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community
transformation
diversity
vision
MCCORMACK BARON SALAZAR
Preservation Through LIHTC and HTC:Washington Apartments
in St. Louis
Jonathan [email protected]
Washington ApartmentsSt. Louis, Missouri
Project Background
Structure
Financials
Key Lessons
Outline
Background: History
George Washington Inn: built in 1902
At 7 Stories, among highest in St. Louis
Artesian well located in basement
Located in City’s Central West End
Slipped into decline/disrepair
McCormack Baron first redeveloped in 1979
Background: Tenants
Project originally developed as Section 8 Housing
99 one bedroom units
Building was occupied
Physical structure showed age
Design issues
Energy conservation issues
Background: Preservation
Central West End hotbed for condo activities
Losing many affordable units
Condo conversion considered
Combination State and Federal LIHTCs and HTCs, State Donation Credit permitted preservation
Background: Physical Plan
Reoriented entrance to Kingshighway
New roof, tuckpointing/sealing
All new historic, energy-rated windows
New systems (fire, heat pump, etc.)
New unit and common area finishes and appliances
New fitness center, community room, laundry
Abatement of all lead, asbestos
Structure: Permanent Sources
Tax Exempt Bonds
State HOME Funds
State Donation Credit
4% Low Income Housing Tax Credit
State Low Income Housing Tax Credit
Federal Historic Tax Credit
State Historic Tax Credit (25%)
Structure: Finance Participants
U.S. Bank CDC – LIHTC/HTC equity
National City – HTC equity
Missouri Housing Development Corp – LIHTCs
Enterprise Bank – bond purchaser
A.G. Edwards – underwriter
St. Louis Industrial Devp Board – bond issuer
Urban Strategies – donation credit lender
Structure: Bonds, 4% LIHTCs
Bonds unlock 4% credits, act as inexpensive bridge for equity
In addition, project needed permanent first mortgage
Borrowed combination of short/long term bonds to clear 50% Test
Received 4% credits on 100% of units
Will redeem short-term series after completion with equity, retain long-term series as permanent first
Structure: Donation Credits
Missouri has Affordable Housing Assistance Program (AHAP) donation credit
Credit permits a $.55 tax credit for every $1.00 donated to a nonprofit to support housing
Provides huge tax incentive for motivated donor
Even where motivated donor not available, equity investor can make donation, offset pricing by net expense of donation
Structure: Historic Credits
Both Federal and State HTCs used
If LIHTC owner uses federal HTCs, must reduce basis for LIHTC
This would significantly reduce benefits of getting historic credits
To avoid, we structured Master Tenant for HTCs
Master Tenant can receive federal HTC equity, push benefit to project without loss of LIHTC basis
State credits not subject to same limitations
Structure: Diagram
Financials: Bond Details
Series A (permanent) - $2,875,000; Series B (short term) - $4,625,000
Total $7.5M is greater than 50% of aggregate cost basis
Presold to Enterprise Bank, which brought AG Edwards in as underwriter
During construction, bonds secured by LOC from US Bank (equity)
5% interest-only during construction, 6.5% amortizing thereafter
Financials: HTC Details
$10.9M in Qualified Rehabilitation Expenditures
20% Federal HTC ($2.2M in credits); 25% State HTC ($2.7M in credits)
If Federal HTC investor in ownership entity, $700K lost in LIHTC equity for $2M gained in HTC
Instead, owner passes Federal HTCs to Master Tenant, Investors* purchase from MT, which loans funds back to Owner (Master Landlord)
MT leases building from ML for lease payments that offset ML debt to MT; MT then contracts with residents
Structure is collapsed after five year compliance period
Key Lessons
Helps to operate in progressive state
ML/MT HTC structure is complex, include time and structuring costs in determining value
Beware evolving tax interpretations
. . . Should’ve kept the bath houses
