Ten Things Every Developer Should Know Before They Do

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


Learn the Basics: Project Feasibility/Evaluating your project

• New Construction

• Preservation/ Acquisition Rehab

• 9%, 4%, SLIHC, other low income

development options


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


Learn the Basics: Preservation/Acquisition Rehab

• What are the physical needs of the project?

• Market?

• Putting together the numbers

• Timing


Learn the Basics: Development Team

• Architect

• Attorney

• Accountant

• Consultants

• Development Partner

• Property Manager

• Contractor

• Experience Counts


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.


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?


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:


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:


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


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


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


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


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


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


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


• 30-YEAR OPERATING PRO-FORMA

• OPERATIING EXPENSES

CONTROLLABLE UNCONTROLLABLE

Administrative Utilities

Payroll & Related Real Estate Taxes

Repairs & Maintenance Insurance

Contract Services

• MANAGEMENT FEE


KEY DATES:

• CLOSING DATE

• CONSTRUCTION START

• FIRST UNITS PLACED IN SERVICE

• FINAL UNTIS PLACED IN SERVICE

• 100% OCCUPANCY


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


• CONDITIONS TO BE MET FOR EACH CAPITAL

CONTRIBUTION

• DEVELOPMENT FEE AND PAY SCHEDULE

• SHARING OF TAX AND CASH BENEFIT

SCHEDULES


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


BENEFITS FROM SALE OR DISTRIBUTION

• PRIORITY OF DISTRIBUTIONS

• FEES FOR REFINANCING OR SALE

• SPLIT OF REMAINING CASH


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


REPLACEMENT RESERVES

• AMOUNT, DURATION, DISPOSITION

OPERATING RESERVE

• AMOUNT, DURATION, DISPOSITION

DEPRECATION

• HOW CALCULATED


ADJUSTERS

• HOW ARE THEY CALCULATED

RIGHT TO PURCHASE

Right of First Refusal

Purchase Options

Forced Sale

INSURANCE REQUIREMENTS

CONDITIONAL OFFER


FEES AND COMPENSATION

DEVELOPMENT SERVICES FEE

PROPERTY MANAGEMENT FEE

ANNUAL SYNDICATOR FEE

INCENTIVE FEES TO GP/MM

DUE DILIGENCE FEES


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


Know Your Funding Sources


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)


What Makes Affordable

Housing Affordable?


• Income restrictions

• Population restrictions

• Subsidized financially by a governmental entity

• Regulated by a governmental authority


Tax Credit Applications:

Things to Consider


• Deciding between 9% and 4% Tax Credits

• Deciding between which Agency to apply to

• Legal Structure

• Site Control Documentation

• Regulatory Period


• Project Financing

• Project Population

• Tenant Ownership Option

• Tax Abatement Documentation


GH

Developing Your Project:

Critical Factors


• 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?


• 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”


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


• Lease up, lease up, lease up

• Certificate of Completion immediately after TCO

• Stay on top of tax exemption applications


Legal Structure


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


David A. Goldstein

Managing Member

44 Wall Street 12th Floor, New York, NY 10005

Telephone: 212.461.2338

Email: [email protected]

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.


GOLDSTEIN HALL PLLC

44 Wall Street

New York, New York 10005

Tel: (212) 461-2338

Fax: (646) 219-2450

www.goldsteinhall.com

Documents

Ten Things Every Developer Should Know Before They Do