Housing authority obtains HOME funds for shovel ready RAD deal

Working with new development partner, previously unsuccessful housing authority obtains maximum amount of HOME funds to transform public housing community

Our client’s need

In June 2013, a Georgia-based housing authority and their development partner at the time were unsuccessful in their pursuit of 9 percent LIHTCs for the redevelopment of Willingham Village. In January 2014, the Georgia Department of Community Affairs (DCA) announced a HOME Multifamily Affordable Housing Notice of Funding Availability pertaining to $20 million of HOME funds that would target HUD-RAD developments and developments that were “shovel ready.” Eager to better position them to receive funding, the housing authority sought a new development partner and issued a request for qualifications.

The solution

Based on their demonstrated experience with the RAD program and deep understanding of the complexities of multifamily housing development projects, the housing authority selected the team of Vantage Development and subcontractor Baker Tilly as their co-development partner of a 172-unit project at Willingham Village Apartments located in Rome, Georgia.

From the period of January 31, 2014, to February 10, 2014, the Vantage‒Baker Tilly team performed extensive due diligence on the project that included:

• Review of the 2013 LIHTC application
• Preparation of the development budget, construction budget, operating expenses, operating pro forma
• Review of all third-party reports, including environmental reports, appraisal, market study, physical needs assessment, lead asbestos report and accessibility report, survey and site plan
• Creation of ownership structure (housing authority as co-general partner/co-developer/property management after five years)
• Update of all third-party reports to meet a February 21, 2014 DCA deadline

Through a careful analysis of the project, the Vantage‒Baker Tilly team was able to add significant value to the LIHTC application while operating under a tight timeframe to meet DCA’s deadline. Here are some of the tactics the team implemented to foster success:

• Due diligence and third-party reports:
  
• Project design and underwriting:
  
• Interaction with HUD and CFFP loan bondholders:
  
• Established consistent and timely communication with DCA and coordinated completion of third-party report updates to arrive by LIHTC application deadline
• Suggested a multi-phase approach to the development, consisting of 97 units in Phase 1 and 75 units in Phase II
• Requested  $4.2 million, the maximum amount, of HOME funds from DCA
• Corrected an approximately $1 million undervaluation of the apartments in the project’s 2013 appraisal which allowed for a significantly larger Seller’s Note
• Encouraged the housing authority to commit Willingham Village’s operating reserves as loans to the partnership
• Successfully requested that DCA consider the “Rural HOME Underwriting Standards” for the HOME loan, which allowed for the loan’s repayment terms to be interest-only with non-level principal payments over a 35-year period and a DSCR of 1.50.
• Revised the financing structure of Phase I to a 4 percent LIHTC bond transaction, in which the bonds would be used only during construction and paid off by the DCA HOME loan and federal and state equity from tax credits
• Facilitated the approval of a RAD multi-phased development by HUD
• Facilitated the PCNA waiver required by HUD
• Initiated and coordinated partial pre-payment of
• CFFP loan bondholders
• Submitted HUD financing plan

Results achieved and added value

By March 2014, the project was awarded $4.2 million in HOME funds and allowed to proceed towards closing.

Between March and June 2014, the Vantage‒Baker Tilly team worked to close Willingham Village Phase I and prepared to submit Willingham Village Phase II as a 9 percent LIHTC development to DCA. The closing process included assisting in the preparation of all construction documents, construction pricing, bond issuances, underwriting, and related preparation for closing with the construction lender and the federal and state equity providers.

In an effort to ensure the team’s ability to meet Willingham Village Phase I’s closing date, the Vantage‒Baker Tilly team made the following adjustments and implemented a revised strategy on the deal:

• Altered the project’s unit mix while maintaining the unit count, which allowed for the financing structure, bond issuances, and CFFP loan partial payment to be similar to the original finance structure
• Negotiated and received approval from HUD for new RAD CHAP award
• Negotiated and received approval from DCA to allow for a revised site plan, unit mix, site amenities, and development budget
• Orchestrated all third-party reports to reflect the revised unit mix and site plan
• Submitted a revised HUD financing plan to the HUD RAD committee
• Submitted revised underwriting to DCA, construction lender, and equity providers

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.