20 Lafayette LLC (A Limited Liability Company) Balance Sheet December 31, 2015

Transcription

1 Balance Sheet

2 Contents Page(s) Independent Auditors Report... 1 Financial Statement Balance Sheet... 2 Notes to Balance Sheet

3 Independent Auditors Report To the Members of 20 Lafayette LLC We have audited the accompanying balance sheet of 20 Lafayette LLC as of, and the related notes. Management s Responsibility for the Financial Statement Management is responsible for the preparation and fair presentation of this financial statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statement that is free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of 20 Lafayette LLC as of, in accordance with accounting principles generally accepted in the United States of America. March 29, 2016

4 Balance Sheet Assets Real estate under development $ 123,777,364 Cash 17,905 Bond escrow 115,438,651 Deferred financing costs, net of accumulated amortization of $552,676 3,584,479 Total assets $ 242,818,399 Liabilities and members' equity Liabilities Mortgage notes payable $ 168,000,000 Accounts payable and accrued expenses 8,893,066 Due to 20 Lafayette Construction LLC 889,722 Deposits payable 500,000 Total liabilities 178,282,788 Members' equity 64,535,611 Total liabilities and members' equity $ 242,818,399 The accompanying notes are an integral part of this financial statement. 2

5 Notes To Balance Sheet 1. Business and Summary of Significant Accounting Policies Formation 20 Lafayette LLC (the Company ) was formed on January 31, 2008 as a New York limited liability company. In accordance with the Company s amended and restated limited liability agreement ( LLC Agreement ) dated October 1, 2014, the sole member of the Company is 20 Lafayette Holdings LLC and David C. Walentas, is named as manager. The Company shall continue in existence until terminated or dissolved as determined in accordance with the terms of the LLC Agreement. A member of a limited liability company is not liable for the debts, obligations or other liabilities of a limited liability company for reason of being such a member. General The Company intends to develop a 31 story mixed use building which will contain 370 residential apartments. Amenities are expected to include a fitness facility, rooftop terrace and bicycle storage. The development will also include approximately 61,200 square feet of retail/commercial space, approximately 64,688 square feet of community facility space, a public plaza and approximately 150 parking spaces (the Project ). The development is expected to be converted to a condominium form of ownership, which will be comprised of 9 condominium units in an 11 unit mixed use condominium (the Condominium ). The Condominium will include (i) one unit containing 289 market rate units, (ii) one unit containing 13 market rate units and the superintendent s unit, (iii) one unit containing 76 units that will be rented to tenants whose household incomes are at or below 60% of the New York City Are Median Income ( AMI ) adjusted for family size (the Low Income Units ), (iv) one unit containing parking spaces for residents, (v) one unit containing public parking spaces, (iv) three units containing ground floor and cellar commercial or retail space, and (vii) one unit containing exterior plaza space. The remaining two units in the Condominium are expected to be sold to the City of New York and upon such sale will not be part of the Project. Prior to completion of the Project and upon establishment of the Condominium, the Low Income Units will be leased to 20 Lafayette Affordable LLC, a related party affiliated through common control, pursuant to a master lease agreement. Basis of Accounting The accompanying financial statements have been prepared on an accrual basis in accordance with accounting principles generally accepted in the United States of America. Estimates The preparation of the balance sheet in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates. Real Estate Under Development Costs for the acquisition, development and construction of the Project are charged to real estate under development. In accordance with accounting standards, incidental operations of the property prior to the commencement of construction have been capitalized as a cost of the Project. Ordinary repairs and maintenance, including minor replacements and painting, are expensed as incurred; major replacements that extend the useful life, increase capacity, or increase income generated by these assets are capitalized. 3

6 Notes To Balance Sheet If there is an event or a change in circumstances that indicates that the basis of the Property may not be recoverable, then management will assess any impairment in value by making a comparison of (i) the current and projected operating cash flows (undiscounted and without interest charges) of the property over its remaining useful life and (ii) the net carrying amount of the Property. If the current and projected operating cash flows (undiscounted and without interest charges) are less than the carrying value of the Property, the carrying value would be adjusted to an amount to reflect the estimated fair value of the Property. Cash, Cash Equivalents and Cash Escrow The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. At various times throughout the year, the Company maintained balances in excess of Federal Deposit Insurance Corporation insured limits. The Company believes it mitigates its risk by banking with a major financial institution. Deferred Financing Costs Costs incurred in obtaining the mortgage notes payable are amortized over the term of the related debt instrument. Amortization of such costs from inception through completion of construction is capitalized as a cost of the project. Income Taxes No liability for income taxes has been included in the financial statement because such taxable income or loss passes through to, and is reportable by the members. Tax years 2014, 2013 and 2012 remain subject to examination by federal and state jurisdictions, including those states where investors reside or states where the Company is subject to other filing requirements. The Company has concluded that it has no material uncertain tax liabilities to be recognized at this time. Credit Risk Credit risk represents the risk that the Company would incur a loss if the counterparties failed to perform pursuant to the terms on their agreements. The Company has agreements with JPMorgan Chase Bank N.A. to provide a letter of credit to be used to provide collateral and credit enhancement for the debt (See Note 4). The Company is subject to credit risk to the extent that JPMorgan Chase Bank N.A. may be unable to fulfill their obligations under the letter of credit, should the Company fail to do so. 2. Real Estate Under Development At, the Company s real estate under development is comprised of: Construction in progress $ 106,575,536 Land 17,201,828 $ 123,777,364 Included in construction in progress are capitalized costs for interest, real estate taxes and amortization of $55,078, $397,722 and $552,676, respectively. The Company s real estate under development is collateral for the mortgage notes payable. 4

7 Notes To Balance Sheet 3. Cash Held in Escrow Bond Escrow Funds held in escrow consist of unused funds available from the mortgage notes payable. The Bank of New York Mellon, as trustee, holds the Bond proceeds in an escrow account and invests the funds. The funds are released for approved project costs. At, the balance in the escrow is $115,438, Mortgage Notes Payable On December 3, 2014, the Company obtained a financing commitment for the Project from New York State Housing Finance Agency ( NYSHFA ) totaling $168,000,000. NYSHFA issued and sold in the aggregate $168,000,000 BAM South Housing Revenue Bonds ($30,500,000 of 2014 Series A tax-exempt bonds, $37,500,000 of 2014 Series B taxable bonds and $100,000,000 of 2015 Series A tax-exempt bonds), (collectively, the "Bonds ) and loaned the proceeds to the Company (the "Mortgage"). Principal and interest payments required on the Mortgage are equal to the amounts required to be paid by NYSHFA to the holders of the Bonds. The Bonds and the Mortgage mature on November 1, The Bonds and the Mortgage bear interest at a variable rate calculated weekly based upon the remarketing agent s determination of the rate required to allow the Bonds to be sold at par plus accrued interest, up to a maximum interest rate of 12% per annum (the Variable Interest Rate ). Such maximum rate may be increased under certain circumstances from time to time up to 15%. At, the interest rate for the Bonds was.01% for 2014 Series A,.04% for 2014 Series B and.04% for the 2015 Series A. Mortgage interest incurred for the year ended amounted to $50,739, all of which was capitalized as a cost of the Project. Under certain circumstances described in the Mortgage note, the Company may change the interest rate to an adjustable interest rate or to a fixed interest rate as defined in the bond resolution and after any such change (other than a change to a fixed interest rate) back to the Variable Interest Rate. Upon any change in the method of determination of the interest rate, termination or expiration of the letter of credit (discussed below), the Bonds become subject to mandatory redemption. During the period when interest on the Bonds is determined under the Variable Interest Rate the Bonds are redeemable at the option of the bondholders. Following conversion to a fixed interest rate the Bonds shall no longer be subject to redemption at the option of the bondholders. Goldman Sachs & Co. (the Remarketing Agent ) has been retained to remarket any Bonds that are redeemed. In the event that any redeemed Bonds cannot be resold, additional principal payments on the Mortgage would become due. The Company is contingently liable under the terms of a letter of credit agreement (the LOC ), which is provided by JPMorgan Chase Bank, N.A., Wells Fargo Bank National Association and Manufacturers and Traders Trust Company (the Lenders ), in the aggregate amount of $169,877,918, for the benefit of the Company. The amounts represent the amount of the Bonds funded plus 34 days of interest calculated at the maximum interest rate of 12%. The LOC expires on December 3, 2018 and is being used to provide credit enhancement and liquidity support for the Bonds. If, for any reason, the Company is unable to replace or renew the letter of credit or provide other security, the Bonds and the Mortgage become due and payable. Under certain circumstances, the Company will have the option to extend the LOC for a five year period. 5

8 Notes To Balance Sheet In addition, the Company is required to pay the following financing fees: a) An issuer fee payable to NYSHFA equal to.125% per annum of the Bonds outstanding during construction and thereafter 0.35% per annum of the Bonds outstanding after achieving 90% occupancy of the Project or the 48 th month after the Mortgage closing. (5,801 due Jan) b) A remarketing fee payable quarterly in arrears to the Remarketing Agent equal to.10% per annum of the principal amount of the Bonds outstanding. c) A letter of credit fee payable to the Lenders monthly in advance, calculated as follows: i) 1.85% per annum on the drawn Bond proceeds, plus; ii) 0.250% per annum on the undrawn and unissued Bond proceeds, plus, d) An annual administrative fee of.10% payable to JP Morgan Chase Bank N.A. Total periodic financing fees incurred for the year ended were $843,262, all of which was capitalized as a cost of the Project. The Company is required to make monthly escrow payments to a principal reserve fund beginning January 1, 2025 through the maturity date based on a schedule set forth in the Mortgage. 5. Related Party Transactions Overhead Reimbursement Fee In accordance with the Second Amendment to the LLC Agreement, the Managing Member is entitled to reimbursement for providing development management services to the Project in the amount equal to Managing Member direct overhead expenses, not to exceed in the aggregate $500,000. As of December 31, 2015, the Company has not incurred any overhead reimbursement fees. Development agreement The Company has entered into a general contractor agreement with 20 Lafayette Construction LLC (the GC ) a related party, affiliated through common ownership, to serve as general contractor for the Project. The agreement provides for the GC to perform certain predevelopment, development, design, construction, supervisory and other services with respect to the Project. As of December 31, 2014, all costs associated with the project have been transferred to the books and records of the Company. The balance of expenses incurred over payments advanced recorded as due to 20 Lafayette Construction LLC, for the year ended amounted of $889,722. The balance is non-interest bearing and due on demand 6. Commitment and Contingencies Tax Credits The Project is eligible for federal Low-Income Housing Tax Credits (LIHTC) under Section 42 of the Internal Revenue Code. The projected annual credit is anticipated to be approximately $1,150,000. Real Estate Tax Exemption The Project is eligible to receive a partial real property tax exemption for a 20 year period, pursuant to Section 421-a of the New York Real Property Tax Law. 6

9 Notes To Balance Sheet Guarantees David C. Walentas and Walentas Trust 3 (the Guarantors ), related companies affiliated by common control, have guaranteed full and complete performance and satisfaction of all obligations, duties, covenants and agreements of the Company under the loan documents with respect to the construction and completion of the Project. The Guarantors have made a payment guaranty, guaranteeing the repayment of up to 20% of the aggregate commitment of the Lenders. Upon Stabilization, the percentage drops to 10% of the aggregate commitment. The Guarantors have made an environmental indemnity guaranty in favor of the Lenders. The Guarantors have provided as a carry guarantee to cover all operating expenses through the earlier of (i) Stabilization, (ii) foreclosure or (iii) satisfaction of all obligations. 7. Fair Value of Financial Instruments The amounts included in the balance sheet at for accounts payable and accrued expenses, due to affiliates and deposits approximate fair value due to the short-term nature of these instruments. The carrying value of the mortgage note payable at also approximates fair value since the interest on the debt is at a variable rate comparable to debt instruments currently available to the Company with similar terms and remaining maturities. 8. Subsequent Events The Company has evaluated subsequent events through March 29, 2016, the date the financial statements were available for issuance. 7

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