Financing to Promote Economic Development March 2011 Participating - - PowerPoint PPT Presentation

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Financing to Promote Economic Development March 2011 Participating - - PowerPoint PPT Presentation

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Using Section 108 Loan Guarantee Financing to Promote Economic Development March 2011 Participating in the Webinar Call will last approximately 90 minutes. All callers are muted due to the high number of participants. The

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SLIDE 1

Using Section 108 Loan Guarantee Financing to Promote Economic Development March 2011

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SLIDE 2

Participating in the Webinar

  • Call will last approximately 90 minutes.
  • All callers are “muted” due to the high number of participants.
  • The slides will be posted on the CDBG Program pages

shortly.

  • Webinar will be recorded for future use and made available

for viewing/downloading.

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SLIDE 3

Participating in the Webinar

  • Please call into the webinar using the audio information, and

log into the viewing portion using the Live Meeting link.

  • If you have questions on the material that is covered today,

you are welcome to submit them throughout the presentation using the “Q&A” function on the Live Meeting toolbar.

  • A resource advisor will forward some questions to presenters

to answer at the end of the webinar.

  • HUD will be developing additional guidance on Section 108

loan guarantee financing.

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SLIDE 4

Using Section 108 Loan Guarantee Financing to Promote Economic Development March 2011

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SLIDE 5

SECTION 108 LOAN GUARANTEE PROGRAM

  • ADMINISTERED AS PART OF CDBG

PROGRAM

  • 24 CFR § 570.700-570.711
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SLIDE 6

SECTION 108 LOAN GUARANTEE PROGRAM OVERVIEW

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SLIDE 7

WHAT IS SECTION 108?

  • Financing tool that allows communities and

States to expand size of their CDBG programs (as much as 5 times their CDBG allocations)

  • If activities meet CDBG requirements and loan

meets Section 108 underwriting criteria, State

  • r locality issues note for HUD’s guarantee
  • Notes are repaid with CDBG funds, program

income, and/or other revenues

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SLIDE 8

SECTION 108 SUMMARY

  • Over 1,800 commitments, totaling $8.5

billion

  • $2.4 billion in loans outstanding
  • Approximately 60% of Section 108

commitments are allocated to economic development

  • 100,000 jobs created or retained
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SLIDE 9

WHY SECTION 108 IS NECESSARY

  • Communities have “Main Street” development

projects which need long-term, affordable financing

  • CDBG funds aren’t available because they are
  • bligated to other uses
  • Private sector investors (“Wall Street”) are willing to

provide financing for projects, but are unwilling to bear project risk

  • Section 108 is a vital resource for matching the needs
  • f Main Street with the financing from Wall Street
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SLIDE 10

ADVANTAGES OF SECTION 108

  • LEVERAGE: $1 of CDBG creates $5 of Section 108

borrowing capacity

  • RECEIVE FUNDS NOW not pay-as-you-go
  • SPREAD COSTS over multi-year period
  • LONG-TERM, FIXED-RATE FINANCING at AAA rates
  • NOT A GENERAL OBLIGATION for debt purposes
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SLIDE 11

SECTION 108 FLOW OF FUNDS (KEY PLAYERS)

HUD

Borrower* Wall Street (Private

Lenders/Investors)

Main Street Project

The Eligible 108 Activity (Borrower or Third Party Borrower)

* “Borrower” in this case denotes all eligible community recipients

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SLIDE 12

SECTION 108 FLOW OF FUNDS (CONT.)

HUD

Borrower applies to HUD for Section 108 Guarantee and Offers Pledge of CDBG

* “Borrower” in this case denotes all eligible community recipients

Main Street Project

The Eligible 108 Activity (Borrower or Third Party Borrower)

Wall Street (Private

Lenders/Investors)

Borrower*

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SLIDE 13

SECTION108 FLOW OF FUNDS (CONT.)

HUD

Pledge of CDBG HUD Section 108 Guarantee

* “Borrower” in this case denotes all eligible community recipients

Main Street Project

The Eligible 108 Activity (Borrower or Third Party Borrower)

Wall Street (Private

Lenders/Investors)

Borrower*

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SLIDE 14

SECTION 108 FLOW OF FUNDS (CONT.)

HUD

Project $ Project $ Pledge of CDBG HUD Section 108 Guarantee

* “Borrower” in this case denotes all eligible community recipients

Main Street Project

The Eligible 108 Activity (Borrower

  • r Third Party

Borrower)

Wall Street (Private

Lenders/Investors)

Borrower*

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SLIDE 15

Project $ Security Project $

SECTION 108 FLOW OF FUNDS (CONT.)

HUD

Assignment

  • f Additional

Loan Security Pledge of CDBG HUD Section 108 Guarantee

* “Borrower” in this case denotes all eligible community recipients

Main Street Project

The Eligible 108 Activity (Borrower

  • r Third Party

Borrower)

Wall Street (Private

Lenders/Investors)

Borrower*

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SLIDE 16

Project $ Security Project $

SECTION 108 FLOW OF FUNDS (CONT.)

HUD

Repayment $ Assignment

  • f Additional

Loan Security Pledge of CDBG HUD Section 108 Guarantee

* “Borrower” in this case denotes all eligible community recipients

Main Street Project

The Eligible 108 Activity (Borrower

  • r Third Party

Borrower)

Repayment $

Wall Street (Private

Lenders/Investors)

Borrower*

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SLIDE 17

PROJECT EXAMPLE: OXFORD PLAZA AND DAVID BROWER CENTER (Berkeley, CA)

  • Oxford Plaza
  • 41 spaces of

ground-level parking

  • 8,100 square

feet of retail

  • 97 units of

affordable housing

  • David Brower Center
  • 33,000 square feet of rental office space for non-profit organizations
  • 7,400 square foot auditorium and conference center
  • 3,000 square foot restaurant
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SLIDE 18

PROJECT EXAMPLE: ADRIAEN’S LANDING— HARTFORD, CT

  • 36-acre area-based

development

  • Housing
  • Retail
  • Entertainment
  • Hotel
  • Convention Center
  • Recreation
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SECTION 108 LOAN GUARANTEE PROGRAM BASICS

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WHO CAN APPLY?

  • Entitlement Communities (Cities and Urban Counties)

that receive CDBG funds directly

  • Non-Entitlement communities eligible to receive CDBG

funds under the HUD-Administered Small Cities CDBG program

  • Non-Entitlement public entities assisted by states that

administer block grants

  • States (for use in non-entitlement areas)
  • Insular areas (American Samoa, Guam, Northern

Mariana Islands, and the Virgin Islands)

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SLIDE 21

HOW CAN SECTION 108 LOAN FUNDS BE USED?

  • Real property acquisition
  • Rehabilitation of publicly owned real property
  • Relocation
  • Clearance/demolition
  • Site preparation
  • Housing rehabilitation
  • Economic development
  • Public facilities/improvements
  • Issuance costs
  • Interest costs
  • Debt service reserves
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SLIDE 22

TYPICAL ECONOMIC DEVELOPMENT USES OF SECTION 108 FINANCING

  • Commercial Development
  • e.g., retail, offices, restaurants
  • Industrial Development
  • e.g., manufacturing, warehouses, bio-medical facilities
  • Working Capital
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SLIDE 23

NATIONAL OBJECTIVES

LOW/MOD BENEFIT SLUM/BLIGHT URGENT NEED

 Job creation/retention  Area Benefit  Limited Clientele  Area  Spot

  • Any national objective is possible, depending
  • n purpose of Section 108-assisted

development

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SLIDE 24

PUBLIC BENEFIT STANDARDS

  • Mandatory for:
  • Special economic development projects --

§570.203

  • Community economic development

projects (by CBDO) -- §570.204, and

  • Public improvement or facility projects

classified under Low/Mod Job Creation/Retention where more than $10,000/job in CDBG assistance

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OTHER REQUIREMENTS

Section 108 activities must comply with all CDBG rules

  • 70% LMI Targeting
  • Other Federal Requirements
  • Environmental review
  • Davis Bacon
  • Uniform Relocation Act
  • Office of Management and Budget circulars

(as applicable—A-122, A-87, A-21)

  • Fair housing/equal opportunity
  • Lead Based Paint
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SLIDE 26

SECTION 108 LOAN GUARANTEE PROGRAM FINANCING

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SLIDE 27

SECTION 108 FINANCING SPECIFICS

  • Amount  up to five times annual CDBG

award

  • Entitlement
  • State
  • Maximum Term  20 years
  • Taxable
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SLIDE 28

SECTION 108 LOAN-GUARANTEE FINANCING

HUD Guarantee Guarantee Investor (Permanent Lender) Investor (Interim Lender) Locality/State Loan Proceeds Loan Proceeds Pledge of CDBG Funds

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TYPES OF FINANCING

  • Interim – variable interest rate
  • Permanent – fixed interest rate
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INTERIM LOANS

  • Interim loan available until public offering
  • Fiscal Agent arranges sale of HUD-guaranteed note and

services loan

  • Interest rate: Variable 90 day London Inter Bank

Offered Rate (LIBOR) + 20 basis points, paid quarterly

  • HUD guarantees repayment of borrower’s loan to

investors

  • Interim Lender currently a Money Market Fund

(Federated Investors)

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SLIDE 31

PERMANENT LOANS

  • Permanent – fixed interest rate
  • Public offering provides long-term, fixed-interest

rate financing

  • “Public offering” conducted annually by Section 108

underwriting team

  • Interest rates—fixed; benchmarked on U.S. Treasury

yields

  • Fees—includes underwriting, legal and printing

costs

  • Loans serviced by trustee
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SLIDE 32

COMPARISON OF INTEREST RATES (March 2011)

  • Prime Rate (variable) –3.25%
  • Section 108: fixed (due 8/1/2031)** – 3.85%
  • Section 108: variable – 0.51% (LIBOR OF 0.31%

plus 20 basis points)

**If public offering were held in March

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SLIDE 33

SECTION 108 UNDERWRITING

  • Debt coverage ratio, as applicable
  • Credit Reform Act
  • HUD estimates “subsidy rate” for Section 108
  • HUD establishes loss reserve
  • CDBG grants and additional loan security
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SLIDE 34

FORMS OF ADDITIONAL SECURITY

Examples include:

  • Assets created from use of Section 108

guaranteed loan (project-based security)

  • Real Property
  • Portfolio income
  • Equipment
  • Parking revenue
  • Special tax revenue
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PROJECT BASED SECURITY

Examples include:

  • Lien on real property (in name of HUD

Secretary) based on appraised value

  • Tax increment revenues
  • Assignment of interest on third-party (e.g.,

business) loans

  • “Additional Security” (negotiated on a case-by-

case basis)

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SLIDE 36

SOURCES OF REPAYMENT OF SECTION 108 LOANS

Examples include:

  • Payments from third-party borrowers
  • Tax Increment Financing (TIF) revenues
  • Program Income
  • CDBG program grant funds
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SLIDE 37

KEY STEPS

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SLIDE 38

Screen potential project Apply to HUD for loan guarantee Receive approval from HUD and close loan Disburse and service loan

KEY SECTION 108 STEPS

Underwrite project

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STEP 1: SCREEN THE PROJECT

  • Grantees screen projects prior to HUD application

to determine:

  • 1. Eligibility of use
  • Activity Eligibility
  • National Objectives Compliance
  • Public Benefits Standards (as applicable)
  • Other federal requirements
  • 2. How the Section 108 loan will

be repaid

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STEP 2: GUIDELINES FOR UNDERWRITING ECON DEV PROJECTS

See guidelines at 24 CFR 570.209(a):

  • Project costs are reasonable
  • Sources of funding are committed
  • CDBG/Section 108 not to be substituted for

non-federal funds

  • Project financially feasible
  • Return on owner’s equity not unreasonably

high

  • Pro-rata disbursement
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STEP 3: APPLY TO HUD

  • 1. Presubmission requirements
  • 2. Submission requirements
  • 3. HUD Review
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BEFORE SUBMITTING

1. Presubmission and citizen participation requirements

  • Proposed application includes:
  • Community development objectives to be met by use of loan

guarantee financing

  • Description of activities and national objectives to be met, and costs
  • Citizen Participation
  • Publish community-wide proposed Section 108 loan guarantee

application for citizen review and comments

  • After consideration of citizen comments, make final copy of

proposed Section 108 loan guarantee application available to citizens

  • Consolidated Plan
  • Follow community’s Consolidated Plan for substantial

amendments and citizen participation requirements

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APPLICATION SUBMISSION

  • 2. Submission Requirements
  • Project and activity description, including costs
  • Eligibility category, including public benefit

standards (as applicable)

  • National objective
  • Repayment schedule
  • Certifications
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HUD REVIEW

  • 3. Review
  • HUD Field Office
  • HUD Headquarters
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STEP 4: RECEIVE APPROVAL AND CLOSE

  • HUD approves & issues commitment
  • Close Section 108 loan
  • HUD prepares loan documents
  • Delivery of documents to investor (thru Fiscal

Agent or Trustee)

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STEP 5: DISBURSE AND SERVICE THE LOAN

  • Trustee/Fiscal agent wires funds to account
  • Custodial Accounts
  • Guaranteed Loan Funds Account

 Borrower disburses funds for activity costs  Borrower disburses to 3rd party for carrying out approved activities

  • Loan Repayment Account
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SLIDE 47
  • Important Development Tool
  • Wide range of eligible uses
  • Addresses CDBG national objectives
  • Non-competitive and rolling process
  • Leverages scarce resources
  • $5 for every $1 of CDBG
  • if underwritten properly, will not be a drain to

CDBG program

  • Important source of funding for larger projects
  • Flexible repayment schedule
  • Long-term, reasonably priced financing

SECTION 108 SUMMARY

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CONCLUSION AND LIST OF RESOURCES

  • E-mail box for questions

CDBGEDquestions@hud.gov

  • CDBG Statute and the Code of Federal Regulations

http://www.hud.gov/offices/cpd/lawsregs/index.cfm

  • Federal Register Notices on Job Relocation and Eminent Domain

http://www.hud.gov/offices/cpd/economicdevelopment/toolkit/Job_Pirating_Fina l_Rule.pdf http://edocket.access.gpo.gov/2006/pdf/06-6258.pdf

  • Economic Development Toolkit

http://www.hud.gov/offices/cpd/economicdevelopment/toolkit/index.cfm

  • Join Us for the Next Webinar: “Open Forum/Question and Answer Discussion
  • n CDBG and Section 108 Economic Development (for states

and entitlements)” – Wednesday, March 30, 2011

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SLIDE 49

Your Feedback is Important to Us!

  • Join Us for the next webinar on Wednesday,

March 30, 2011: “Open Forum/Question and Answer Discussion on CDBG and Section 108 Economic Development (for states and entitlements)” Please take a minute to answer a quick 15-Question survey on this HUD Presentation.

  • Link: http://www.surveymonkey.com/s/CDBG2