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Presentation, discussion, and possible action regarding approval of a Multifamily Direct Loan re-subordination for Residence at Ridgehill (NHTF #82900021520)
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RECOMMENDED ACTION
recommendation
WHEREAS, Residence at Ridgehill (Development) was submitted and approved for a Multifamily Direct Loan (MFDL) in the amount of $492,558 awarded from the National Housing Trust Fund (NHTF) program in 2022 and was also awarded 9% Housing Tax Credits (HTCs) and Supplemental Credits in 2020 and 2022 (HTC #20186/22977), respectively, for the new construction of 43 units for the elderly in Kerrville, Kerr County;
WHEREAS, OPG Ridgehill Partners, LLC (Development Owner or Owner) is currently seeking to convert the Development’s construction loan to a permanent first lien funded by a conventional loan with a proposed increase of $200,000 to the senior debt amount, going from $1,770,770 to $1,970,770;
WHEREAS, as a condition to the closing, the conventional loan requires the Department to re-subordinate the NHTF loan documents but not the Land Use Restriction Agreement, and the Owner has requested approval for such re-subordination from the Department and is proposing in conjunction with this request to make a repayment to the NHTF loan in the amount of $9,000;
WHEREAS, Board approval is required for this re-subordination, as the conditions for Executive Director approval for resubordinating the MFDL that are specified in 10 TAC §13.13(c)(2) have not been fully met; and
WHEREAS, the proposed increased loan amount does not negatively affect the financial feasibility of the Development and is being used to fund increased costs due to construction delays due to excessive rainfall and additional drainage work done to ensure long term functionality and compliance with drainage standards;
NOW, therefore, it is hereby
RESOLVED, that the request for the Department to re-subordinate its MFDL (though not its Land Use Restriction Agreements) to a $1,970,770 senior loan is approved, subject to the proposed paydown of the MDFL in the amount of $9,000 at closing of the first lien permanent loan being approved in writing by Legacy Bank and execution of a NHTF Contract amendment, and the Executive Director and his designees are hereby authorized, empowered, and directed to take all necessary action to effectuate the foregoing.
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BACKGROUND
Residence at Ridgehill was originally awarded 9% Housing Tax Credits in 2020 and Supplemental Credits and a Multifamily Direct Loan in the amount of $492,558 from the National Housing Trust Fund (NHTF) program in 2022 for the construction of 43 units of multifamily housing for the elderly in Kerrville, Kerr County. The MFDL is structured with a 0% interest rate and 15-year term, 40-year amortization, and is subordinate to the first lien with payments subject to available surplus cash. Annual cash flow payments for the NHTF loan will be due starting January 1, 2026. Construction of the Development is complete, and the cost certification documentation for the Development is currently under review by the Department.
In a letter dated December 10, 2024, April Engstrom, the Owner’s representative, requested approval for an increase of $200,000 to the approved permanent loan amount and a re-subordination of MFDL lien. The Owner explained that during the construction process the Development experienced substantial delays due to excessive rainfall. Furthermore, to ensure long-term functionality and compliance with drainage standards, additional drainage work was necessary. Both of these factors resulted in higher than anticipated construction costs. The requested loan increase is necessary to bridge the funding gap.
At the time of closing of the MFDL, the annual debt service for the permanent first lien was anticipated to be $102,745 based on a $1,770,770 loan with a 5.02% interest rate, and a 15-year term/40-year amortization. The Owner is now seeking to convert to the permanent debt and proposes an increased loan in the amount of $1,970,770 with a 5.02% interest rate, and a 35-year term/35-year amortization, which would result in annual debt service of $119,657.
Staff is currently reviewing the cost certification documentation for the Development and performed a financial analysis using the new proposed permanent loan amount and terms. Based on staff’s pro forma, the projected Debt Coverage Ratio (DCR) with the new debt would be 1.48, and confirms that the Development is expected to maintain financial feasibility with the increased senior debt.
However, not all of the conditions specified in 10 TAC §13.13(c)(2) have been met to allow for this re-subordination request to be approved administratively by the Executive Director. Therefore, Board approval is necessary for re-subordination of the Department’s MFDL lien to the proposed increased first lien of $1,970,770, which is $200,000 greater than the originally proposed debt of $1,770,770 at application. The Owner has requested approval for such re-subordination from the Department and is proposing in conjunction with this request to make a repayment to the NHTF loan in the amount of $9,000.
Staff recommends approval of the re-subordination request for the increased first lien debt of $1,970,770, subject to the proposed paydown of the MDFL in the amount of $9,000 at closing of the permanent first lien loan being approved in writing by Legacy Bank and execution of a NHTF Contract amendment.