Preservation of Affordable Housing Florida Housing Conference 2015

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2 Preservation of Affordable Housing The Case for Preservation

3 The Case for Preservation Who are we? Where are the opportunities? What are the challenges? What are the resources - financial and non-financial? What are the tools and strategies?

4 Who are we? Preservation of Affordable Housing, Inc. Boston based Created in 2001 as a spin-off of the National Equity Fund Void in the market - POAH s primary mission is to purchase large, multi-family properties and refinance them for long-term affordability Focus on cash flow not developer fees allows us not to chase the bad deal Nearly 9,000 apartments in 79 developments in 9 states and the District of Columbia

5 Florida Portfolio 1,355 Units in 8 properties Acquired portion of Greater Miami Neighborhoods Portfolio (5 properties, 845 units) and Holy Trinity Episcopal Church Portfolio, in Melbourne (3 Properties, 510 units) Campbell Arms Homestead Middletowne Orange Park Cutler Manor - Miami Cutler Meadows-Glen Miami New Horizons -Miami Trinity Towers East; Trinity Towers West; Trinity Towers South- Melbourne Represents 15% of assets

6 POAH s Mission: POAH s mission is to preserve and steward affordable rental housing to provide stability, hope and economic security to lowand moderate-income individuals and families.

7 POAH has preserved nearly 9,000 units at 79 properties in 9 states and the District of Columbia since Northeast Mid Atlantic Southeast Upper Midwest Central Midwest

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9 Deal Types Buy & Hold - Competitive $ 5 Buy & Hold 5 Redevelopment New 5 Construction 4 Acquisition/Reha b 60

10 Unit Subsidy Breakdown Project Based Subsidy Other PBRA 3% PBV 3% Non-PBRA 23% Section 8 71% and of those LIHTC units TCX 9% 4%

11 Where are the opportunities? Owners who are exiting the business - Churchs Change of mission - away from real estate Organizational/financial issues Aging owners Dissolving partnerships Maximizing profits through transfer to non-profit Troubled properties HUD inventory State housing finance agency portfolios Syndicator/lender troubled transactions

12 What are the challenges? Price competition for assets, particularly subsidized Assets needing higher level of rehab Cash Buyers Acquisition capital to control assets; working capital for intermediate improvements Lack of Predictability / Timing issues with sources of additional financing: tax credits, subordinate debt

13 What are the Resources? Financial Standard Acquisition capital - Socially responsible investors Acquisition financing for basis Seller/GP Financing Tax exempt bonds and 4% credit Competitive 9% credit Section 8 Rent Increases State soft money

14 Financial- Non-Standard Federal Home Loan Bank Subsidized Advance Charitable Foundations Local soft money Project Based Section 8 Vouchers from local housing authorities True Seller Financing Donation Credits

15 Non-Financial Resources Property/Asset management Energy Improvements Construction expertise Real estate tax abatement

16 Transformation Initiatives Preservation of Affordable Housing What are the tools and strategies? Section 8 Contract Renewals/New Section 8 PBV Building partnerships with smaller non-profits, residents Building relationships with local government housing authorities Target properties before the end of the affordability restrictions (buy and hold)

17 Preservation through Portfolio Engineering MB Portfolio Owned by for profit company whose partners were retiring 929 units in 7 properties with a mix of Section 8 contracts, Section 236 Properties in excellent condition approaching end of contracts and affordability restrictions Utilized mark up to market, Most financed with a mix of tax exempt bonds and 4 percent credits

18 Preservation of Distressed Property Crestview Apartments 132 Section 8 units in 6 buildings Bankrupt owner HUD threatened Sec 8 abatement Quick resource allocations by HFA HOME, credits Interim management intervention to stabilize property Moderate rehab and local partnerships

19 Preservation through Transformation United Front Homes 200 units on 12 acres of land Faulty financial structure Deteriorating physical condition Interim management intervention Community planning process with local partners Local and state resource allocation=$41 million redevelopment Reduce the density, re-knit the neighborhood

20 Preservation through Transformation Grove Park Transformation 504 unit Section 8 with troubled history Mission driven non-profit owner Threatened abatement of subsidy Interim property management intervention De-concentrate project based subsidy Mixed-use, mixed income redevelopment Redevelopment and acquisition

21 Billings Forge Billings Forge is a 112-unit, mixed-use property located in Hartford s Frog Hollow neighborhood, near the State Capitol and Trinity College. POAH purchased Billings from the Melville Charitable Trust in December The Trust is remaining in the deal providing a long-term seller note.

22 Billings Forge Partner: Melville Charitable Trust Construction & Permanent Lender: CHFA LIHTC & Federal HTC Syndicator: MHIC (Investor is People s United) State HTC Investor: CT Light & Power Soft Money: CT DOH/ CHAMP City of Hartford: Real estate tax abatement

23 Central Annex Central Annex & Union Court Apartments (collectively known as Central Annex) are a 101-unit, 100% Section 8 development in Pittsfield, MA. The property does not have an elderly designation however.

24 Central Annex Construction Lender: MassHousing Permanent Lender: MassHousing Syndicator: MHIC (TD Bank investor) Soft Financing: DHCD/MHFA - AHTF DHCD - HSF

25 Grace Apartments Grace is a 101-unit, 99% Section 8 senior property located at the edge of downtown Providence. It was developed in 1978 as a Section 202 project by the Archdiocese of Grace Episcopal Church, until its sale to POAH in late Grace is POAH s first FHA-financed substantial rehab, and first experience with a cashcollateralized tax-exempt bond structure

26 Old Middletown High School Apartments Old Middletown High School Apartments (OMHS) is 65-unit elderly property located in Middletown, CT, just a few blocks from Wesleyan University's campus. The property is covered by a Section 8 HAP Contract, and is on the National Register of Historic Places. POAH acquired OMHS in January 2014 and closed on syndication and construction financing in March 2014.

27 Old Middletown Key Players Lender: Connecticut Housing Finance Authority LIHTC Syndicator: MHIC (lnvestor is TD Bank) State Historic LIHTC: National Funding (Investor is Eversource formally CL&P) Soft Money: CT Dept. of Housing CHAMP Funds

28 Trinity Towers West Trinity Towers West is a 192 unit elderly property located in Melbourne, FL, built in It was acquired as a part of a three property portfolio purchased from the Holy Trinity Episcopal Church in It closed on 9% syndication in March 2015, and will complete construction by April The other two properties, Trinity Towers East and Trinity Towers South, will seek LIHTCs in 2015.

29 Trinity Towers West - Key Players Status: Construction at Trinity Towers West is currently 50% complete and is set to finish by April Key Players: Lender: Citibank Subsidized Loan from Boston Private Bank & Trust Syndicator: Boston Capital Soft Financing: Federal Home Loan Bank of Boston Holy Trinity Episcopal Church Additional HAP Contract through the Housing Authority of Brevard County Contractor: NEI Architect: PQH Group

30 Trinity Towers West Scope of Work Trinity Towers West Scope of Work - 46K/Unit HVAC Windows Fire Sprinklers Fire Alarms New Roof ADA Improvements Accessibility improvements to 10 units 100% New Kitchens Additional Funding Federal Home Loan Bank Subsidized Advance Project Based Section 8 from Housing Authority of Brevard County

31 Trinity Towers West before after

32 Trinity Towers East Built in units; 68% Section 8 Refinanced in 2014 Received 100K from City of Melbourne Received 750K from FHFC Holding $1.0+ of reserves for rehab

33 Trinity Towers South Built in units; 100% Sec 8 Refinanced in 2015/Paid Church Loan Received 750K from FHFC Holding $500+ of reserves for rehab

34 The Case for Preservation From Developer Perspective: Known quantity operationally Known quantity locally, politically, positively/negatively Certainty of Execution no permits, zoning, NIMBY-ism Less Risk certainty of execution

35 7. Zero Sum Game Preservation of Affordable Housing The Case for Preservation From Policy Perspective: 1. Lower Costs/Efficient Use of Subsidy Support More Units 2. Protection of Subsidy 3. Protection of Residents 4. Stabilization of Neighborhoods 5. Job Creation 6. Sustainable Development Practice

36 Lower Costs/Efficient Use of Subsidy: Preservation costs less than new construction meaning less need for scarce resources, like 9% LIHTCs and SAIL. In 2014 SAIL round Total Development Cost Averaged: $115K/unit for Rehab, and $189K/unit for New Construction Meaning rehab costs were 64% less per unit than new construction Meaning 2 units funded for every 1 of New Construction Center for Housing Policy 2013 study - property saves, between $40K and $71K/ unit (or 25% - 45%) relative to new construction over a 50-year Impact Housing Finance Agencies Can Support More Units

37 Protection of Subsidy: Many preservation deals involve Section 8 contracts. If these developments are not protected, these critical subsidies would be lost forever. Protection of Residents: Preservation protects seniors and families who already live in and depend on at-risk affordable properties. Stabilization of Neighborhoods: These affordable assets have been in communities for a long time, they are a fabric of the neighborhood, and if they are lost, it s a loss to the whole community

38 Job Creation: Because labor makes up a higher proportion of construction costs on preservation deals, which use less new materials, preservation creates more construction jobs per subsidy dollar than new construction. Sustainable Development Practice: The renovation of existing structures is inherently resource-efficient, reduces construction waste, and uses less energy than new construction. At the community and regional level, preservation uses existing sites often in dense, transit-connected locations and avoids the need to develop green space and extend new infrastructure. Zero Sum Game: Most importantly, if the goal is to increase the affordable housing stock then funding new construction at the expense of preservation means that we are adding units at the same time we are losing them

39 Steward: A person who administers the property, house, finances, etc. of another