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Presentation, discussion, and possible action regarding approval of a Multifamily Direct Loan re-subordination for Pearland Senior Village (HOME #1001132)
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RECOMMENDED ACTION
recommendation
WHEREAS, Pearland Senior Village (Development) was submitted and approved for a 9% Housing Tax Credit (HTC) award, a Multifamily Direct Loan (MFDL) in the amount of $3,000,000 awarded from the HOME program, and a $1,800,000 loan from the TCAP program in 2009 for the construction of 126 units for the elderly in Pearland, Brazoria County;
WHEREAS, Brownstone Pearland Senior Village, Ltd. (Development Owner or Owner) is currently seeking to refinance the first lien note, which is the TCAP loan with a principal balance of $1,412,287.65, as of October 1, 2025;
WHEREAS, in conjunction with this request to make a full repayment to the TCAP loan, but as a condition to the closing, the proposed new loan in the anticipated amount of $5,000,000 requires the Department to re-subordinate the HOME loan documents but not the Land Use Restriction Agreement, and the Owner has requested approval for such re-subordination from the Department;
WHEREAS, Board approval is required for this re-subordination, as the conditions for Executive Director approval for resubordinating the HOME MFDL that are specified in 10 TAC §13.13(c)(2) have not been fully met; and
WHEREAS, the proposed new loan does not negatively affect the financial feasibility of the Development and is being used to fully repay the TCAP loan, release a portion of the investment limited partner’s capital account balance, and fund at least a $15,000 per unit rehabilitation on the Development;
NOW, therefore, it is hereby
RESOLVED, that the request for the Department to re-subordinate its HOME loan (though not the Land Use Restriction Agreement for HOME or TCAP) to a $5,000,000 senior loan is approved as presented to this meeting, subject to the proposed repayment of the TCAP loan at closing of the first lien permanent loan, subject to an amendment of the TCAP loan allowing it to survive foreclosure/deed in lieu of foreclosure with a concurrent Department release of the General Partnership Pledge and Security Agreement, and subject to the Owner’s representation that at least $15,000 per unit in rehabilitation costs will be performed is approved, 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
Pearland Senior Village was originally awarded 9% Housing Tax Credits in 2009, a Multifamily Direct Loan (MFDL) in the amount of $3,000,000 from the HOME program in 2009, and a Multifamily Direct Loan in the amount of $1,800,000 from the TCAP program in 2009, for the construction of 126 units of multifamily housing for the elderly in Pearland, Brazoria County. The HOME MFDL is structured with a 0% interest rate, 30-year term, and 30-year amortization. The TCAP MFDL is structured with a 7.25% interest rate, 30-year term, and 30-year amortization.
In a letter dated October 2, 2025, Doak Brown, the Owner’s representative, requested approval for re-subordination of the HOME MFDL lien to refinance the first lien note and to facilitate the exit of the investment limited partner. The Owner explained that the refinance proceeds will be used to fully repay the TCAP loan, release a portion of the investment limited partner’s capital account balance, and fund at least a $15,000 per unit rehabilitation on the Development. A subsequent breakdown of proposed sources and uses identifies an anticipated rehabilitation of $1,900,258 ($15,081 per unit), along with a $1.5 million investor buyout, and closing costs in the amount of $191,066 associated with a proposed new loan in the amount of $5,000,000.
At the time of closing of the HOME MFDL, the annual debt service for the permanent first lien was $100,000 based on a $3,000,000 loan with a 0% interest rate, and 30-year term/30-year amortization. As of this write-up, the HOME loan has an outstanding balance of $1,650,000.54. The Owner is now seeking to refinance the Development with a Fannie Mae loan in the amount of $5,000,000 with a 5.23% interest rate, and a 7-year term of interest only payments, which would result in annual debt service of $261,500.
Staff performed a financial analysis for the Development 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 1.40 based on interest only payments for the first lien debt and the HOME loan payments, 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 HOME MFDL lien. The Owner has requested approval for such re-subordination from the Department and is proposing in conjunction with this request to make a full repayment to the TCAP MFDL in the amount of $1,412,287.65, as of this write-up.
Staff recommends approval of the re-subordination request, subject to the proposed full repayment of the TCAP MDFL at closing and the other conditions listed herein.