL
CAN WORK WITH A WIDE VARIETY OF CREDITS
AND DEAL SRUCTURES
CAN CLOSE QUICKLY
WHAT ARE THE DIFFERENCES
WHEN SHOULD YOU SOLICIT
PROPOSALS PRELIMINARY/APPLICATION STAGE
• SYNDICATORS WILL ASSIST HELP RUN NUMBER, STRUCTURES AND PRICING THE EQUITY
• BEST TO START WITH A CONSULTANT WHO IS FAMILIAR WITH THE PROGRAMS AND CAN ZERO IN ON THE RIGHT ONE
• LENDER NEEDED FOR DEBT
A PROJECT IS READY TO GO WHEN . .
. • SITE CONTROL
• CREDIT AWARD OR BOND VOLUME CAP
• FINANCING IN PLACE
• PLANS READY FOR BIDS
• THIRD PARTY REPORTS
• BUILDING PERMITS
ZONING APPROVALS
ULURP IS DONE IN NYC
INFORMATION NEEDED FROM THE
DEVELOPER PROJECT DESCRIPTION
• NUMBER OF UNITS & UNIT MIX
• POPULATION TO BE SERVED
• RENT STRUCTURE – GROSS & NET
• AMI LIMITS
• PROJECT AMENITIES
• NUMBER OF BUILDINGS
INFORMATION - CONTINUED
ORGANIZATION
• NAME OF PARTNERSHIP OR COMPANY
• NAME OF GENERAL PARTNER OR MANAGING
MEMBER
• FOR PROFIT OR NOT FOR PROFIT (501 (C)
(3))
• GUARANTORS
• DEVELOPER
• MANAGING AGENT
INFORMATION - CONTINUED
DEVELOPMENT BUDGET
• SOURCES AND USES
• CONSTRUCTION AND PERMANENT PHASE
INFORMATION -CONTINUED
BASIC SOURCES & USES
SOURCES USES
Tax Credit Proceeds Land
Developer equity Building Acquisition
Hard Debt Hard Construction Cost
Soft Debt Soft Costs
Federal Grants Developer Fee
State Grants Rrserves
Deferred Developer Fee
INFORMATION - CONTINUED
• 30-YEAR OPERATING PRO-FORMA
• OPERATIING EXPENSES
CONTROLLABLE UNCONTROLLABLE
Administrative Utilities
Payroll & Related Real Estate Taxes
Repairs & Maintenance Insurance
Contract Services
• MANAGEMENT FEE
INFORMATION - CONTINUED
KEY DATES:
• CLOSING DATE
• CONSTRUCTION START
• FIRST UNITS PLACED IN SERVICE
• FINAL UNTIS PLACED IN SERVICE
• 100% OCCUPANCY
INFORMATION - CONTINUED
EXPECTED EQUITY CAPITAL CONTRIBUTIONS:
AT CLOSING/ADMISSION
DURING CONSTRUCTION
AT PLACED IN SERVICE
AT 100% OCCUPANCY
CLOSING INTO PERMANENT LOAN - BEO
AT 8609
FIRST YEAR CREDIT DELIVERY
THIS INFORMATION IS NECESSARY SO
THAT. . .
• BUYER CAN ESTIMATE PRICE
• MULTIPLE BIDS ON SIMILAR TERMS CAN BE
OBTAINED
• 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 CAPITAL
CONTRIBUTIONS
THE OFFER - CONTINUED
EQUITY CONTRIBUTIONS AT THE FOLLOWING
STAGES OF DEVELOPMENT:
• CLOSING (ADMISSION)
• DURING CONSTRUCTION - BENCHMARKS
• COMPLETION - PLACED IN SERVICE
• 100% OCCUPANCY
• CLOSING INTO PERM LOAN
• 8609 & TAX RETURN
THE OFFER - CONTINUED
• CONDITIONS TO BE MET FOR EACH CAPITAL
CONTRIBUTION
• DEVELOPMENT FEE AND PAY SCHEDULE
• SHARING OF TAX AND CASH BENEFIT
SCHEDULES
THE OFFER - CONTINUED
SHARING OF CASH FLOW
• PRIORITY OF DISBURSEMENTS
• SPLITS BETWEEN GP AND LP
o SPLIT OF CASH TO PAY DEFERRED FEE
o SPLIT OF CASH FOR GP INCENTIVE FEE
o SPLIT FOR REMAINING CASH
THE OFFER - CONTINUED
BENEFITS FROM SALE OR DISTRIBUTION
• PRIORITY OF DISTRIBUTIONS
• FEES FOR REFINANCING OR SALE
• SPLIT OF REMAINING CASH
THE OFFER - CONTINUED
GUARANTEES – ONLY MAJOR ONES ARE
SUMARIZED IN LOI
• COMPLETION
• OPERATING DEFICITS
• REPURCHASE
• TAX CREDIT BENEFITS
oTOTAL AMOUNT OF CREDITS
oTIMING OF DELIVERY
oLOSS OF CREDITS DURING
OPERATIONS
THE OFFER - CONTINUED
REPLACEMENT RESERVES
• AMOUNT, DURATION, DISPOSITION
OPERATING RESERVE
• AMOUNT, DURATION, DISPOSITION
DEPRECATION
• HOW CALCULATED
THE OFFER - CONTINUED
ADJUSTERS
• HOW ARE THEY CALCULATED
RIGHT TO PURCHASE
Right of First Refusal
Purchase Options
Forced Sale
INSURANCE REQUIREMENTS
CONDITIONAL OFFER
THE OFFER - CONTINUED
FEES AND COMPENSATION
DEVELOPMENT SERVICES FEE
PROPERTY MANAGEMENT FEE
ANNUAL SYNDICATOR FEE
INCENTIVE FEES TO GP/MM
DUE DILIGENCE FEES
THE OFFER - CONTINUED
KEY PROVISIONS THAT WILL BE LATER DETAILED IN THE LPA
• OWNERSHIP STRUCTURE
• REMOVAL PROVISIONS
• WITHDRAWAL PROVISIONS
• DETAILS ON THE GUARANTEES
• DETAILED REPURCHASE PROVISIONS
• DETAILED OBLIGATIONS OF PARTIES TO 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 MORE YEARS
CONSIDER THE ENTIRE OFFER BEFORE MAKING A DECISION
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
Learn the Basics:
The Low Income Housing Tax Credit Panel
_________________
NYSAFAH Conference
May 14, 2012
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
Know Your Funding Sources
44 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
• OMH
III. 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 Affordable
Housing Affordable?
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
• Income restrictions
• Population restrictions
• Subsidized financially by a governmental entity
• Regulated by a governmental authority
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
Tax Credit Applications:
Things to Consider
44 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 Period
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
• Project Financing
• Project Population
• Tenant Ownership Option
• Tax Abatement Documentation
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
GH
Developing Your Project:
Critical Factors
44 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 condo
process (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 (tax
exempt 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 to
AG/Court
• Maintain good communication and closing checklist
44 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 applications
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
Legal Structure
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
Typical Tax Credit Legal Structure – Nominee Agreement/Joint Venture
Affordable Housing HDFC
(Fee Owner)
Affordable Housing LLC
(Beneficial Owner)
Affordable Housing Managers LLC
(Managing Member)
.01% interest
Tax Credit Syndicator
(Investor Member)
99.99% interest
Affordable Housing HDFC
(Member)
50% interest
For-Profit
(Member)
50% interest
Sponsor
Sole Member of HDFC
Syndicator
(GP)
Investors
(LP)
Structure Benefits:
Exemption NYC Transfer Tax (NYC only)
Exemption from Mortgage Recording Tax
Eligible for Sales Tax Exemption
Eligible for the following real estate tax exemptions:
420-c RPTL (NYC only)
Article XI PHFL
Article V PHFL
422 RPTL
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
David A. Goldstein
Managing Member
44 Wall Street 12th Floor, New York, NY 10005
Telephone: 212.461.2338
Email: dgoldstein@goldsteinhall.com
David A. Goldstein, the managing member of Goldstein Hall PLLC, has over 20 years of
experience in the legal field, with expertise in affordable housing development, real estate
finance, government affairs, general corporate/business law and litigation. In particular, Mr.
Goldstein has extensive experience in negotiating joint ventures between not-for-profits and for-
profit developers, as well as structuring complex affordable housing transactions. Many of these
affordable housing transactions involve financing by federal, state and local agencies through the
issuance of tax-exempt bonds and low-income housing tax credits. Additionally, Mr. Goldstein
has experience representing limited equity cooperatives, HDFC co-ops and tenant associations in
litigation 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 the
homeless population in Steuben County, New York.
Mr. Goldstein is the President of the Board of Directors of Groundswell Community Mural
Project, a local not-for-profit organization that uses art as a tool for social change by creating high
quality works of public art in under-represented neighborhoods. Mr. Goldstein also serves as a
member of Berkeley College's Paralegal Advisory Board. In Mr. Goldstein's spare time he is a
practicing potter and was featured in the award-winning PBS documentary series Craft in
America.
44 Wall Street, 12th Floor, New York, NY 10005 ● P: 212.461.2338 ● www.goldsteinhall.com
GOLDSTEIN HALL PLLC
44 Wall Street
New York, New York 10005
Tel: (212) 461-2338
Fax: (646) 219-2450
www.goldsteinhall.com
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