Alternative Tax Exempt Multifamily Housing Bond Executions in the - PowerPoint PPT Presentation

National Housing & Rehabilitation Association 2009 Annual Meeting March 11-14, 2009 Key Largo, Florida Alternative Tax Exempt Multifamily Housing Bond Executions in the Current Market R. Wade Norris, Esq. Eichner & Norris PLLC 1225 19th Street, N.W., 7th Floor Washington, D.C. 20036 Phone: (202)973-0100 Fax: (202)296-6990 email: wnorris@enbonds.com website: www.enbonds.com 1

3/10/2009 SIX PRINCIPAL TAX EXEMPT MULTIFAMILY HOUSING BOND STRUCTURES VR Bank L/C (if available) 1. VR Fannie/Freddie Capped (effectively 2. unavailable) VR Freddie Swapped 3. 18-Yr FR Fannie/Freddie 4. 42-Yr FR FHA/GNMA 5. Bank Private Placement (if available) 6. Eichner & Norris PLLC 2

TAX EXEMPT MULTIFAMILY 3/10/2009 HOUSING BONDS - SIX DIFFERENT STRUCTURING SCENARIOS † Variable Rate Bonds Secured by Bank Letter of Credit 1. Bank looks to real estate and Developer’s guarantee of non-recourse carve- � outs or top tier risk, for reimbursement. Need real estate underwriting and caps or swaps if Bonds variable rate. � No fee maintenance requirements. � � Lower costs of issuance. � Generally limited term 4-8 years. Very limited availability in current market. � Borrowing Rate Fees (est.)* Bank Origination 1.50% SIFMA 0.55% L/C Fee 2.50 Bond Cost of Issuance 1.0-2.0 Interest Rate Cap Escrow Fee 0.20 TOTAL UP FRONT FEES 2.5-3.5% Remarketing 0.15 * Front end fee estimates assume Bond size of Trustee 0.025 $20-30 million or higher; may vary greatly Issuer 0.125 depending on issuer and other factors. Upfront Total Fee Stack 3.00 fees on smaller deals would be slightly higher. Borrowing Rate** 3.550% ** Underwriting rate and other underwriting criteria will vary. † Cautionary Note: The interest rates and other data set forth in this analysis are estimates only. These interest rates can vary dramatically depending on state, timing, often thin market conditions and other factors, and the other variables may vary significantly depending on project, developer and other factors. Developers should check with their investment banker or financial advisor before conducting a detailed assessment of any of these structures or programs. Eichner & Norris PLLC 3

TAX EXEMPT MULTIFAMILY 3/10/2009 HOUSING BONDS - SIX DIFFERENT STRUCTURING SCENARIOS 2. Freddie Mac/Fannie Mae Variable Rate Capped Real Estate- Backed Bond Financing Structure Underwriting* Fees (est.) Cap Strike Rate 6.00% DUS Lender Origination 1.0% Guarantee 0.93** Construction Lender Origination 1.5 Servicing 0.44 Bond Costs of Issuance 1.0 - 2.0 Liquidity Fee 1.00*** 5-yr. Cap @ 6.0% 1.00 Interest Rate Cap Escrow Fee 0.20 4.50% - 5.50% Trustee Fee 0.025 * Analysis below is Freddie Mac, which underwrites to a Issuer Fee 0.125 1.05 DSCR. Fannie, before exiting VR deals, used a Remarketing Fee 0.15 6.0% rate plus the fee stack and underwrote to a 1.0 Total Fee Stack 2.87 DSCR Underwriting Rate 8.87%**** ** 93 basis points for Freddie “forward” execution; immediate funding about 25 bps less, or 68 bps. Fannie Mae was 58 bps Gty/47 bps Svcg or 105 bps total before exit in Actual Borrowing Rate - Current Nov/Dec ‘08. SIFMA 0.55% *** Fannie Mae charged 91 - 96 basis points before exiting VR Fee Stack 2.87 deals – v – 100 bps now for Freddie deals. For Freddie Total Current Actual Borrowing Rate 3.42% Mac deals, add an additional non-refundable up front charge of 1.0% for liquidity. **** Equivalent of 7.71% rate at 1.15 DSCR or 7.39% rate at 1.20 DSCR Eichner & Norris PLLC 4

TAX EXEMPT MULTIFAMILY 3/10/2009 HOUSING BONDS - SIX DIFFERENT STRUCTURING SCENARIOS 3. Freddie Mac/Fannie Mae Variable Rate Swapped to Fixed Real Estate-Backed Bond Financing Structure Fees (est.) Underwriting* DUS Lender Origination 1.0% Spot Starting, 15-Year Construction Lender Origination 1.5 SIFMA Based Swap + spread 3.50% Guarantee 0.93 Bond Costs of Issuance 1.0 - 2.0 Servicing 0.44 3.50% - 4.50% Liquidity Fee 1.00* Swap Credit Enhancement Fee 0.25** Trustee Fee 0.025 * Freddie Mac. See prior page for Freddie/Fannie charges. Issuer Fee 0.125 Remarketing Fee 0.15 ** Fannie Mae = 23 bps (before exiting VR deals) Total Fee Stack 2.92 ***Swap rate used as underwriting rate Actual Borrowing Rate 6.42%*** Underwriting Cushion 0.00*** Underwriting Rate 6.42%*** * The current spot starting 15-year SIFMA based swap is about 3.20, but due to extremely small number of Freddie acceptable swap providers, bids may be 30 basis points or a bit more above “mid- market.” Eichner & Norris PLLC 5

TAX EXEMPT MULTIFAMILY 3/10/2009 HOUSING BONDS - SIX DIFFERENT STRUCTURING SCENARIOS 4. Fannie Mae/Freddie 18-year Fixed Rate Bond Financing Structure Underwriting Fees (est.) 18-Year Bond Interest Rate* 5.25% DUS Lender Origination 1.0% Credit Enhancement 0.93 Construction Lender Origination 1.5 Servicing 0.44 Bond Costs of Issuance 1.0 - 2.0 Liquidity Fee 0.0 3.50% - 4.50% Remarketing Agent 0.0 Issuer 0.125 Trustee 0.03 Total Fee Stack 1.525 Total Mortgage Rate (Underwriting Rate and Actual Borrowing Rate) 6.775% * Estimated 18-Year Fixed Rate as of 03/10/09; 30 or 35-year loan amortization; 1.20 DSCR; 80% LTV Eichner & Norris PLLC 6

TAX EXEMPT MULTIFAMILY 3/10/2009 HOUSING BONDS - SIX DIFFERENT STRUCTURING SCENARIOS 5. FHA/GNMA 42-year Fixed Rate Bond Financing Structure Underwriting Fees (est.) Bond Interest Rate* 5.80% Lender Origination 1.0% FHA Mortgage Insurance Premium 0.45 HUD App. 0.3 GNMA/Servicer Fees 0.25 Bond Costs of Remarketing Agent 0.0 Issuance 1.0 - 2.0 Issuer 0.125 2.30 – 3.30% Trustee 0.03 Total Fee Stack 0.855 Total Mortgage Rate (Underwriting Rate and Actual Borrowing Rate) 6.655% * Estimated 40-Year Fixed Rate as of 03/10/09; 40-year loan amort.; 1.11 DSCR; 95%+ Loan-to-Cost Eichner & Norris PLLC 7

TAX EXEMPT MULTIFAMILY 3/10/2009 HOUSING BONDS - SIX DIFFERENT STRUCTURING SCENARIOS 6. Tax Exempt 35-year Fixed Rate Private Placement Bond Financing Structure – Primarily Available Only in Bank CRA Deficient Footprint Underwriting Fees (est.) Origination 1.5% Bond Interest Rate 6.50% App. 0.25 Credit enhancement N/A Bond Costs of Servicing Fees 0.15 Issuance 0.75 – 1.50 Remarketing Agent N/A 2.50 – 3.25% Issuer 0.125 Trustee 0.025 Total Fee Stack 0.30 Total Mortgage Rate (Underwriting Rate and Actual Borrowing Rate) 6.80%* * If not in a part of Bank CRA footprint where the Bank has a CRA deficiency, product probably unavailable or only available at fixed bond rates of 7.0% or above . Estimated 30-Year Fixed Rates as of 03/10/09; 35- year loan amort.; 1.15 DSCR; 85% LTV Eichner & Norris PLLC 8

SUMMARY OF 3/10/2009 BORROWING/UNDERWRITING RATES Estd. Actual All-In Borrowing Underwriting Rate Rate 1. VR Bank L/C (if available) 3.55% Varies; negotiable 2. VR Fannie/Freddie Capped 3.42% 7.50%+ 3. VR Freddie Swapped 6.42% 6.42% 4. 18-Yr FR Fannie/Freddie 6.795% 6.775% 5. 42-Yr FR FHA/GNMA 6.655% 6.655% 6. Bank Private Placement - In CRA deficient 6.80% 6.80% footprint (if available) - Outside CRA deficient 7.50%+ 7.50% footprint (if available) Eichner & Norris PLLC 9

NEGATIVE ARBITRAGE 3/10/2009 CONSIDERATIONS ON FIXED RATE DEALS � Fixed rate new construction and substantial rehabilitation deals may also incur a major adverse impact in today’s market from negative arbitrage on uninvested bond proceeds. This will be much more substantial on a new construction or substantial rehabilitation deal than on an acquisition deal involving relatively modest amounts of rehab. It will also depend on the length of the construction/rehab period. Negative arbitrage now runs as much as 400 basis points. Was about 50 � basis points or less two years ago. Tax Exempt Bond Yield: 5.25% Reinvestment Rate on Project Fund GIC: 1.50% Total Negative Arbitrage 3.75% Assume even draw down over 18 months: � 3.75% x 1.5 (18 mos.) x 0.5 (even draw down) = about 2.8% today . On a Fannie Mae or Freddie Mac deal this increases the capitalized interest which must be funded in the loan, decreasing loan proceeds available for other development costs. Eichner & Norris PLLC 10