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Presentation, discussion, and possible action regarding the Issuance of Multifamily Housing Revenue Bonds (Gulfway Manor Apartments) Series 2024 Resolution No. 24-020, and a Determination Notice of Housing Tax Credits
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RECOMMENDED ACTION
recommendation
WHEREAS, an application for Gulfway Manor Apartments requesting 4% Housing Tax Credits, sponsored by Vitus Group, LLC was submitted to the Department on January 30, 2024;
WHEREAS, the application was previously induced by the Board on October 26, 2023, with a requested bond amount of $29,000,000;
WHEREAS, a Certificate of Reservation was issued in the amount of $29,000,000 on June 6, 2024, with a bond delivery deadline of December 3, 2024; and
WHEREAS, staff recommends approval of the issuance of Multifamily Housing Revenue Bonds for Gulfway Manor Apartments (Series 2024), and the issuance of a Determination Notice;
NOW, therefore, it is hereby
RESOLVED, that the issuance of tax-exempt Multifamily Housing Revenue Bonds (Gulfway Manor Apartments) Series 2024 in an amount not to exceed $29,000,000, Resolution No. 24-020, is hereby approved in the form presented to this meeting;
FURTHER RESOLVED, the issuance of a Determination Notice of $2,215,055 in 4% Housing Tax Credits for Gulfway Manor Apartments, subject to underwriting conditions that may be applicable as found in the Real Estate Analysis report posted to the Department’s website, and subject to any compliance conditions as reflected in Exhibit A-1, is hereby approved in the form presented at this meeting 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
General Information: The Bonds will be issued in accordance with Tex. Gov’t Code §2306.353 et seq., which authorizes the Department to issue revenue bonds for its public purposes, as defined therein. Tex. Gov’t Code §2306.472 provides that the Department’s revenue bonds are solely obligations of the Department, and do not create an obligation, debt or liability of the State of Texas or a pledge or loan of faith, credit or taxing power of the State of Texas.
Development Information: The Development is located at 1750 Treyway Lane in Corpus Christi, Nueces County, and proposes the acquisition and rehabilitation of 151 units that will continue to serve the general population. Gulfway Manor was originally constructed in 1971 and was rehabilitated in 2007 utilizing 4% Housing Tax Credits with the Cameron County Housing Finance Corporation as the bond issuer. An ownership transfer was requested and approved in 2021, which transferred ownership of the development to two of the principals included in the proposed ownership structure, as illustrated in Exhibit A herein. The Certificate of Reservation from the Bond Review Board was issued under the Priority 3 designation, which does not require any restrictions regarding the Area Median Family Income (AMFI). Of the 151 units, 77 units are proposed to be rent- and income-restricted at 50% of AMFI and the remaining 74 units will be rent- and income-restricted at 60% of AMFI. All of the units are covered by a Section 8 Housing Assistance Payment contract, which is expected to be transferred to the new owner and renewed for a 20-year term.
Organizational Structure and Previous Participation: The Borrower is Gulfway Housing Partners, LP, and includes the entities and principals as illustrated in Exhibit A. Worth noting is an Agreed Final Order was approved at the Board meeting of March 7, 2024, which required the payment of an administrative penalty due to violations of Compliance requirements involving four developments controlled by Vitus Development IV, LLC and Vitus Group, LLC. Staff can confirm that payment of the administrative penalty has been received. The applicant’s portfolio is considered a Category 3 and the previous participation conditions noted in Exhibit A-1 are recommended by staff.
Tax Equity and Fiscal Responsibility Act (TEFRA) Public Hearing/Public Comment: On March 18, 2022, the IRS released Revenue Procedure 2022-20, which permanently allows TEFRA hearings for qualified activity bonds to be held telephonically. Staff conducted a telephonic hearing, in accordance with IRS guidance, for the proposed development on March 6, 2024. Representatives from the Department and the Developer were present, and no public comment was made. A copy of the hearing transcript is included herein. The Department has not received any letters of support or opposition for the development.
Summary of Financial Structure
This transaction involves a Federal Housing Administration (FHA) Section 221(d)(4) loan originated by Merchants Capital and underwritten by Colliers Securities LLC. Under the proposed structure, TDHCA will issue short-term tax-exempt, fixed-rate bonds in an amount not to exceed $29,000,000 that will be initially publically offered. As bond proceeds are drawn down, the proceeds from the FHA loan will be simultaneously drawn and placed in the Collateral Fund such that the bonds will be fully cash-collateralized throughout the construction period.
The bond mortgage will be subordinate in lien position to the FHA mortgage, but as previously indicated, the bond proceeds will also be cash collateralized as long as the bonds are outstanding. The bonds will remain outstanding through the rehabilitation, estimated to be between 12-14 months, and upon completion, will then be redeemed in full using the funds on deposit in the Collateral Fund.
The bonds will carry an interest rate not to exceed 8.00% and an initial mandatory tender date of August 1, 2026, at which time the bonds can be redeemed or remarketed until the final maturity date of February 1, 2029. Upon redemption of the bonds, the FHA mortgage loan, currently estimated to be $23,810,000 will remain and carry an interest rate of approximately 6.25% with a 40-year term and amortization.
In addition to the $23,810,000 tax-exempt bond loan, Bridgeway Bank will provide an equity bridge loan during the construction period in the approximate amount of $10,000,000. The bridge loan will be interest only and will have a term of 24 months, with an option for a six-month extension. The underwritten interest rate used was 7.50%. A surplus cash loan in the amount of $3,000,000 will be provided by the sponsor, Gulfway Housing Management, LLC. The interest rate will be fixed at 4.79%, with a 40-year term, and amortization based on cash flow. Income from operations in the approximate amount of $878,429 will be provided as a source during the construction and permanent periods. Also included in the capital stack are Solar Tax Credits that have been requested from Raymond James and are expected to provide equity in the amount of $712,000.