May 15, 2018 Kerry Smyser, DCHA Jeff Lines, TAG Associates Local Blended Subsidy May 15, 2018 Kerry Smyser, DCHA Jeff Lines, TAG Associates

AGENDA Definitions Local Blended Subsidy Link between subsidy and leverage capacity Practicalities Example: The Bixby Example: Highland Dwellings

DEFINITIONS Moving to Work (MTW): MTW is a demonstration program for public housing authorities (PHAs) that provides them the opportunity to: Test innovative, locally-designed strategies that use Federal dollars more efficiently; Help residents find employment and become self-sufficient; and Increase housing choices for low-income families. Local Blended Subsidy (LBS): One such tool allowed under MTW. Blend of Public Housing (Annual Contributions Contracts, ACC) and Section 8 funds (Vouchers). Increases capacity to leverage private capital for affordable housing development and redevelopment. Faircloth: Section 9(g)(3) of the Housing Act of 1937 ("Faircloth Amendment") caps the construction of new public housing units to the PHA’s number of units as of 10/1999. However, many PHAs have unused Faircloth units that they can “bring back” to access their corresponding subsidy from HUD.

LOCAL BLENDED SUBSIDY Rent structure can be formulated consistent with MTW at/below FMRs, LIHTC or other limits such as meeting a certain DSCR. Accepted by major sophisticated lenders/investors. LBS can later be converted to RAD. Allows potential access to Faircloth units and corresponding subsidy/Capital Fund Program funds. Units must be ACC (public housing). Commitment must be consistent with MTW agreement term.

TYPE OF SUBSIDY AND DEBT CAPACITY Public Housing (ACC) Cash Flow for Loan None or minimal. No debt capacity. ACC Public Housing Subsidy Cost of operating unit Tenant rent (30% of their income)

TYPE OF SUBSIDY AND DEBT CAPACITY Public Housing (ACC) Section 8 Project-Based Vouchers (PBVs) Fair Market Rent (FMR) NOI Cash Flow for Loan 1.2 DSCR ACC Public Housing Subsidy Section 8 Subsidy to 100% FMR Cost of operating unit Tenant rent (30% of their income) Cost of operating unit Tenant rent (30% of their income)

TYPE OF SUBSIDY AND DEBT CAPACITY Public Housing (ACC) Section 8 Project-Based Vouchers (PBVs) Local Blended Subsidy Cash Flow for Loan ACC Public Housing Subsidy Section 8 Subsidy to 100% FMR ACC Cost of operating unit Tenant rent (30% of their income) Cost of operating unit Tenant rent (30% of their income) Cost of operating unit Tenant rent (30% of their income)

LBS BENEFITS AND DRABACKS Same debt capacity as PBVs Less MTW subsidy required.  Greater leverage Cash Flow for Loan CAVEATS LBS is only valid while the MTW Agreement is in effect; this may yield uneasy investors. LBS restricted to public housing uses. Excess funds considered “positive residual receipts” which are restricted under PH rules (i.e. Not considered distributable cash flow) and cannot be used to benefit 3rd parties Response: Conversion to RAD will un-restrict the cash flow. ACC Cost of operating unit Tenant rent (30% of their income)

PROCESS WITH FAIRCLOTH AND RAD Apply for Section 18 D&D Utilize new TPVs Retrieve Faircloth ACC Supplement ACC with LBS Convert To RAD

THE BIXBY Completed: November 2016 Developer: DCHA affiliate and Capper/Carrollsburg Venture, LLC (CCV), a joint venture of Forest City and Urban Atlantic. Units: 39 New Public Housing Units at 110% FMR, 156 Luxury Market Rental units Structure: Condominium: one entity (LLC) owns the Market-rate component and another entity (LP) owns the affordable component through a long-term lease arrangement. Distributable Cash Flow for both market and affordable units is shared 50/50 between DCHA affiliate and co-developer. BEFORE AFTER Photos: top: http://www.jdland.com/dc/index.cfm/3879/Financing-Lined-Up-for-Mixed-Income-Rental-Building-at-7th-a/. Bottom: http://www.jdland.com/dc/bixby.cfm Utilizing its authority as a Moving To Work (MTW) agency, DCHA will provide MTW funds to subsidize the operation of the ACC units in an amount up to 110% of Fair Market Rents. A portion of the net cash flow from the market-rate rentals will be used to reimburse MTW funds provided by DCHA over and above the amount of public housing operating assistance the ACC units would have otherwise received had the project not been structured using MTW Block Grant funds. DCHA does not intend to provide any operating assistance other than what is necessary to meet operating costs, replacement reserves and debt service coverage for the permanent loan at 1.20 or 110% of FMR, whichever is less. No other public housing funds are expected to be provided.

THE BIXBY DEVELOPMENT SOURCES – ALL UNITS   All units ACC units Market units UNITS 195 39 156 4% Tax Credit Equity $4,047,600 $0 First Mortgage - Citibank $42,000,000 $5,375,000 $36,625,000 Land Note $8,635,000 First Mortgage Proceeds Lent to ACC Units $2,341,902 ($2,341,902) Deferred Developer Fee $0  Developer Constribution $392,968  Total $55,075,568 $11,764,502 $43,311,066 A portion of the Market units’ permanent loan was used to cross-subsidize the affordable units.

THE BIXBY RENTS– AFFORDABLE UNITS (adjusted to 2018) OPERATING BUDGET: AFFORDABLE UNITS (2018)   No. of Units Monthly Tenant Rent Monthly ACC subsidy Monthly MTW Subsidy Monthly 110% FMR Efficency 2 $212 $85 $1,104 $1,400 1 BD 20 $454 $227 $795 $1,475 2 BD 3 $544 $272 $933 $1,749 3 BD 10 $628 $320 $1,393 $2,341 4 BD UFAS 4 $702 $361 $1,878 $2,940 Total annual 39 units $242,670 $121,960 $508,087 $872,717 LBS Gross Tenant Rent $242,670 ACC Subsidy $121,960 MTW Subsidy $508,087 Gross potential Income $872,717 Utility Reimbursements (60,810) Vacancy Loss (34,497) Concessions (13,799) Effective Rental Income $763,611 Operating expenses ($211,971) Reserves ($12,785) NOI $538,855 Debt service ($391,453) DSCR 1.38 Cash flow after debt $147,402 Debt Sizing  rate 7% amort 35 Payment $391,453 Loan $5,375,000 Leverage factor 10.6 Affordable rents at 110% of FMR DCHA’s 50% share of cash flow from the market units more than covers its LBS contribution to the affordable component.

THE BIXBY RENTS– AFFORDABLE UNITS (adjusted to 2018) OPERATING BUDGET: AFFORDABLE UNITS (2018)   No. of Units Monthly Tenant Rent Monthly ACC subsidy Monthly MTW Subsidy Monthly 110% FMR Efficency 2 $212 $85 $1,104 $1,400 1 BD 20 $454 $227 $795 $1,475 2 BD 3 $544 $272 $933 $1,749 3 BD 10 $628 $320 $1,393 $2,341 4 BD UFAS 4 $702 $361 $1,878 $2,940 Total annual 39 units $242,670 $121,960 $508,087 $872,717 LBS Gross Tenant Rent $242,670 ACC Subsidy $121,960 MTW Subsidy $508,087 Gross potential Income $872,717 Utility Reimbursements (60,810) Vacancy Loss (34,497) Concessions (13,799) Effective Rental Income $763,611 Operating expenses ($211,971) Reserves ($12,785) NOI $538,855 Debt service ($391,453) DSCR 1.38 Cash flow after debt $147,402 Debt Sizing  rate 7% amort 35 Payment $391,453 Loan $5,375,000 Leverage factor 10.6 PBV ACC only $242,670 $0 $121,960 $630,047 $872,717 $364,630 (60,810) (40,595) (9,093) (16,238) (3,637) $755,074 $291,090 ($211,971) ($12,785) $530,318 $66,334 ($385,251) ($48,188) 1.38 $145,067 $18,145 7% 35 $385,251 $48,188 $5,290,000 $662,000 8.4 n/a Affordable rents at 110% of FMR DCHA’s 50% share of cash flow from the market units more than covers its LBS contribution to the affordable component.

HIGHLAND DWELLINGS Completed: October 2017 BEFORE Developer: Self-developed by DCHA Units: 208 affordable at 60% AMI LIHTC rents Structure: Tax credits, permanent mortgage BEFORE AFTER Photos: top: http://www.jdland.com/dc/index.cfm/3879/Financing-Lined-Up-for-Mixed-Income-Rental-Building-at-7th-a/. Bottom: https://tortigallas.com/news-events/highland-dwellings-celebrates-ribbon-cutting

HIGHLAND DWELLINGS DEVELOPMENT SOURCES All units UNITS 208   All units UNITS 208 4% Tax Credit Equity $28,552,438 First Mortgage $21,600,000 Land Note $4,739,000 Deferred Fee $1,631,273 Program and other income $10,765,713 DCHA Gap loan $5,600,000  Total $72,888,424

HIGHLAND DWELLINGS RENTS (adjusted to 2018) OPERATING BUDGET (2018)   No. of Units Monthly Tenant Rent Monthly ACC subsidy Monthly MTW Subsidy Monthly LIHTC rent 1 BD 51 $228 $417 $631 $1,277 2 BD 79 $276 $505 $751 $1,532 3 BD $318 $583 $870 $1,771 4 BD 6 $350 $640 $987 $1,977 5 and 6 BD 21 $415 $758 $1,119 $2,292 Total annual 208 $725,803 $1,327,737 $1,984,327 $4,037,867 LBS Gross Tenant Rent $725,803 ACC Subsidy $1,327,737 MTW Subsidy $1,984,327 Gross potential Income $4,037,867 Vacancy Loss ($135,506) Effective Rental Income $3,902,361 Operating expenses ($1,837,706) Reserves ($68,186) NOI $1,996,469 Debt service ($1,275,276) DSCR 1.57 Cash flow after debt $721,193 Debt Sizing  rate 4.80% amort 35 Payment $1,275,276 Loan $21,600,000 Leverage factor 10.9 Affordable rents at 60% AMI LIHTC rent levels.

HIGHLAND DWELLINGS RENTS (adjusted to 2018) OPERATING BUDGET (2018)   No. of Units Monthly Tenant Rent Monthly ACC subsidy Monthly MTW Subsidy Monthly LIHTC rent 1 BD 51 $228 $417 $631 $1,277 2 BD 79 $276 $505 $751 $1,532 3 BD $318 $583 $870 $1,771 4 BD 6 $350 $640 $987 $1,977 5 and 6 BD 21 $415 $758 $1,119 $2,292 Total annual 208 $725,803 $1,327,737 $1,984,327 $4,037,867 LBS Gross Tenant Rent $725,803 ACC Subsidy $1,327,737 MTW Subsidy $1,984,327 Gross potential Income $4,037,867 Vacancy Loss ($135,506) Effective Rental Income $3,902,361 Operating expenses ($1,837,706) Reserves ($68,186) NOI $1,996,469 Debt service ($1,275,276) DSCR 1.57 Cash flow after debt $721,193 Debt Sizing  rate 4.80% amort 35 Payment $1,275,276 Loan $21,600,000 Leverage factor 10.9 PBV ACC only $725,803 $0 $1,327,737 $3,312,064 $4,037,867 $2,053,539 ($201,893) ($36,290) $3,835,973 $2,017,249 ($1,837,706) ($68,186) $1,930,081 $111,357 ($1,232,870) ($71,131) 1.57 $697,211 $40,226 4.80% 5% 35 $1,232,870 $71,131 $20,900,000 $1,200,000 6.3 n/a Affordable rents at 60% AMI LIHTC rent levels.