06/07/2010 Council Packet - Laserfiche WebLink

Home Search

• • • 9 3. Typical to many affordable housing projects, there is a comprehensive 15 year risk event wherein a series of circumstances will shortly impact the project's economic well being: o the TIF assistance will terminate — refer to TIF agreement with City terminating assistance in 2012. o the existing 1st mortgage loan comes due in 2012 and relied on TIF income for debt service coverage o the MHFA restrictions become optional in 2011 o the need for investing in physical replacements increases — refer to CNA report 4. While there is no certain implication to the end of the first fifteen year period of operation, the proposed acquisition and refinancing plan manages and alleviates the year fifteen risks prior to waiting until the event takes place. Assuming the TIF assistance expires and the existing 1St mortgage note comes due, the only option is to refinance the project may be with a commercial bank which may mean less favorable terms, much higher rates, and loss of TIF income. Here is how the proposed refinancing plan lessens the risk of project failure coming from the 15 year event and places the project on a superior set of economic principles long terms to serve the senior tenants desired by all. To manage the loss of TIF assistance: the new loan assumes no income from TIF and underwrites the project only on affordable, restrictive rents currently required. • To manage the future risk of higher interest rates and unfavorable commercial bank terms: the new loan is at a very low 4.5% rate, and fixed for 35 years. In fact, the buyer is paying over $125,000 in prepayment penalties to pay -off the current mortgage and not to wait for refinance in 2012. Most nationally recognized economic projections call for long term interest rates to significantly increase in future years. Our new annual financing is some $20,000 Tess in debt service costs than the current mortgage obligation. • The track record of FHA insured multifamily loans is excellent with less likelihood to fail than commercial bank loans. To the best of our knowledge only two loans have ever been foreclosed and none on senior housing. Our lender's record is only one foreclosure in five states.