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