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AHC Developer Strategies - Refinance, Redevelop, and Recapitalize

Learn about AHC's 40-year track record in developing complex projects from concept to lease-up and their options for refinancing, redevelopment, and recapitalization. Discover the considerations and advantages for each strategy.

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AHC Developer Strategies - Refinance, Redevelop, and Recapitalize

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  1. Year 15: developer strategies SEPTEMBER 24, 2019

  2. ABOUT AHC • 40-year track record of developing complex projects from concept to lease-up • Over 7,500 units of low- and moderate-income rental housing • More than 50 communities developed • In-house construction management, asset management, resident services and property management

  3. YEAR 15 Options: • REFINANCE • RECAPITALIZE • REDEVELOP

  4. Questions developers ask ourselves…. • Other partners in the mix? • How big a renovation is needed? (market, operations, sustainability) • Is the property fully occupied? Turnover? • Prepayment penalties for existing debt? • How long are the affordability restrictions? • What does the next 5-10 years look like for us and for this property? • How can we streamline costs and time? • What loan products can Ed offer me right now?

  5. Refinance: Lafayette apartments (Fairfax, va) • Year 15 property acquired in 2016 • JV with Jonathan Rose Companies • Fully occupied • 100% unit survey revealed light scope needs • 2018 HUD 223f refinancing • No new LIHTC

  6. REFINANCE • 100% units received sustainability upgrades: LED lighting, HVAC systems, appliances • ~25% units received marketability upgrades: bathrooms, kitchens, flooring, paint • Most work was done tenant-in-place • Remaining upgrades to be done on turnover

  7. Redevelop: the Berkeley / apex(ARLINGTON, VA) • Owned by AHC since 2000 • 138 LIHTC / market-rate apartments (80% / 20%) • 1960s buildings had a lot of challenges • Opportunity to add affordable units and improve design of community?

  8. Redevelop The APEX • Sources include 9% and 4% LIHTCs, Arlington County funding, VHDA financing, deferred developer fee • Two newly constructed, modern, and energy-efficient buildings • 138 units are becoming 256 including 119 NEW, committed affordable units

  9. Recapitalize: colonial village west(ARLINGTON, VA)

  10. Owned by AHC since 1982 • 70 units (1-, 2-, 3- bedroom units) • 100% affordable; all units supported with HAP project-based rental assistance

  11. Goals of recapitalization • Preserve affordable housing and protect existing residents • Take advantage of lower interest rates • Renovate major building systems for long-term sustainability • Reduce operating expenses

  12. The Analysis • HUD 221(d)4 or 223(f)? • Private placement or balance sheet? • Fannie/Freddie GSE? • LIHTC/Non-LIHTC • Developer’s thoughts… • Minimize costs • Flexibility & simplicity • Vacancy restrictions • Rates and terms

  13. Fannie/Freddie tax-exempt loan advantages • Will underwrite to HAP rents (assuming loan term corresponds with HAP term) • Immediate perm eliminates construction loan fees, interest - as opposed to private placement • Depending on product, allows certain amount of construction-period vacancy and interest-only period

  14. DEVELOPER CONSIDERATIONS • 4% LIHTC equity Ran projections to evaluate project without LIHTC… = PAB program survived and the choice was clear

  15. DEVELOPER CONSIDERATIONS • Seller Note • Monetize AHC’s equity by adding LIHTC acq. basis • Use to meet 50% test and save on construction-period interest – $$$

  16. TYPICAL STRUCTURE PROPOSED STRUCTURE Construction Loan(Tax-Exempt Bonds) “B bonds” for 50% test NO INTEREST PAYMENTS HERE! Permanent Loan (Taxable or Tax-Exempt) Permanent Loan(Tax Exempt) Seller Note (Taxable) Tax-Exempt Seller Note (Taxable) LIHTC Equity LIHTC Equity

  17. Lessons learned • Know your goals • Think intentionally about rehab scope and relocation implications • Work closely with your lender and stay flexible!

  18. Almost done! laura.manville@ahcinc.org | edmund.delany@capitalone.com

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