preservation through portfolio sales...role of physical assessments on due diligence and purchase...
TRANSCRIPT
Preservation through Portfolio Sales
Richard PriceNixon Peabody LLP
MODERATOR PANELISTS
Paul DavisAHA/Marcus Milichap
Kent NeumannTiber Hudson LLC
Defining Portfolio Sales
Property sales
Sales of general or limited partner (member) interests
Acquisition versus Acquisition/Rehabilitation versus New Construction
Looking at value of portfoliosSeeing the forest for the trees—how value per project fits in to structure
Looking at value of interests in each project relative to interests across several properties
Opportunities• Year 15 Housing Credit Transactions: Investor desire to exit versus general partner’s desire to continue.• Years 10-14 Housing Credit Transactions• HUD/USDA/Credit properties with expiring or “softening” use restrictions• Maintaining versus expiring project-based rent subsidies
Economies of scale
Role of affiliated management companies
Role of physical assessments on due diligence and purchase price• Poor physical condition can be an invitation to re-development or enforcement• Economic occupancy versus actual occupancy
Average Price Per Unit
5
$98,000 $106,000
$113,000 $121,000
$137,000 $145,000 $147,000
$38,000 $39,000 $47,000 $50,000
$63,000 $68,000
$78,000
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
2011 2012 2013 2014 2015 2016 2017 (throughQ3)
Multifamily Section 8
Regional Map
6
WestMountain
Texas/Oklahoma
South
Midwest
Northeast
Average Price Per Unit
7
$-
$50,000
$100,000
$150,000
$200,000
$250,000
Midwest Mountain Northeast South Texas/Oklahoma West
2016
Multifamily Section 8
Average Price Per Unit
8
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Midwest Mountain Northeast South Texas/Oklahoma West
2017 (through Q3)
Multifamily Section 8
Financing Acquisition
Bond financing – one deal versus many deals at once
Seller take back financing (and why that is risky for a buyer, but if it works, wonderful)
Collateral
Guarantees
Tax compliance
• 264 Properties Comprising 10,342 Units Located in 9 States
• Total Development Costs: $911.2 million
• Total Funding Sources: $1.2 billion
• Gross Bond Issuance: $432.9 million
• Long-Term Tax-Exempt Debt: $108.7 million
• Cash-Backed Bonds: $321 million
• New Taxable Debt: $216.7 million
• Assumed Debt / Seller Debt: $303.1 million
• LIHTC Equity: $254.9 million
• Other Sources: $27.8 million
RD Pooled Transaction Data (Since Oct. 2007)
[email protected] | (703) 568-0190
Pros:
• Impacts large group of properties at one time … have closed pools of 2 - 45 projects
• Lowers development costs PER property … allocate fixed transaction costs
• Removes properties from competitive LIHTC 9% cycles
• Creates jobs / local investments / public interest in small rural markets that otherwise receive very little attention
• Recapitalizes and resizes reserves for continued sustainability
• No lease-up risk (in-place rehabs)
• Allows sellers to exit / close out funds – stronger negotiating power
4% Portfolio vs. 9% Single LIHTCTransaction
[email protected] | (703) 568-0190
Cons:
• Costly transaction (legal, COI, etc.)
• Less resources – requires sufficient 3rd party funding, can be difficult to find
• Volume of work
• Requires cooperation of multiple lenders and state agencies (sometimes with competing agendas)
• Completed with tenants in place (pro & con)
• Lengthy process – about 1 year from kickoff to initial closing
• Not for everyone – hire experts
4% Portfolio vs. 9% Single LIHTCTransaction
[email protected] | (703) 568-0190
• 24 Properties
• Located in 12 Counties
• 1,058 units
• 24 Sellers
• Avg. $23 rent DECREASE
• Avg. OpEx - $3,624
• 62% Section 521 Rental Assistance
Example Pool:Florida Portfolio Preservation Transaction
[email protected] | (703) 568-0190
SOURCES & USES – Florida Pool
SOURCES
Bonds / Gross Issuance $41,574,000
Senior Debt (538 & 515) 29,868,000
Subordinate Debt (Assumed 515) 26,658,983
Tax Credit Equity (4% LIHTC) 28,077,147
Other (RR Surplus) 3,471,451
DDF 995,586
TOTAL $130,645,167
USES
Acquisition $33,476,838
Pre-Development 524,502
Architectural / Engineering 1,058,000
Construction 31,233,132
Contingency 2,352,380
Legal & Finance 5,075,940
Soft Costs 13,901,297
Reserves & Escrows 1,449,078
Bond Redemption 41,574,000
TOTAL $130,645,167
[email protected] | (703) 568-0190
1.70% 1.80% 1.80%
Bond Yields and Investment Rates on RecentCash-Backed Bond Transactions with Treasury
Investments
12-Mo. Terms 18-Mo. Terms 24-Mo. Terms
Avg Spread: 0.09%(~$9k on $10MM)
Avg Spread: 0.11%(~$16.5k on $10MM)
Avg Spread: 0.11%(~$22k on $10MM)
Avg Investment YieldAvg Bond Rate
1.61%1.69% 1.69%
Tiers
Upper – Tier
Lower –Tier
Are you selling
Securities?
Purchase Agreement Oddities
In theory closing everything together
in a portfolio
In reality—maybe not Take one/Take all
Take as many as possible, alternative exit sales strategy
for the rest
Transfer in tranches
General Partner Legal Duties and Rights
Put and Call options—reviewing in existing acquisitions, creating in a new portfolio
Dealing with existing guarantees and obligations to fund deficits and obligations like deferred developer fees
Pre-existing environmental obligations and guarantees
Removal rights
Contractual provisions dealing with buying out limited partners (dealing with seller transfer taxes)
Some states/localities impose a partial/full real estate transfer tax for partner level interest transfers
Limited Partner Legal Duties and Rights
Asset management fees
Partner level transfer taxes
Rights to assign versus admission as a new partner
Approval rights: older transactions may have very limited rights
Issues and (maybe) solutions for overcoming infeasible approval goals (ie, unanimous consent)
Lender Approvals
Assumable debt Prepayment
Bond defeasance
Approval for changes of
key principals and similar concepts
Regulatory Approvals
HUD TPAs; RD Transfers and Substitutions
Use Agreements
HFA restrictions in QAPs for transfers
Don’t forget all that good real estate work—good legal title, proper permits, occupancy certificates, zoning, land use planning and the like!
Kent Neumann, Esq.Tiber Hudson LLCDirect: (202) 973-0107Cell: (703) [email protected]
Nixon Peabody, LLP
• Richard Michael Price, Esq.Nixon Peabody LLP799 9th Street, N.W., Suite 500Washington, DC 20001T: (202) [email protected]
Affordable Housing Blog
•For insiders’ views on the dynamic affordable housing industry, visit: housingblog.nixonpeabody.com
•Join the conversation!
•What are industry practitioners saying about Nixon Peabody’s Affordable Housing Blog?
• “I read it every day.”• “I saw your blog quoted by an industry newsletter.”• “It’s an excellent resource!”
Preservation through Portfolio Sales
Richard PriceNixon Peabody LLP
MODERATOR PANELISTS
Paul DavisAHA/Marcus Milichap
Kent NeumannTiber Hudson LLC