2009 LIHTC Development that Best Demonstrates Financial Innovation

South Carolina 07

Developer: WWJ LLC, Greystone Affordable Housing
Location: Multiple Locations, S.C.

In 2007, the South Carolina State Housing Finance and Development Authority issued more than $27 million in bonds for a first of its kind pooled bond transaction. Greystone Affordable Housing Initiatives assisted with this complex financial transaction to save more than 830 affordable housing units deemed at risk of exiting the U.S. Department of Agriculture’s (USDA’s) Rural Development Section 515 program. Twenty-three multifamily properties in the rural areas of 15 different counties across South Carolina were bundled into a single bond issue and transferred to new ownership, which extended the restrictions for another 30 years. Preserving the units required a highly complex $57.5 million deal involving the assumption and subordination of $23.5 million in existing USDA Rural Development Section 515 debt. Community Affordable Housing Equity Corporation purchased 4 percent federal low-income housing tax credits to provide $16.6 million in equity. Other funding sources included $1 million in investment income and approximately $500,000 in deferred developer fees. WWJ LLC, an affiliate of Boyd Management Inc., formed new limited liability companies to acquire each project. The existing low interest USDA Rural Development mortgages on the projects were assumed by the housing sponsors and subordinated to the mortgage securing the bonds. Bond proceeds were used to fund the acquisition costs and construction costs for the renovation and rehabilitation of each project, resulting in 830 units of newly renovated affordable housing for families and the elderly in the rural areas of South Carolina.

Project Team: South Carolina State Housing Finance and Development Authority; Community Affordable Housing Equity Corporation; WWJ LLC; Greystone Affordable Housing; Boyd Management; Palmetto Architectural Group: Arnold Construction: U.S. Department of Agriculture.

Hubbard Place Apartments

Developer: Cavalier Apartments, Somerset Development Company LLC
Location: Washington, D.C.

Hubbard Place transformed severely troubled, publicly assisted housing into decent and safe homes through creative and innovative financing and the collaboration of many parties. The development team was led by Somerset Development Company LLP. Total development costs for Hubbard Place Apartments were $52.5 million; hard cost construction costs, $17.5 million. The LIHTC allocation was $1.48 million; federal historic tax credits were $4.97 million.

Tax-exempt bonds for acquisition and rehabilitation were structured with a “reverse” or “mirror” defeasance to overcome a lock-out provision of an existing FHA-insured first mortgage. HUD agreed to the subordination of $26 million in new bond proceeds as a second mortgage lien on the property. Approximately $10.5 million was put in escrow to pay off the HUD loan, and $57,000 was escrowed to pay the anticipated prepayment penalty. The $26 million bond was paid down with tax credit equity to approximately $16 million upon stabilization. The tax credit syndication was structured with an interim loan, which was disbursed to the property in lieu of the first and second capital contributions. Soft subordinate financing by the DC Housing Authority was exchanged for commitments on maintaining affordability for an extended period. The private developer provided up front a substantial fund of more than $350,000 and contributed and additional 15 percent of annual net cash flow for resident services.

Project Team: D.C. Department of Housing and Community Development; D.C. Housing Authority; Somerset Development Company LLC; 3500 14th Street, NW, Tenant Association; MMA Financial; Kann Partners; Hamel Commercial Inc.