Private Activity Bond (PAB) Financing August 11, 2020 1
Your presenters Shannon Friel Private Activity Bond Manager, John H.T. Bales, Esq. CHFA Finance Attorney, Kutak Rock Department Frederic H. Wayne McClary Marienthal, Esq. Housing Partner, Kutak Rock Development Specialist, DOLA/Division of Housing 2
Private Activity Bonds (PAB) Allocation Process PAB Financing Webinar August 11, 2020
What are PABs? • NOT CASH • Tax-exempt bonds issued for privately developed projects. • IRS allows a limited amount, also know as PAB “Cap”. • Municipalities (or Authorities) issue the bonds, but have no obligation to repay investors. • Investors buy the bonds. • Underwriters use the investors’ $$, or “bond proceeds,” to make a loan to the project. • The project pays back the loan & investors get repaid + interest. • PABs make rental housing eligible for 4% LIHTC.
Initial PAB Allocation Process $105 per person in the state = the “Volume Capacity” $598,034,220 in 2019, $604,667,280 50% of Allocation 50% of Allocation Local Governments • 20,000 Persons or more Statewide Authorities • $52.50 per capita • Colorado Housing and Finance Authority (CHFA) • CO Agriculture Development Statewide Balance Authority (CADA) Remaining cap administered by CO – DOLA/DOH
January 2020 PAB Allocation CADA 2% 56 Local Issuers - $286,404,693 CHFA - $292,333,640 CADA - $10,000,000 Locals CHFA SWB - $15,928,947 47% 48% • List of all direct allocations available: https://www.colorado.gov/pacific/dola/ private-activity-bonds SWB 3%
Local Issuers & Statewide Authorities • Receive allocation by January 15 th • Establish priorities & act by September 15 th ➢ Bond issuance requires an inducement resolution and closing by December 23rd; OR ➢ Carry-Forward bond cap for eligible purpose to close within a 3 year period – requires filing with IRS; OR ➢ Relinquish to Statewide Balance; OR ➢ Assign to another issuer for an eligible purpose ➢ If you Receive an Assignment – issue it or carry it forward, or it will also relinquish on 9/15.
September 2019 PAB Allocation Locals Denver - $37,565,325 14% Colorado Springs - $24,866,520 16 Other Locals - $77,644,496 SWB CHFA CHFA - $408,945,191 14% CADA - $1,064,805.50 71% SWB - $40,947,882.50
Developers - How to Assemble PABs • Identify your issuer • Talk with your local governments – City, County & neighbors ➢ Assignments of “fresh” or current year cap – act by 9/15 ➢ Delegations of cap they have carried forward • Talk with CHFA (especially if they will be the issuer) • Talk with DOH & Apply to the Statewide Balance (with issuer) ❖ Also, save some cap for the rest of us – only use 55% or less of Aggregate Basis (CHFA is using 52-55%)
Locals - How to Deal w/ Developers • Connect with local housing or economic development organizations – could they use it? • Reach out to neighboring cities, towns and counties – are there any projects in your region that could use it? • If there is a project in your area, assign to its issuer • If not, relinquish to DOLA’s Statewide Balance • OR assign to CHFA ❖ Again, only use 55% or less of Aggregate Basis
Statewide Balance Applications • DOLA receives allocation by January 15 th & relinquished bond cap on Sept. 15 th • Three application rounds. Applications are due: ➢ March 1, 2020, June 1, 2020, and November 1, 2020. ➢ $750 application fee. ➢ March and June Rounds - Only issuers that did not receive a direct allocation or issuers that have exhausted their direct allocations may apply. ➢ Review criteria are similar to DOH’s Grant/Loan reviews. ➢ 8 week process, incl. PAB Allocation Committee & award letter ➢ Relinquished bond cap distributed through November round.
Statewide Balance Applications • All close by December 23 rd (OR re-award for carry forward) ➢ 0.128% issuance fee on Statewide Balance Awards ➢ 0.009% issuance fee on bonds issued from direct allocations • Demonstrated local need & support: ➢ Certified copy of an inducement resolution from the local government/issuer. ➢ Local financial commitment of PAB allocation or other local financial subsidies. ➢ Market study demonstrating need. ➢ Housing Affordability – going beyond IRS requirements.
Statewide Balance Applications • Feasibility: ➢ Reasonable costs for development & operation. ➢ Readiness to proceed – site under control, local planning & zoning approved, credit enhancement secured, tax credits reserved. ➢ Financially sound – income/expense estimates reasonable, good underwriting ratios, sources & uses balance. ➢ Development team experience, capacity. • Typical bond issue size is $6 – $30 million ➢ For rental, TDC of $12MM - $60MM, or 50 - 200 units
2019-20 Statewide Balance Awards Date Allocation Project or Program 7,600,000 Madison & Woodlands /Boulder Housing 07/19 Partners 12/19 6,201,000 Meadows Townhomes /Housing Catalyst 12/19 19,498,000 Unison Housing Partners Pipeline 12/19 7,117,002 City of Denver Housing Pipeline 2019 40,416,002 Total 5,700,000 Madison & Woodlands /Boulder Housing 07/20 Partners 07/20 299,000 Meadows Townhomes /Housing Catalyst 07/20 2,610,000 Swallow Road Rehabilitation /Housing Catalyst 4,256,088 San Juan Apartments /Montrose Housing 07/20 Authority 2020 12,865,088 Total
Andrew Paredes Director of Housing Finance and Sustainability 303-864-7822 andrew.paredes@state.co.us Wayne McClary Housing Development Specialist 303-864-7819 wayne.mcclary@state.co.us Department of Local Affairs Division of Housing https://www.colorado.gov/pacific/dola/division-housing
multifamily housing revenue bonds Shannon Friel PAB Manager, CHFA August 11, 2020
Mission: We strengthen Colorado by investing in affordable housing and community development.
CHFA uses private activity bond volume cap to support our three pronged mission. ◼ Single Family ◼ Multifamily ◼ Business Finance / Economic Development
multifamily housing bonds ◼ Private activity bonds used to finance affordable privately owned 4% LIHTC multifamily rental housing ◼ Project Types: ◼ New construction ◼ Acquisition ◼ Acquisition/Rehabilitation
two types of federal LIHTC ◼ 70% present value credit (9% LIHTC) ◼ Competitive award process ◼ Population-based allocation ◼ Deep subsidy ◼ 30% present value credit ( 4% LIHTC ) ◼ Non-competitive award process ◼ Year-round allocation process ◼ Shallower subsidy ◼ 50% test with PAB
colorado state AHTC ◼ State AHTC available for 5 years ◼ $10 million in annual state AHTC available per year ◼ CHFA is using state AHTC to help fill financing gaps in 4% transactions that have tax exempt financing ◼ Both new construction and rehab transactions are eligible for state AHTC ◼ Competitive Round II (State AHTC + 4% LIHTC) with award announcement in November 2020 ◼ After awards are announced, CHFA will contact local issuers to partner and support awardees with cap
bond transactions and structures Transaction Types ◼ Construction Only ◼ Construction/Perm ◼ Permanent Only Bond Structures ◼ Conduit Financing ◼ Publicly Offered ◼ Privately Placed ◼ Issuer serving as lender
chfa response to pab demand ◼ Limit PAB to 52% - 55% of the aggregate basis ◼ Continue recycling SF and MF PAB ◼ Reserved $125 million to assist in supporting awardees in the State AHTC + 4% LIHTC (Round II) ◼ After awards are announced, CHFA will contact local issuers to partner and support awardees with cap. ◼ Support and lobby for changes to PAB requirements for 4% LIHTC projects (reducing 50% test to 25%) ◼ Support fixing the 4% LIHTC at 4% ◼ In January 2021, CHFA will announce PAB priorities for the year.
2020 pab direct allocations $604M pab CDOH $16M PAB LOCAL GOVERNMENTS $286M PAB CHFA $292M PAB CADA $10M PAB
chfa pab issuance summary $262,828,700 $267,745,056 $178,258,068 $3,059,000 $267,027,250 $380,281,294 $152,422,171 NA $284,375,585 $244,678,115 $123,370,514 NA $292,333,640 $272,239,094 $201,750,428 NA
chfa pab usage $600 $500 $400 $301 $388 $268 $300 $245 $200 $95 $23 $100 $202 $157 $180 $178 $159 $152 $123 $21 $ 2014 2015 2016 2017 2018 2019 2020 SF Issued MF Issued
keep in mind if you are a municipality ◼ In the event you want to assign volume cap to CHFA to support a specific project or to promote first time ownership investment in your community, the deadline to assign to CHFA is September 13 th . ◼ If you’d like a summary report of PAB investment in your community , please contact CHFA. ◼ If you’d like to have a presentation on PAB 101 and investment in your community, please contact CHFA.
units supported with tax credits
for more info: Shannon Friel sfriel@chfainfo.com 303.297.7387
Private Activity Bonds for Local Officials Issuing Private Activity Bonds Fred Marienthal John Bales Kutak Rock LLP August 2020
Tax-Exempt Bond Market Annual Bond Sales (USD Millions) 500 450 400 350 300 250 200 150 100 50 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 ____________________ *2020 = January-July, 2020 Source: The Bond Buyer 32
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