Travis County Commissioners Court
Tuesday, June 21, 2011 (Agenda)
Travis County Housing Finance Corporation
Now let's call to order the Travis County Housing Finance Corporation two items, first of which is, one, consider and take appropriate action on request to designate andra shields to sign contracts with Texas department of housen and communities affairs in connection with the home investment partnership's program reservation system and reservation system participant agreement number 2010036.
afternoon.
>> harvey Davis here with your manager adegreea shields.
as you may recall on March 4 we began a new tenant based rental assistance reservation system contract with the state.
and what they now require is that when we start providing assistance to a new tenant, that we execute a contract with the state on that particular tenant.
basically the contract says that we have done the due diligence to qualify the tenant under the criteria of the program.
so the contract, you know, it's a subcontract of our reservation system contract with the state.
what we're asking the board do is to authorize andra shields to execute the contract rather than coming to the board and having an agenda item for each tenant or asking the president to execute the contract.
and the reason it makes sense for ms. Shields to exthe contract, she is the one who is overseeing the grant and is in a better position to make that representation to the state that the tenant is qualified for the program.
and it also is more efficient in that these contracts can be turned around and sent back to the state in a timely manner, and we can get reimbursed quicker.
>> how have we met this responsibility in the past?
>> it's a new responsibility.
>> move approval of the staff's recommendation.
>> second.
>> discussion on the motion?
all in favor.
that passes by unanimous vote.
number two, consider and take appropriate action to approve request from brandt baber with american village communities to reorganize bonds issued for metropolis apartments.
>> and to my right is brandt baber who owns the property, and cliff wasn't able to make the meeting, he is here to provide any legal advice requested.
these bonds were issued I think in 2002.
this is owned by achodo.
this is metropolis apartments located off riverside drive.
as you know, the bonds that we issue, we have an annual fee that is ten basis points of the outstanding bond.
they were able to pay the issuer fees the first two years that the bonds were, after the bonds were issued, but they have been able to pate annual fee since that time.
so the annual fee has accumulated to a little over $152,000.
the bonds were owned by a large insurance company.
and they, you know, the way the bond's provision worked, the annual fee is only paid after operating expenses and interest and principle on the debt.
so this part apartment complex did not generate enough income to generate operating expenses or in fact all the accrued interest that was due.
so recently the bonds have been sold to new bond holder, and so the nonprofit is working on a restructuring of the bond program.
and what we are wanting to do is explain the highlights of the restructuring and how this would affect the corporation and what the benefits would be for the corporation to seen annual fee payment and the enable them to continue with ownership of this property on a better financial footing.
if the board approves the outline that we have explained, then we would come back to the board with actual documents that we would request the board the approve execution .
so here are the highlights of the plan.
the bond right now, the outstanding amount is $21 million.
they would be reduced to $14 million.
there's some sub subordinate bonds that would be reduced either to 250,000 or 450,000.
think that negotiation is still not been set.
>> the bondholders are others, not us.
>> right, that is right, they are others.
>> and basically these show an effort for the bondholders really to try to make the project work so at least they would get some payoff.
>> that is right.
>> that is what these numbers represent.
>> right.
>> yeah.
>> and the property would be able to service the debt.
>> when I saw the amounts, I was kind of surprised because they are substantial.
sorry to cut you off.
>> that is just fine.
>> yeah.
>> they would move the issuer fee as a priority from being paid after debt service up to an operating expense.
so they would be, the issuer fee the annual issuer fee then would have a higher priority than they do at the present time.
>> how do you document that and how do you enforce it?
>> well, the documentation would be in the papers that we would be asking the corporation to execute.
>> restructuring them, you're just moving our payment to a higher bucket.
>> yes, right, right.
>> so you would show that in the approved paperwork, and you enforce the way you would enforce payment of the other operating expenses?
>> yes.
>> if I might suggest to the judge.
>> yes.
>> the money to pay the issuer's fee would be trapped under the trust inden tour with the corporate trustee, and they are obligated to make the payment system--semiannually to the housing finance corporation.
it's not that we have to cut a check.
it's that the corporate trustee has the obligation to send you the money and they have the source with which to send it because this is a so-called gross pledge transaction by which every dollar of revenues from the property goes to the corporate trustee.
they only send the property manager an amount sufficient to pay monthly expenses and then fund various accounts under the trust, one of which is your fee.
>> our fee would be higher.
>> under the first dollar of debt service.
>> okay.
>> then finally, when this transaction, when this renegotiation consummated closing, the corporation would receive a $35,000 payment towards the old issuer fee.
and then with be guaranteed an annual fee of ten basis points of the outstanding bonds, which would be $14,450 because the bonds will be reduced to 14,45,000, plus $2,000.
so the issuer fee then would be 16,000450,000--16,450,000.
the likelihood that this would be paid for at least ten years is high because the agreement with the bond holder is in place and which the owner cannot pay off the bonds nor can the bond holder foreclose on it.
most likely wouldn't foreclose because there should be sufficient cash flow to make the bonds outstanding.
you know, we feel that this is a good business arrangement for the corporation because we haven't received any annual fees for approximately eight or nine years, and the likelihood under the present financial arrangement that any annual fees would be paid is very low.
and so in this arrangement we would receive a substantial amount of money at closing plus a very high likelihood of receiving ongoing annual fees that would then become part of our budget.
and granted if you have, hey is here to answer any questions or to highlight and correct anything that I have explained.
>> mr. Davis, you would never say anything wrong.
I will say a few things.
I believe mr. Davis was explaining that the bond holder intends to hold the bonds for ten years.
core larly, we don't have any right to pay them off for ten years.
there's no assurance that this individual or this particular bond holder will continue to own these bonds.
there is assurance for ten years the interest rate will be the same, the principal amount, the structure, including the fact that your fee is superior to payment of debt service.
so you know, the pay this is being structured with a $14 million indebtedness at a seven percent interest rate, based upon today's revenues of the property, today's expenses, we would expect today, if the restructuring were consummated, that there would be a 1.3 to one debt service coverage, which basically means we have plenty of money to pay our debt in full.
obviously, before the first dollar of debt is paid, your fee is paid.
>> let me add a couple other things.
this nonprofit has provided five units to safe place during this, well, full period.
we confirmed that with safe place, that they have used units at metropolis for their needs.
>> that is five units that we contributed.
>> yes.
and we did, anne tri--anne tree andra and I did spend a compliance at the office last week and found the records in very good shape.
as far as they are complying with the affordable housing provisions of the bonds, we see no problems and that will be an agenda item for next week, to make a formal presentation of that compliance audit.
>> what is the occupancy rate of the complex?
>> today it's about 90 percent.
it has been as low as 86 and as high as 94 within the last 12 months.
you understand of course this is in south Austin.
those are real good occupancy rates for south Austin.
>> for this market, 90 percent is a good rate.
so the units are in pretty good shape currently?
>> this property was built in the 1970s of.
it's not a new unit, but I found the units, and we did do an inspection.
we walked the property and inspected one unit, and found, you know, I found it in better shape than they were several years ago when we last did a compliance audit.
I thought the apartments were in fairly good shape.
>> Commissioner Huber.
>> I have a little bit of trouble following you on one item and looking for clarity.
>> okay.
>> Travis County is due right now $152,780, is that correct?
>> yes.
>> and 30 to 35,000 would be paid at closing.
so the balance of that is still due.
is there in addition to that an annual fee to the county?
>> the annual fee is ten basis points of the outstanding bonds for the year.
>> for the county.
>> for the corporation.
>> for the corporation.
and the agreement would be that the owner would pay an extra $2,000 due to these unpaid annual fees.
but the agreement would also state that the prior annual fees would, in other words, the balance of the loan, would be eliminated.
and so the owner, the difference which is about $117,000, we would recoup some of that.
you know, at a rate of $2,000 a year.
>> or 20,000 over the ten-year period.
>> yeah.
>> so we really are not looking at getting substantially back what we haven't received.
>> that is right.
>> Commissioner, if I might--
>> the justification for that?
I'm new to this kind of stuff.
>> if I might also point out, the bond holder is forgiven approximately $7 million of debt 2.9 of which is interest that was accrued and unpaid to it.
so, you know, a lot of people are giving up a lot of things to try to make this property work.
so that is what we are putting on the table for you.
mr. Davis requested and I went to the current bond holder and got them to agree to improve the priority of the payment of your fees ongoing.
I'll be frank about it.
I sat here six years ago and I had to look at judge Biscoe and had to tell him, I was embarrassed to tell him that we hadn't pay the fee and couldn't pay the fee.
we didn't control the cash, our bond holder did because of this pledge situation.
I didn't want to ever sit here and look at judge Biscoe and say that again.
I wanted to have a higher level of assurance that we would pay your fee in full going forward, and did not want to come in here and poor mouth the situation and say oh, and we can't afford to pay anything about the old faith.
just so you understand at a level of detail, we have to borrow money from the currents bond holder in order to pay whatever we are going to pay you.
and we have to pay them interest on that money.
I'm happy do that because it's the right thing to do.
I just couldn't have the nonprofit couldn't afford to borrow and more than about 35,000 in toward pay this fee and our restructuring costs.
>> is it fair to say our primary interest was really the affordable housing?
>> yes.
that is fair to say.
>> we really just tried to squeeze a fee out of that for the corporation that bee --we would use for other house initiatives for county residents.
the other thing, we have so far down the toe tem poll in terms of the order in which we are paid, for us to take own enforcement action for the full amount, the money would be exhausted long before it got to us anyway.
you think that is true?
>> I think that our enforcement options are extremely limited.
I mean, we really didn't have any enforcement options because of the way the bonds were agreedor structured because we're so far down on the waterfall.
>> I'll volunteer an opinion there, your honor.
there is $21 million of secured debt that stands in front of you with the wind at its back.
today worth somewhere between ten and eleven.
so by virtue of the bond holder not choosing to foreclose and permitting me to sit here and make this request of you, is the only opportunity that you will have to get paid.
>> so if we were looking for reasons for the inability to generate enough revenue to satisfy all indebtedness today, what would the reason be?
>> in 2002, we bought this property in fact in 2001 but closed on it July 1, 2001.
between July 1, 2001, and March 2002, Austin suffered a significant decline in employment, especially in many of the employers that employed people who lived at our property.
we as well as many other apartment properties, starting in the spring of 2002 through 2005 suffered a significant decline not only in occupancy percentage but more important in the dollar price of rents.
our rents went approximately from about 1.30 a square foot to about 60 cents a squire foot.
you could be a hundred percent occupied at that level and still not come close to paying the debt service.
that is exactly the situation we found ourselves in.
so our occupancy has never fallen below 80 percent am our occupancy has constantly been 15-20 percent higher than all of the properties this our sub market.
our rents are slightly higher because we offer a much better qualitied product.
with all that said, you can have the finest occupancy but if you have low rents, you can't pay all your debt.
even today occupancy has come back some.
we're at 90 percent and getting good rents, but rents are still at least $200 a unit a month lower than they were in 2001 at our property.
so in the absence of a restructuring of the principal amount of our first trust debt, we're scrus --just dead in the water.
>> in 2005 Austin was experiencing a peak in economic boom here.
what was the problem?
more product competing?
>> that is exactly right.
rising tides raise al boats.
people make more money and move from a to b.
we had our hands full trying to keep our quality tenants even at lower rents.
>> I would appreciate a full briefing at some other time.
obviously there's a lot of history.
I don't feel like my questions right new make a big difference.
I'd like to understand better what we have dealt with.
>> staff recommends it because we are between a rock and hard spot basically.
>> basically, yes.
>> what is your time frame on a decision?
does it have to be today?
>> no.
I think mr. Baker is still, he kind of like erding cats, trying to get several parties to agree to this restructuring.
>> he can't get the bondholders until we agree.
like a domino effect?
>> there's a little after you all going on here, yes.
I would say we're not looking for any binding action by the hfc today.
what I am lookinger for is to see which direction the wind is blowing so I can go back to the bondholders and say you know the deal we struck, I think I can get it done and negotiate with the subordinate bond holder, the owner of the property from whom we bought it.
so there just are moving pieces here.
I have also got, bless their hearts, some lawyers that we have got, you know, get working on various things.
you know, we have to pay them or at least be able to pay them.
so I don't want to, you know, go full speed ahead with them unless and until we at least have some reason to believe that this would be a favored action by the hfc.
>> why don't we plan to indicate our direction next week then.
how is that?
any member that needs a briefing between now and then can get one.
next Tuesday we'll indicate how we seem to be leaning and let you know.
you are not from Austin, right?
>> no, sir, I'm from clisten--clifton, virginia.
>> I don't know that a trip is necessary.
if we have additional questions, can we get them to mr. Davis by say five o'clock Friday and he can contact you and get re--responses by Tuesday?
is that okay?
>> sure.
>> I'm not thinking there there be additional questions.
there might be.
we always enjoy seeing you, so if you are looking for an opportunity to travel back down.
>> I'm looking for an opportunity sometime in early jewel to --july to sit before you and ask for a more specific approval.
hopefully we will get that.
>> okay.
anything else on the item?
>> move adjourn.
>> all in favor.
that passes by unanimous vote.
good to see you again.
we'll have this on next week.
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