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Presentation, discussion, and possible action on Inducement Resolution No. 25-005 for Multifamily Housing Revenue Bonds regarding authorization for filing applications for private activity bond authority for Legacy Riverside Senior Living Community (#20613)
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RECOMMENDED ACTION
recommendation
WHEREAS, a supplemental bond application for Legacy Riverside Senior Living Community was submitted to the Department for consideration of an inducement resolution;
WHEREAS, at the Board meeting of December 10, 2020, Resolution No. 21-007 was approved authorizing the issuance of a Multifamily Note for Legacy Riverside Senior Living Community, Series 2020;
WHEREAS, the applicant has cited unforeseen changes following closing on the original bonds, including inflation and related increases in construction costs, and has requested the Department issue additional tax-exempt bond financing, as further described herein; and
WHEREAS, approval of the inducement will allow staff to submit an application to the Bond Review Board (BRB) for the issuance of Certificates of Reservation associated with the Development.
NOW, therefore, it is hereby
RESOLVED, based on the information provided herein, staff’s recommendation to adopt Inducement Resolution No. 25-005 is neutral;
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BACKGROUND
Legacy Riverside Senior Living Community was originally approved at the Board meeting of December 10, 2020, and subsequently closed on December 21, 2020, with an issuance amount of $40,000,000. The development involved the new construction of 264 units located at 8101 North Riverside Drive in Fort Worth, Tarrant County serving an elderly population. All of the units will be rent and income restricted at 60% of Area Median Income.
A supplemental allocation of bonds is being requested to aid in the absorption of increased costs to satisfy the federal requirements of the 50% Test. A project is eligible for the 4% Housing Tax Credit so long as at least 50% of the aggregate basis of the building(s) comprising the project, including the land on which the building is located, is financed with tax-exempt bonds. The Department performs a preliminary calculation of the 50% test in conjunction with its underwriting, as published in the underwriting report. At the time of the original approval, utilizing a bond issuance amount of $40M, the percent financed by tax-exempt bonds was 94.3%, as reflected by the applicant, which presumably would have provided some cushion in the event there were increased costs during construction. Without the supplemental allocation, the calculation, as provided by the applicant is approximately 49.6%. Assuming a supplemental bond issuance of $5,000,000, which will bring the total tax-exempt bond amount to $45,000,000, the applicant has represented that it would bring the calculation to 55.8%.
In evaluating the request, one of the documents requested in the supplemental bond application is a construction contract or contractor bid(s) with a detailed schedule of values that supports the costs reflected on the Development Cost Schedule. Upon review of this document by staff, there were glaring inconsistencies between the schedule of values provided and the corresponding costs reflected in the Development Cost Schedule. Recognizing that a Construction Status Report (CSR), required pursuant to 10 TAC §10.401(b) of the Asset Management Rules, was recently submitted in July 2024, for the previous quarter’s end, staff reviewed and compared the construction contract and corresponding schedule submitted as part of that package to the information contained in the supplemental bond application and found even more inconsistencies across all the documents.
The last three quarterly submissions of the Construction Status Report included signed and notarized documents by the contractor, RISE Residential Construction identifying the Original Contract Sum to be $33,500,000 and $6,668,970.41 in change orders noted to date, bringing the Contract Sum to Date as $40,168,970.41. The supplemental application reflected a total construction contract value of $54,739,984. Between the submission of the July 2024 CSR and the filing of the supplemental bond application on August 1, 2024, there have been $14M in additional costs that have been identified, for a project that was represented in the July 2024 CSR to be 72% complete and did not disclose any additional change orders.
Staff questioned the discrepancy and was informed that the next CSR submission will reflect the changes in costs. Given the represented percentage of completion and that there should be a better indication of actual costs, it would seem the costs would be identified in the CSR as construction is progressing and not remain at the same level over the course of several quarterly submissions.
On September 5, 2024, staff requested additional information relating to the change orders, when they were approved, etc. The owner indicated they were working with their construction team to get the numbers together and reconciled. On September 20, 2024, two weeks after the request was made, the owner provided a change order (included herein as Exhibit A) in the amount of $14,831,029.59. Questions remain regarding when the change orders were known and whether the explanation for the line items are accurate due to various representations made to staff throughout the review process.
Included in Exhibit B attached hereto is a breakdown of the differences in costs between when the deal closed in 2020 to what was recently submitted.
Aside from the discrepancies in costs that were submitted to the Department, there are concerns relating to the original bonds that were issued. The financing structure approved by the Board at closing involved IBC Bank as construction lender and Freddie Mac purchasing the bonds at conversion and holding during the permanent phase. The Construction Phase Financing Agreement identified the Forward Commitment Maturity Date (i.e. conversion date) to be July 1, 2023. At that time the Department was advised that the parties were contemplating a 12-month extension of such date to July 1, 2024 and subsequently received the fully executed extension request.
The Department has not been advised whether a second extension was or will be granted or when conversion is expected to occur. Moreover, considering the questionable Construction Status Reports submitted to the Department, combined with the inconsistent construction costs identified in the supplemental request, staff is concerned regarding the extent to which actual costs are known, and whether the additional $5M being requested is accurate or needed. Staff’s recommendation on moving forward with the Inducement Resolution is neutral.