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Presentation, discussion and possible action on Resolution No. 24-013 regarding an issuance of a Multifamily Housing Revenue Refunding Note Series 2024 for FishPond at Corpus Christi Apartments.
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RECOMMENDED ACTION
recommendation
WHEREAS, the Multifamily Housing Revenue Bonds (FishPond at Corpus Christi Apartments) Series 2020 were originally issued by the Department on November 4, 2020, in the amount of $10,000,000;
WHEREAS, the financing structure, as approved by the Board on September 3, 2020, contemplated a possible reissuance of the Bonds at the time of conversion to the permanent phase;
WHEREAS, reissuance of the Bonds requires an extension of the development period of the senior debt, and the Department’s development period associated with the TCAP RF loan is being requested to be extended; and
WHEREAS, Board approval is necessary, under state law and federal law, in order to refund, or essentially retire, the original bonds and issue new bonds prior to the anticipated Mandatory Tender Date of June 1, 2024, and to extend the development period;
NOW, therefore, it is hereby
RESOLVED, that issuance of the Multifamily Housing Revenue Refunding Note Series 2024 for FishPond at Corpus Christi Apartments and an extension of the development period associated with the TCAP RF loan is hereby approved in the form presented to this meeting; and
FURTHER RESOLVED, that if approved, staff is authorized, empowered, and directed, for and on behalf of the Department to execute such documents, instruments and writings and perform such acts and deeds as may be necessary to effectuate the foregoing.
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BACKGROUND
FishPond at Corpus Christi Apartments comprised the new construction of two buildings with 112 units for the elderly population. The applicant purchased an existing 111-unit building that was built in 1928, located approximately one mile north of the development site. The existing building originally served as a hospital and was converted to the Sea Gulf Apartments in 1979. The building was determined to be functionally obsolete for residency, and the development owner has been relocating the residents to the new development. The property serves households at 50% and 60% of Area Median Family Income (AMFI) and includes one employee-occupied unit. The development previously received an award of TCAP-RF funds and layered among the HTC-restricted units are TCAP-RF restricted units at 50% AMI/Low HOME as well as TCAP RF restricted units at 60% AMI/High HOME. The development is currently 97% occupied, according to the development owner.
FINANCING STRUCTURE BACKGROUND
The Department issued $10,000,000 of tax-exempt bonds for FishPond at Corpus Christi Apartments in November 2020. The bonds were initially publicly offered and rated “Aaa” by Moody’s Investor Service.
Sterling Bank provided a taxable bridge loan during the construction period in the amount up to $17,000,000, with a fixed interest rate of 5.25%. The term of the construction loan included an optional six-month extension and is not to exceed 30 months. The bonds have been cash-collateralized during the construction period.
The Initial Mandatory Tender Date was June 1, 2023; however, delays by the financing partners in completing the necessary reviews in order for conversion to take place have occurred. The bonds were remarketed on June 1, 2023, and the Mandatory Tender Date was extended to December 1, 2023, as provided for under the Trust Indenture. A second remarketing of the bonds occurred on December 1, 2023, to extend the Mandatory Tender Date to March 1, 2024. A third remarketing became necessary and occurred on March 1, 2024, to extend the Mandatory Tender Date to June 1, 2024; however, it is anticipated that conversion will occur prior to this date. At conversion, a tax-exempt loan (TEL), evidenced by a governmental note (Governmental Note) to be privately placed with Berkadia Commercial Mortgage LLC, as seller/servicer and eventually transferred to Freddie Mac will be executed to refund the Series 2020 Bonds in order to convert to the permanent financing phase. Because the weighted average maturity of the refunding issue is not greater than the weighted average maturity of the series 2020 bonds that were originally issued, a new TEFRA public hearing is not required under federal law.
The Department’s original underwriting reflected a permanent loan amount of $7,300,000, with an anticipated fixed interest rate of 3.51%. The proposed permanent loan amount remains $7,300,000, with the possibility to increase based on the lender’s underwriting, and an interest rate of 3.59%, which was locked at the time of the original closing. The term of the permanent loan remains unchanged, at 15 years with a 35-year amortization, and final maturity that will occur on June 1, 2038. In order to match this maturity, the construction period on the Department’s TCAP-RF loan must also be extended to match that of the senior construction loan. Because this extension is beyond that which may be approved by staff administratively, approval from the Board is necessary.
Given the original bond issuance of $10,000,000 and the anticipated permanent loan amount, a partial redemption of the bonds is expected simultaneously with the refunding bond issuance. Given the minimal differences in the above-mentioned permanent loan amount and interest rates, staff will rely upon the addendum to the original underwriting, completed on November 7, 2020. Moreover, given the impending submission of the cost certification package after conversion occurs, the Department will re-underwrite to ensure financial feasibility at that time.
As part of the conversion, the Governmental Note will be purchased by Berkadia Commercial Mortgage, LLC (Berkadia). Shortly thereafter, Freddie Mac will acquire the TEL and the Governmental Note from Berkadia, where it is expected to be securitized with other loans. Berkadia will remain as the servicer of the TEL for Freddie Mac, who will be the permanent lender.
In order to facilitate the reissuance of the bonds, the construction period for the Development’s senior debt has previously been extended to the maximum amount allowed administratively. However, the Development Owner is requesting that the development period for the TCAP-RF loan also be extended in order to match the senior debt, and staff recommends that the Board approve this extension. However, this extension combined with other extensions the Department and the Board have granted, may cause the Department to miss the federal match requirements of the HOME program. If the deadline has been missed, which will not be known until completion of the end of the year match report, this extension will not cause the Department to miss further deadlines if the project is completed on the anticipated timeframe. The Board has partially addressed this issue going forward by requiring Match Units from 4% LIHTC transactions, and changing the rules of the state funded single family program to allow these funds to be more easily used as match.