Opportunities for Preservation of Overleveraged Multi-Family
Housing
Presented by: Harold Shultz, CHPC
David Walsh, NYSHFA
Dina Levy, UHAB
What is an Overleveraged Building?
An Example
Annual Per Apt/Month
Total Debt Service $23,957,325 $1,108Loans of $367 M
O&M (Est) $14,704,320 $680
Total Debt + O&M $38,661,645 $1,788
Gross Income (2007) $17,310,476 $801
Net $(21,351,169) $(987)
DSCR = .36 !
Banks and CMBS
• Two types of lenders– Banks– Commercial Mortgage Backed Securitized
Trust
CMBS
Commercial Mortgage Backed Trust
Investors
Trustee
Master Servicer/Special Servicer
What Will Happen?
• Extend Mortgage• Recast Mortgage• Sell Mortgage• Foreclose Mortgage
What Will Happen?
• Capital Starvation
• M & O cut to the bone
Results in:
• Long term building deterioration
• Neighborhood deterioration
Extent of the Problem
2009: Potentially more than 70,000 units of over-leveraged housing in NYC
•Rent Regulated
•Mitchell Lama
•PB S8
One Example: 4,000 unit portfolio(Non Securitized)
Original Owner
Sale: in March of 2005 $295 million, or $74,000 per unit.
1st Private Equity/LL@ 20% = $59 M1st Lender @ 80% = $236 M
Sale: in May of 2007$918 million, or $232,000 per unit.
2nd Private Equity/LL @ 20% = $184 M2nd Lender @ 80% = $734 M
DEBT SERVICE TRIPLES IN 2 YRS
• Transparency
• Pricing
• “Market Watchers”
Barriers to Acquisition
- Long-term responsible owners
- Supportable debt based on existing income stream
- Adequate operating and capital reserves
- Use-restrictions (in some cases)
Preservation Goals
Administrative and Legislative Proposals:
- Voluntary Sales - Phantom Tax Relief
- Debt Acquisition - Restrictions on PIPP/LLP
- Restricted Foreclosure Sales?- HUD/Treasury MF Preservation Program
Opportunities for Acquisition
Types Of Loans
• Portfolio Loan – Originated by Lender and sitting on balance sheet. Lender may or may not want to remove loan through sale or securitization process.
• CMBS – Loan may be pooled with other loans, transferred into a Trust, which then issues bonds that may vary in yield, duration and payment priority.
CMBS Loan Participants
• Trustee – Holds all loan documents and distributes cash flow received from Servicer to Investors
• Servicer – Manages the flow of payments and information and is responsible for communicating with the Borrower
• Rating Agency – Establish ratings for each bond class and continually monitor performance
• Investors – Rated versus Unrated Pieces
CMBS Participants
• Ownership – Who owns the various loan pieces?
• Valuation – How much is the property worth?
• First Loss Position – Who is controlling holder?
• Servicer – Will the servicer share information with you?
• Trustee – Trust not looking to sell if loan not in default
Challenges with Securitized Loans
• Mezzanine Financing - Acquisition of various Mezzanine Loan pieces. Foreclose where collateral is equity ownership entity in the deal. Take subject to first mortgage. (ie: John Hancock Tower – Boston, MA)
• Alternative Property Usages – Property being reviewed as possible Supportive Housing project where traditional all-affordable deal in major trouble and lender may be willing to make deal. Supportive Housing financing structure may be applicable and may work
Strategies
• Brokerage Firms – Cushman & Wakefield, Eastdil, Massey Knakal,
• Banks –Deutsche Bank, JP Morgan, NY Community Bank
• Law Firms – Dechert, Paul Hastings, Skadden Arps
• Mortgage Brokers – Ackman-Ziff, Holliday Fenoglio, Meridian Capital, Palisades Financial
Opportunities: Where To Look