MPA Morrison Park Advisors Creating a Housing Sector Bank Housing - - PowerPoint PPT Presentation

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MPA Morrison Park Advisors Creating a Housing Sector Bank Housing - - PowerPoint PPT Presentation

Nov 23, 2023 387 likes •653 views

MPA Morrison Park Advisors Creating a Housing Sector Bank Housing Partnership Housing Canada Regeneration Forum May 2016 Index Morrison Park Advisors background and qualifications Social/Affordable housing finance 6 basic

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Morrison Park Advisors

MPA

Creating a Housing Sector Bank Housing Regeneration Forum

May 2016

Housing Partnership Canada

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Trust, Expertise, Value 2

  • Morrison Park Advisors – background and qualifications
  • Social/Affordable housing finance – 6 basic premises
  • How the current alternatives work
  • Criteria for an effective housing finance solution
  • Financing options evaluation matrix
  • Case studies:

– TCHC Regent Park regeneration financing – THFC (UK) – First Nations Financing Authority – BC Housing

  • Progress to date
  • What comes next

Index

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Trust, Expertise, Value 3

  • Morrison Park Advisors is a Toronto based financial advisory firm

– Formed in 2004, 100% employee owned – M&A, Corporate financing advisory assignments – “Big Bank” expertise for non-”Big Bank” clients and situations – Over $50 Billion of financing transaction experience

  • Housing experience

– Advisor on TCHC Regent Park regeneration financing – Variety of follow on TCHC assignments › Lawrence heights, energy business, strategic planning – Trillium Housing: affordable housing initiative – NOSDA financing alternatives – City of Toronto Tower Renewal project – Extensive for-profit multi-family financing and M&A experience

Who is MPA?

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Trust, Expertise, Value 4

  • Premise #1: There is a critical, ongoing funding need that is not going away

– Aging stock – Growing demand – Withdrawal of Federal participation – “Pecking Order” of funding needs – Lack of an economic regulator to “de-politicize” funding

  • Premise #2: The sector is highly fragmented, and the nature of the need is complex

and multi-faceted

– Geographic – Physical – Jurisdictional – Size

Social/Affordable housing finance – 6 basic premises

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Trust, Expertise, Value 5

  • Premise #3: Housing is different

– Housing people are housing people – Landlords or caregivers? – Commercial vs social mandate

  • Premise #4: There is a very large knowledge gap

– Financing transactions have not been a core activity – Skills sets are different – Outside personal “comfort zones”

Social/Affordable housing finance – 6 basic premises

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Trust, Expertise, Value 6

  • Premise #5: The sector is essentially creditworthy

– This has been our experience – Key elements: › Sufficient cash flow to service debt › Project “equity” sufficient to allow for a reasonable debt level – Grants, land value, reserves, redevelopment profit, etc. › Professional management › A reasonable business case › An engaged, supportive stakeholder group › Ongoing compliance with standards

Social/Affordable housing finance – 6 basic premises

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Trust, Expertise, Value 7

  • Premise #6: Any large scale solution will have to carry a very low cost of funds

– Senior levels of Government will demand this › Issue is efficient “Use” of implied credit support – Implications: › Access to wholesale funding › Scale › Independent assessment of creditworthiness (ie a rating) › Portfolio diversification › Management capacity

Social/Affordable housing finance – 6 basic premises

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Trust, Expertise, Value 8

Bridging the Gap

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Trust, Expertise, Value 9

How Banks Work

RSP’s Pensions Retail Mutual Funds Bank value added:

Deposits, GIC’s, BA’s, term debt, pref shares

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Trust, Expertise, Value 10

How Banks Work

RSP’s Pensions Retail Mutual Funds Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Deposits, GIC’s, BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 11

How Banks Work

RSP’s Pensions Retail Mutual Funds Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Deposits, GIC’s, BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 12

How Banks Work

RSP’s Pensions Retail Mutual Funds Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Consumer loans Corporate Loans Credit card Balances Commercial Loans Retail Mortgages Deposits, GIC’s, BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 13

How Non-Bank Lenders Work

RSP’s Pensions Retail Mutual Funds Non-Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Consumer loans Corporate Loans Credit card Balances Commercial Loans Retail Mortgages Deposits, GIC’s, BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 14

How Non-Bank Lenders Work

RSP’s Pensions Retail Mutual Funds Non-Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Consumer loans Corporate Loans Credit card Balances Commercial Loans Retail Mortgages Deposits, GIC’s, BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 15

How Non-Bank Lenders Work

Pensions Mutual Funds Non-Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Consumer loans Corporate Loans Credit card Balances Commercial Loans Retail Mortgages BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 16

How Non-Bank Lenders Work

Pensions Mutual Funds Non-Bank value added:

Credit adjudication Credit diversification Scale Management Customer service Corporate Loans Commercial Loans BA’s, term debt, pref shares Equity Capital (5% to 10%)

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Trust, Expertise, Value 17

  • Accessing the capital markets directly involves selling securities to capital markets

investors

  • Advantage is “wholesale” pricing
  • Significant costs and risks:

– Scale: Minimum $100million initial issuance – Standalone credit rating › BBB or better › No diversification benefit – Management time and attention › 6 to 12 months – Ability to cover transaction costs: Minimum $500k › Lost in the event of a failed transaction – Significant disclosure requirements and ongoing profile

  • This is what TCHC did for Regent Park

– Followed a careful evaluation of funding options as they existed at the time

Direct Capital Markets Issuance

Capital Markets Investors Issuer

Credit Rating

Bonds

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Trust, Expertise, Value 18

  • Ongoing funding stability
  • Able to handle complexity
  • Able to deal with a fragmented sector
  • Customized to social/affordable housing
  • Able to bridge the knowledge gap
  • Takes advantage of sector creditworthiness
  • Provides a low cost of funds

Criteria for an effective housing finance solution

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Trust, Expertise, Value 19

Financing options evaluation matrix

Banks Direct Capital Markets Issuance Government Debt Programs (IO, CMHC) Non Bank Commercial Lenders Dedicated Housing Lender Ongoing funding stability No Possibly Unlikely Yes Able to handle complexity Not usually No Not usually Somewhat Likely Able to handle fragmented sector Somewhat No Somewhat Yes Yes Customized to Social Housing Unlikely No Yes Possibly Yes Able to bridge knowledge gap No No No Possibly Yes Takes advantage of sector creditworthiness Possibly Yes Yes Possibly Yes Provides low cost of funds No Yes Yes No Yes Only if it suits them

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Trust, Expertise, Value 20

  • Toronto Community Housing

– Decided to go the direct capital markets route – Highly successful – $450 million raised in 2 deals – AA(low) rating – Funding cost very close to City of Toronto – Unsecured – 30 year term – Very few covenants

  • But:

– It took almost a year – High management cost – Process not for the faint of heart

  • It has held up under pressure

– Financial crisis, Rob Ford

Case Studies- - TCHC

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Trust, Expertise, Value THFC is an independent, specialist, not-for-profit

  • rganisation that makes loans to regulated Housing

Associations, that provide affordable housing throughout the United Kingdom. THFC funds itself through the issue

  • f bonds to private investors and by borrowing from

banks. THFC, through its subsidiary, Affordable Housing Finance is the delivery partner for the Affordable Housing Guarantee Scheme. AHF makes loans to RP borrowers and funds itself through the issue of bonds and by borrowing from the European Investment Bank. AHF's

  • bligations under the terms of its financings and the
  • bligations of its RP borrowers are guaranteed by the
  • Government. The scheme has been designed to allow

RPs to access cost effective funding so as to act as a stimulus in the building of affordable housing.

Case Studies - THFC

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Trust, Expertise, Value

  • “The FNFA was created to provide First

Nations governments with the financial instruments to build their futures on their own

  • terms. Its mandate, set out in the FNFMA and

related regulations, is to provide financing, investment and advisory services for First Nations governments.”

  • “Financing services of the FNFA parallel best

practices of provincial and local governments. These practices allow each of FNFA’s Borrowing Members access to low-rate and long-term loans on their own planning schedule.”

  • FNFA is essentially the same concept as

applied to First Nations

  • Initial funding was $90 million of 10 year notes

in 2014

  • Rated A3 by Moody’s

Case Studies – First Nations Financing Authority

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Trust, Expertise, Value

  • Creation of a dedicating housing lending

institution

  • Features:

– Pan-Canadian – Utilize existing assets, know-how and resources – Bridge the gaps: › Loan products (interim, long term) › Ease of use › Customized to housing › Inter-jurisdictional – Capital markets platform supplemented by credit enhancement funding – Surpluses reinvested in housing

Debt Investors Debt Investors Debt Investors Debt Investors

Canadian Housing Bank

Capital Return on Capital and Return of Capital Investment Grade Credit Rating Government Support Debt Investors Debt Investors Debt Investors Debt Investors

Canada Housing Finance Authority

Government Support Capital Housing Providers Housing Providers Housing Providers Housing Providers Return on Capital and Return of Capital

CHFA Concept

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Trust, Expertise, Value

  • MPA was engaged by HPA and it’s lead

members to conduct a feasibility study

– Stakeholder consultation – Project information template – Detailed project information – Capital structure, resourcing requirements implementation rollout plan

  • Key findings:

– High level need assessment confirms funding need – Practical needs of providers not being met › Access, ease of use – Stakeholder support is key › Financial › Loan supply › Start up costs

Feasibility

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Housing Partnership Canada

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Trust, Expertise, Value

  • Roll out plan
  • Credit rating analysis
  • Resources and staffing
  • Confirming stakeholder

commitment

– Initial loan supply – Co-operation agreements › CMHC, BC Housing, HSC, others

  • Credit enhancement source
  • Launch, initial funding

What Comes Next

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Trust, Expertise, Value

MPA Morrison Park Advisors Inc. First Canadian Place, 100 King Street West, Suite 2540, P.O. Box 360 Toronto, ON M5X 1E1 T : 416.861.9753 F : 416.861.9614 mpa@morrisonpark.com www.morrisonpark.com

Contact Us

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