U.S. Department of Housing & Urban Development IPED Conference HUD Financing Programs Todd Wendorf, HUD OPHI J - PowerPoint PPT Presentation

Presentation Transcript

U.S. Department of Housing &

Urban Development

IPED Conference

HUD Financing Programs

Todd Wendorf, HUD OPHI

July 10, 2008

Introduction

Modernization Backlog

Current backlog estimated at $18 billion
Annual accrual approximately $2 billion
Current appropriation funding $2.4 billion

Introduction

Overview of QHWRA of 1998

Section 9(d): Adds “Financing” as an eligible use of CFP.
Section 9(e): Allows PHAs to use OF to pay debt service.
Section 30: Mortgages and Security
Section 30: U.S. Department of Housing and Urban Development (HUD) approval is required for pledging and other types of security interests in public housing property

Introduction

Three Financing programs

Capital Fund Financing Program (CFFP)

Pledge and repay with Capital Funds
Implementing on a case by case basis since 2000
Draft rule published in 2007
Final rule expected soon

Operating Fund Financing Program (OFFP)

Pledge and repay with Operating Funds
Ability to approve a few transactions prior to finalizing rule

Public Housing Mortgage Program (PHMP)

PHAs can pledge real estate and use proceeds for affordable housing purposes
Repayment source determined by PHA
Notice to be published later this year

Introduction

What is the Capital Fund Financing Program?
The Capital Fund Financing Program allows a Public Housing Authority to borrow private funds for capital and management activities relating to modernization and development of public housing.
This Financing Program provides PHA’s with the ability to address the immediate needs of their aging housing stock.

Introduction

CFFP Successes

107 transactions (and counting) approved
Over $3 billion in capital provided
Assisted 187 PHAs (and counting)
Pools in Alabama, Maryland, California, New Jersey (2), Illinois, Pennsylvania, Massachusetts, Ohio and New York
Multiple issuances to Philadelphia, Washington, D.C., Chicago, IL, Allegheny Co., PA, and Seattle, WA
Increased interest in mixed-finance modernization and use of tax credits

Introduction

Potential Benefits of CFFP

Potential realized only with effective long term planning
Address backlog modernization needs.
Economies of scale and scope

Focus improvements at a single or limited number of developments. Limiting the number of times contractors must mobilize.
Replace a single or limited number of systems across an entire portfolio. Allows PHA to use a single system type, simplifying ongoing maintenance.

Leverage additional funds (ie: tax credits)

Generally, this works best if PHA focuses use of proceeds at a limited number of developments.
Address a broader scope – reducing future modernization needs
Reduce amount borrowed – reducing debt service thus freeing up CFP for the payment of debt service.

Fundamentals

Fundamentals
Pledging of a portion of your current and future years capital fund allocation as collateral for borrowing.

Pledge Must Be subject to Congressional appropriations.
No Additional Appropriations
No guaranty or full faith and credit of HUD or the U.S. Government
Section 30 – specifically states, No Liability to the Federal Government

Risk to Lenders/Investors and PHAs

Appropriations Risk
Performance Risk
Poor Planning/Implementation

Fundamentals

Fundamentals, (cont.)

Financial Structure/Business Terms

Optional – Monies for debt service don’t flow through PHAs. Payments made directly to Trustee or Lender.
CFF Amendment to the ACC.
Buffer – Each FY, 1st Payment of debt service on April 1.

Principal = 1st Payment - option

Generally – up to 20 years and up to 33.3%.

RHF Pledge up to 100% provided overall CF does not exceed 50%
Negotiate – PHAs must negotiate legal provisions
Covenants, defaults, and remedies

Fundamentals

Fundamentals, (cont.)

Proceeds from CFFP transactions considered Capital funds. All statutes, regulations, etc that apply to CFP apply to proceed.

PHA Plan

Use of Proceeds – Annual Statement
Use of FF/RHF for Debt Service – 5 year Action Plan (Annual Statement if Applicable)

RHF Plan (if using RHF Funds)
Procurement
Environmental
Declaration of Trust on all PH Properties
Depository Agreement
Obligation/Expenditure (mandatory redemption)

Fundamentals

Fundamentals, (Cont.)

The proceeds of the Loan may be expended only for purposes for which public housing Capital Fund Program moneys may be expended.
All such uses of proceeds shall be subject to HUD approval (as part of HUD’s approval of Authority’s annual plan)
The Authority shall report to HUD quarterly with respect to such expenditures in the same manner as it accounts for the expenditure of Capital Fund Program moneys.

The Basics

Start with three basic questions

What do I want/need to do?
How much money can I raise?
Can I spend the money quickly enough?

The Basics

What do I want/need to do?

Conduct PNA for entire portfolio for term of proposed financing
Identify priority need projects, size, scope, and cost estimate
Use the new CFFP/OFFP PNA form

Based upon a life-cycle analysis of useful life components and related costs
Includes all of the major building systems and 504 needs and specific items within them, specifying quantities and costs of repair/replacement
Property specific
Indicates the number of units inspected by bedroom size

The Basics

CFP borrowing capacity analysis

Prepare a Portfolio Schedule to project future reductions in public housing portfolio
Adjust the Capital Fund
Conduct a Sensitivity Analysis to address how much of your capital fund is historically being used for administration, management improvement and operations and take that into consideration when determining your borrowing

Portfolio Schedule

What Is the Purpose of a Portfolio Schedule:

Reflects future adjustments in the Capital Fund (CF) grant and Replacement Housing Factor (RHF) grant

Demolition/Disposition
Mandatory, Required, Voluntary Conversion
Merging of Units (e.g. 2 studios into 1 one bedroom unit)
Casualty, condemnation
Homeownership
Asset management
PIC data issues
Voluntary Compliance Agreements or other administrative or judicial actions
Contractual commitments to other mixed-finance projects

Enables PHA to assess the potential amount of CF or RHF funds available for debt service beyond additional fund commitments or reductions
Is a requirement for a CFFP submission

Sensitivity Analysis

What Is a Sensitivity Analysis?:

Reflects future adjustments in the Capital Fund (CF) grant and Replacement Housing Factor (RHF) grant

Historical use PHA of use for:
Administration – BLI 1410
Management improvement – BLI 1408 ; and,
Operations – BLI 1406

Enables PHA to more fully assess the amount of CF or RHF funds actually available for debt service and rehabilitation and modernization of the portfolio for the term of the financing
Is a useful tool when considering a CFFP transaction

Sensitivity Analysis

Moving to Strategic Management

Will remaining CFP funds be sufficient for other PNA needs, particularly given any additional uses of Capital Funds?

The PHA must consider its options, including:

Seeking Additional Funding:
Pursue CFFP, Mixed Finance Transaction, HOPE VI grant funds, or other private leveraged funds for rehabilitation of the portfolio assets and surrounding community uses.
Sell one or more propertiesin order to generate new capital for meeting the needs of other properties in the portfolio, or for new development.

What if the anticipated funds are insufficient to meet the estimated needs? (Cont.)

The PHA must consider its options, including:

Strategically Using the Resources Available:

Confirm the long time viability and suitability of each property
Eliminate properties or portions of properties deemed non-sustainable or viable
Prioritizeneeds to ensure that properties are safe, suitable and sustainable
Develop capital plans for each property that are achievable

KEY POINTS

Important factor in the consideration of options: Any net reduction in the total number of public housing units will in turn reduce the total allocation of future Capital Funds and Operating Funds.
A Strategic Plan should not be looked at as an emergency tactic when there isn’t enough money in the pot. It is a tool to anticipate future demands on the PHA and be prepared for them, and should be periodically revisited.

Strategic Analysis

Mixed Finance & CFFP

How to make the two processes work together.
Timing and other considerations for application for LIHTCs – 4%/9%
Combining the CFFP with the MF transactions.
Timing and other considerations in regard to CFFP/MFP.
RHF

Apply for LIHTC
Accumulate RHF
After LIHTC award, close on CFFP for any outstanding RHF

Getting Started

Can I spend the money quickly enough?

HUD deadlines to obligate in 2 years, expend in 3 (4 max)
If tax credits, shorter timeframes (e.g. 2 year window for 4% rehab)
Is it better to plan the work in phases to manage the effort and impact on the PHA’s other functions and activities?

Seattle

Modernized Senior Portfolio
2,000 units
21 projects
3 phases

Getting Started

Establish support internally and with Field Office
Identify project staffing and resources – effort requires significant resources
Educate Board of Commissioners on proposed activity

CFFP
If tax credits, ownership entity
If tax credits, property management entity

Seek Board approval for procurements
Start updating PHA Plan and others as necessary
Alert Field Office

Getting Started

III. Seek HUD approvals
In addition to CFFP, may include Mixed Finance, Demo/Dispo, Development, RHF.
Field Office coordination and support can be important.
Sequencing tricky – parallel approval processes but different timelines. CFFP approval can lead Mixed-Finance Program (MFP) approval, but will be subject to MFP approval. Approval expires in 60 days. PHAs need a detailed, written schedule.

Getting Started

Where does a PHA find information regarding the necessary documentation?

HUD’s website http://www.hud.gov/offices/pih/programs/ph/capfund/cffp.cfm
Local Field Office http://www.hud.gov/offices/pih/programs/ph/capfund/cffprolefo.cfm#1
Contact HUD CFFP Staff

Kevin Gallagher - 202-708-4192
Tom Shelton - 202-708-4799
Todd Wendorf - 312-353-6236, x2511
Rochelle McKinney - 202-402-2065

Confidential - Internal Distribution

CFFP Proposal Process

Top 4 Things that Slow Down a CFFP Proposal

Physical Needs Assessment not complete, not submitted to the field office as part of the PHA Plan, not completed in accordance with regulations, such as life cycle considerations.
PHA Plan not complete, not completed in accordance with HUD requirements, or not approved.
Evidence of effective DOTs in first position, lacking or insufficient. Counsel unresponsive
Adjustments to CFP to reflect activities that would reduce grant.

Public Housing Mortgage Program Background

The United States Housing Act of 1937

Sec. 30: Public Housing Mortgages and Security Interests

(a) GENERAL AUTHORIZATION.—The Secretary may, upon such terms and conditions as the Secretary may prescribe, authorize a public housing agency to mortgage or otherwise grant a security interest in any public housing project or other property of the public housing agency.
(b) TERMS AND CONDITIONS.—In making any authorization under subsection (a), the Secretary may consider—

(1) the ability of the public housing agency to use the proceeds of the mortgage or security interest for low-income housing uses;
(2) the ability of the public housing agency to make payments on the mortgage or security interest; and
(3) such other criteria as the Secretary may specify.

(c) NO FEDERAL LIABILITY.—No action taken under this section shall result in any liability to the Federal Government.

Section 30 Possible Missteps

Recent Cases from the IG and Departmental Enforcement Center

PHAs engaged in the following activities without written approval from the A/S or DAS

Mortgage Administrative Building
Mortgage a PH Property which was to be turned into a Mixed Finance Property – however, mortgage done before CFFP or Mixed Finance Approval
Offset provision in loan docs. PH funds in bank accounts

Results

IG Findings
Debarment actions against Executive Directors and Board Members.

Section 30 - Lessons Learned

If you pledge public housing assets, get written approval from DAS of OPHI.
Loan does not involve a pledge of public housing assets?

Are you sure?
Ask your attorney to insert a non-recourse provision in the loan documents that is crystal clear – there is no recourse to public housing assets.
If you borrow funds, make sure you get an attorney’s opinion that PH assets are not pledged or otherwise encumbered.

Legal Provisions

HUD will look for legal provisions of a similar nature:

Conflicts Clause:

“To the extent that any of the foregoing is in conflict with the requirements of the United States Housing Act of 1937, as amended, Federal regulations, and the Annual Contributions Contract, as amended, (“Federal public housing requirements”), such Federal public housing requirements shall control and govern in such instances of conflict.”

Non-Recourse Provision

“Notwithstanding anything to the contrary herein, the Lender and the Borrower hereby acknowledge and agree that except for assets of the Borrower arising under any program not administered by the U.S. Department of Housing and Urban Development (“HUD”) under the United States Housing Act of 1937 (42 U.S.C. 1437 et seq), or as otherwise specifically approved in writing by HUD and described below, Lender acknowledges and agrees that the Borrower has no authority to provide Lender with Guarantees, indemnifications, rights of set off, or other pledges involving the assets of any public housing Project (as the term “Project” is defined in the Annual Contributions Contract (“ACC”) between Borrower and HUD) or any Housing Choice Voucher (HCV) related assets of the Borrower. Accordingly, Lender acknowledges that it has no legal right of recourse under the Loan Documents against: (1) any public housing Project of Borrower; (2) any operating receipts (as the term “operating receipts” is defined in the ACC) HCV receipts or Capital Funds of Borrower; or (3) any public housing operating reserve of Borrower reflected in Borrower’s annual operating budget and required under the ACC. Should any assets of the Borrower be identified at later date as meeting the criteria set forth above, any guarantees, indemnifications, rights of set off, or other pledges involving those assets will be deemed null, void and unenforceable.”

PHMP

Real Estate that may be mortgaged (subject to HUD approval)

Non-Dwelling Space

Admin Building, etc.

Raw Land
Dwelling units provided DOT is effective and in first position

PHMP Risks

Key Risks

1st lien approvable on vacant land and administrative position.

Foreclosure a possibility
Loss of Admin Building – PHA still must operate public housing portfolio in accordance with PH requirements – or risk sanctions, including receivership