Travis County Commissioners Court
August 28, 2007
Housing Finance Corporation
Travis County housing finance crption is next, corporation is next, call it to order . 1. Consider and take appropriate action on request to negotiate a plan with the owner of the park at wells branch to donate apartment units to provide housing for very low income elderly or disabled residents as a means of paying past due fees. Owed to the corporation, right?
>> yes, sir. And in 2002 the corporation issued $17,740,000 of -- for the purchase of the parks at wells branch, located at 1914 wells branch parkway. It's a 304 unit apartment complex. And like -- like many of the apartments that were financed during that period, this one is -- had -- had financial difficulty. The owner is a chodo, they have been exempt from the property taxes. If they were paying property taxes, based on this year's evaluation, they would have paid $338,000 in property taxes. They have never been able to generate enough cash flow to pay the annual fee to the corporation. The annual fee is 10 basis points or 1/10th of 1% of the amount of the outstanding bonds, so they have not been able to pay the fee for -- for five years and it has -- the unpaid fee is currently $86,510. I have -- I have reviewed -- they do have to send us their audited financial statements each year. I have reviewed the audited statements. And I -- I prepared -- I compared their 2006 figures with the pro form make and the figures that they have when they financed the project back in 2002 and they are -- the rental income this year is over 450 $450,000 less than what they were predicting in 2002. And their expenses were -- are about $50,000 more than what they were projecting in 2002. So -- so they -- I mean rents have kind of just been flat or have gone down and -- and -- there. So in my opinion there are prospects of being able to pay this fee or to begin to pay it is not -- is pretty dim at this point. The -- the parent company, which is a -- which is a housing corporation located in minnesota, minneapolis, has over the years had to -- to be able to pay the debt service has had to put in about a half a million. Just to keep it going. So I -- I have -- I have talked to them and informed them that we have had a similar situation with another project and that -- that they had donated some units and instead of paying the annual fee that they had -- we had an agreement where they had donated units to very low income -- low income or disabled tenants and -- in working with the non-profit. They said they were interested in this, in doing a similar arrangement and -- and so -- so this is the reason for the agenda item, to see if you all are interested in -- in this kind of a barter arrangement to -- to donate four to six units to -- to very low income tenants. This -- this, based on our agreement with the other apartment complex, this would probably amount to -- to about $30,000 a year on paying down on the annual fee.
>> seems to have worked in the past.
>> as far as we know, the other project is working fine.
>> the other one worked fine until the bond holder took out the non-profit, sold the property and that ended the program. So we don't have that program going anymore. But it did work out for several years out there. I will say that I have only talked to the owner, I have not talked to any non-profits about this. And -- and if you -- if you give the go-ahead, if you have anybody particular that you would want me to talk to, I would be happy to. We worked with on the other project with family elder care and on the american housing foundation we are working with -- with family elder care and the basic needs coalition. So --
>> why don't we talk with ms. Flemming in the basic needs coalition and family elder care. We ought to be able to fill those quickly if we approve the -- the initiatives.
>> right.
>> is there a representative here from the -- from the park? At wells branch apartments?
>> no, there isn't. I invited them here and -- and apparently he wasn't able to make it, but he would be happy to come. You know, it's --
>>
>> [indiscernible] actually be a loss under those kind of conditions where you do a low income to actually occupy those particular units in exchange for their short-term, short comings as far as the fees that they are supposed paying back to the county. I guess to the corporation. I guess my point is if -- if that's ever satisfied what happens to those persons that would be in the unit if they reversed this thing and they are -- the rents stabilize to the point where they are able at that time to make, pay rather, the fees back to the corporation. What happened to those low income occupants of the unit at that time? If that occurs?
>> well, in the prior arrangement the tenant, the very low income tenant had six month leases. And --
>> they are based on six month leases every six months.
>> right.
>> and --
>> but that would be a negotiating point.
>> I think we need to maybe look at that because six month lease is collin finnerty short especially dealing with people for six months, after the next six months I don't know where I will be. These of course are low income persons who unfortunately have challenges in their lives to -- to have a living, affordable living quarters. So -- so it's something that I think, I don't know if it's business stuff, but it may be something that need to be placed on the table, looking at that type of, at those type of challenges.
>> I think that's a good point. That was a problem with late fees because when the new owner came in, they didn't want to have anything to do with it.
>> right.
>> with the program. They were not sympathetic to kicking out the people just --
>> exactly.
>> -- as soon as they could. But --
>> but they had to honor the lease that was in place.
>> they had to honor it.
>> when it expired it was over.
>> you have one year leases.
>> one year?
>> yes, sir.
>> we have given up on getting the fees paid. By the corporation.
>> well, my opinion, the fees -- based -- the cash flow would not be sufficient to pay the fees. I would say in three or four years. However, I do think that the -- that the underlying asset has -- it's a very nice apartment. The underlying asset has appreciated you know a lot in recent years. So if they decided to sell the apartment complex, they would have plenty of money to pay these fees. I think if the board said well we don't really want to do this, we don't want to bother with it, I think the fee would eventually be paid.
>> but if they sell it to the new owner, does the chdo status still remain on that property? Or does the chdo go with the owner of the property if they end up selling? Does it stay in place on that property per se?
>> that is based on what entity actually owns the property at any given time. If the choad sells it --
>> it would expire. The tax revenue -- if they sell it to another chdo.
>> yes, this is another chdo.
>> move that we authorize staff to end negotiate the best deal -- to negotiate the best deal possible, they bring it back to us.
>> certainly.
>> would our mean-spirited lawyer to your left work with you on these negotiations, mr. Davis?
>> he would be happy to.
>> we will get the best deal possible then.
>> he will have to
>> [laughter]
>> any more discussion? All in favor? That passes by unanimous vote. Including Commissioner Gomez. 2. Consider and take appropriate action on adoption of initial resolution and approval of agreement to issue bonds for issuance of bonds to finance residential development for alta wells branch, l.p. For project at the northeast corner of dessau road and wells branch parkway.
>> this project, they want to issue approximately $25 million in tax exempt bonds. The -- this is a -- this is a really large apartment complex that they want to build, about -- it's over 300 units. They -- what they want to do is to -- they don't want to go through the lot. You know, most -- most of the times we have -- we have apartment developers come through here and they want to to the lot at the end of October. But this is sort of the end of the -- of -- of the allocation process with the Texas bond review board. And so beginning September 1st, money that has not been used for apartment complexes, multi-family uses and student loans and single family bonds, all of the different categories, then it's all opened up for people to come and apply for what's left. So -- so they would like to -- to apply on September 1st for $25 million in bond allocation, if they want to the lottery for a multi-family project it's limited to $15 million. So -- but there is quite a bit of competition for these funds. I would -- you know, their chances of getting the $25 million are I think is probably less than 50/50. This-- and the approval today gives you permission for us to apply for that allocation for them and it doesn't -- as far as looking at the feasibility of the project, that would all come later if they were successful in getting a bond application in. Of course our financial visor would be involved in that.
>> this inducement resolution is just a preliminary resolution that basically gives the authority and the ability to apply to the bond review board for allocation of a state ceiling. If that were obtained, then the structure in the documents would be put together and we would come back for a public hearing and -- and lad and I would -- would come back and be -- would have to obviously be comfortable with the structure and the -- the documentation on the project.
>> I will add that -- their plan on this project is 20% of the units would be leased to tenants at 50% or less of median family income. The -- the remaining 80% of the units would -- would be basically market rate. We do have a -- we do have to designate the rent ceiling for -- for the -- for the 70% of the amounts above the 20%. By state law, the -- the board has to designate the rental ceiling on those, which in our policy is 120% of the area of family median income. So they will not be applying for the 4% tax credit. They apply for the 4% tax credit then it would be 100% affordable.
>> the exact remarks with partners developers here to say a few words, answer a few questions that you may have about the particular project. Zachery do you want to --
>> give us your full name and your comments.
>> sorry. My full name is zachery marks, I am here with wood partners. We are a national, one of the top five multi-family builders in the country. We build conventional product and then I'm part of the group whose responsibility it is to finance our conventional projects such that we can provide a level of affordable housing within those projects while keeping the project class a. I work with our local partners, in this case out of houston, dallas, on projects in Texas. This particular project as harvey said is 324 units, 65 of those units will be set aside at 50% ami. The remainder will be marketed subject to that 120% ami constraint and it will -- this is actually a -- a project that we have built before in Texas where -- where we are currently working with houston to do a similar project where 80% is market and 20% is at 50% of ami, we have done -- built this particular project in houston as well. We have an elevation from it where I can provide you if you would like from the two other times that we have built it, so it's a project that we are familiar with, we are experienced in building and we have found does well.
>> similar type of situation than houston?
>> yes, sir.
>> let me ask you this -- do you have any problem with making sure those particular units are set aside for low income or -- are currently feel that every once in a while there's a slippage of making -- of those units actually being filled of course mr. Davis, they go out and look at things, check to see whether you are in compliance or not in compliance, especially with that portion of it. We really kind of look at a lot because of those arrangements. If you demonstrated in the houston area, you may be set up on a similar situation, I don't know. Can you assure us whatever you have set aside in this program as far as looking at this particular venture that the affordability will still -- not only that, have the low income occupy those units.
>> absolutely. In addition to that audit that is done by a municipality. We also hire a third party auditor to do sort of a recountriant audit with the same thing where we find any slippage in any of those audits we immediately move to make a remedy in that case. We would have performance records on others as well.
>> if they don't they jeopardize the tax exemption of their bonds. So it is extremely important to them to --
>> make sure.
>> make sure that they have in compliance with that.
>> I will add that -- that this -- these apartments, this is not going to be owned by a chdo, they will be paying full property taxes.
>> so you find for $25 million allocation the total cost is 30.
>> 30.
>> so the equity partners or are institutions or individuals or what?
>> they would be, generally speaking we deal with funds that are either institutional in nature, whether it's pension funds or high network investors. Our deal in houston is with an equity fund that has a high network of investors in order to participate they have to contribute a certain amount of money.
>> bond counselor is vinson-elkins.
>> that was in the application. I think we are still discussing that with the developer that may change. Make sure there's no conflict. It's an outstanding firm, they do a lot of work for us. Make sure there's no conflict. I move that we authorize to proceed.
>> second.
>> let me ask, does this create any sort of a -- not a hardship, but would other people have a complaint about this arrangement, this being asked of us? I mean, are there other folks that feel like, you know, we have been left out or, I mean, -- where would -- where would we have people come at us and second-guess us on this?
>> yeah, I think in the multi-family area, that would certainly not be the case because the Austin -- especially the Austin area has not received, I don't think we have received any allocation for a multi-family project. We have done a ton of them in -- in the houston area, dallas area, some -- some outside of -- of central Texas, but not in Travis County. So --
>> I think the other way that I would respond to that, I know that I have not, I don't think mr. Davis received any other request for information, anyone else calling and asking to participate in this program. The tradeoff for -- for obtaining the taxing is to preserve those units for a minimum. If they are 30 year bonds, I don't know if that's finalized yet, but if they are 30 year bonds you are tried to those restrictions for at least 15 years, even if you pay off the debt the day after closing. There's some tradeoffs that people have to make in order to obtain this financing. I think if people are willing to do it, they can come and make the same request if they want to.
>> zach, what is the expectation of the roi for the investment group on a project like this?
>> generally our equity investors look between 60 and 20%.
>> so 16 to 20%.
>> generally the standard that we have to meet for our investors, yes, sir.
>> so it's a pretty attractive investment, I mean, what in the world do you get conventionally, I mean, if you are not doing this? Holy smoke.
>> depends. It sort of depends on the market. One of the nice things about these mixed income deals we can generally put them anywhere because they look -- we've done a million high-rise projects of the same sort of structure, allows us to keep -- to keep a diversity to the demographic and as opposed to having to -- if you have 100% tax credit project, a lot of times you are going to be fought pretty hard by neighborhoods the more affluent the neighborhoods are, these products because they are identical to our class a product, same thing. It allows us to help sort of give folks that don't necessarily make as much money a chance to live in good neighborhoods, a great products. So --
>> pretty interesting, I mean,,, I mean, you wonder why every project wouldn't be built, I mean, with this if you get a 15 to 20% roi, I mean, holy smokes.
>> we had to convince our company to do. We would love to do that.
>> I think it's interesting that they have looked at the numbers and decided that it's -- they are better off not getting the 4% tax credits and --
>> very interesting.
>> so they don't have to deal with the state and of course it -- they could be mixed income instead of being 100% affordable.
>> looking for any investors --
>> all in favor? That passes by unanimous vote. Vote.
>> becoming an investor --
>> [laughter]
>> all in favor? That passes by unanimous vote. Also. Zach, picked up five potential investors here.
>> [laughter] see us in 10 years, though, when we have left the county.
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Last Modified:
Wednesday, August 29, 2007, 18:30 AM