2008 Real Estate Update Public Housing Authority Capital Grants and Other Funding Michael Hawes Reardon Nixon Peabody LLP December 12, 2008 San Juan, Puerto Rico

Evolution of Public Housing Funding Original public housing funding –HUD funding for development costs of housing –Loans or Grants to PHAs –Originally operating costs were covered by tenant rental payments –Changes in laws resulting in troubles public housing projects Brooke Amendment (1969) limited amount of rent Federal Preferences for Admission – housing of last resort\ –Applicants paying more than 50% of income toward rent\ –Applicants living in substandard housing –Applicants who have been involuntarily displaced

National Commission on Severely Distressed Public Housing – 1989 report Report lore - 100,000 public housing units in need of demolition Modernization funding – billions below what is needed Congress enacted Urban Revitalization Demonstration Program in HUD FY 1993 Appropriations Act - $300 million for revitalization of obsolete public housing projects Led to HOPE VI Mixed Finance Program

From HOPE VI to Mixed Finance Various proposals over the years to use public housing funds to leverage private investment in public housing – especially LIHTCs With HOPE VI appropriations – large awards that were perfect for use in leveraged proposals Major Obstacle – requirement the public housing be owned by PHAs –Diaz Opinion – allowed for ownership by for profit limited partnership –Other HUD guidance with respect to maintaining public housing characteristics in mixed finance projects –Atlanta and St. Louis First mixed finance proposals – 1995 and 1996 Modify standardized pubic housing documents and develop new mixed finance documents Mixed Finance Development Rule – May, 1996

HOPE VI as a Source of Financing Since funding of the HOPE VI Program started in 1993, HUD has awarded over $6 billion in HOPE VI grants for various purposes, including –$5.8 billion in Revitalization Grants ( ) –$392 million in Demolition Grants( ) In FYs 2007 and 2008, Congress has appropriated approximately $100 million in HOPE VI funding for each year –FY 2007 – four grants for $20 million to Boston (Washington Beech project) Fayetteville, NC (Delona Gardens and Campbell Terrace) New Orleans (CJ Peete) Washington DC (Sheridan Terrace) One grant for $8.8 million to City of Phoenix (A.L. Krohn)

HOPE VI as a Source of Financing (cont’d) In FYs 2007 and 2008, Congress has appropriated approximately $100 million in HOPE VI funding for each year (cont’d) –FY 2008 – four grants for $20 million to Bremerton, WA (Westpark) Chicago (Stateway Gardens) King County, WA (Park Lake II) Texarkana, TX (Covington Homes, Stevens Court, Griff King Homes Milwaukee - $6.7 million (scattered site program) Seattle - $10.4 (Lake City Village and House) –FY 2009 – approximately same amount to be available

Use of Public Housing Capital Funds Public Housing Capital Fund –Capital Fund – annual formula amount that PHAs receive from HUD for capital improvements –FY $2.440 billion available to PHAs –Source for use in mixed finance projects – Vaughn project –Must cover both modernization and development needs – and given modernization backlog in most PHAs, resource for development is limited –Can also to rehabilitation using mixed finance methodology - PRHA

Capital Fund Financing Program Allows PHAs to borrow private capital though pledge of future Capital Funds Leverages private sector funds for current development or modernization of public housing projects Can be done through bond issuance or conventional loan transaction through bank

Capital Fund Financing Program (cont’d) General Guidelines for use –Need HUD approval – generally day process –Generally, PHA may not pledge more than 33% of its current annual Capital Fund grant - subject to availability of appropriations –Term of the pledge is generally limited to 20 years –Must use CFFP funds in accordance with public housing requirements, e.g., Davis-Bacon wage rates, part 85 procurement, Section 504 and accessibility requirements –May be used in mixed finance transactions

Capital Fund Financing Program (cont’d) Approvals –First was DCHA – conventional loan of $33 million – November, 2000 –Almost 200 PHAs have participated to date – some in State pools –Over 200 proposals have been approved –Largest was Puerto Rico – December $693 million –June, 2008 $379 million with private activity bonds

Other Housing Authority Funding Sources Operating Fund Financing Program –July 18, 2007 proposed rule –Would allow PHA to borrow private capital and pledge future operating subsidy or other public housing assets as security (Section 30) –Various HUD Conditions on approval Term of PH use restrictions vary depending on use of funds PHA must be standard of high performer Demonstration of need for the financing and effect of such financing across the PHA’s entire inventory and the unavailability of Capital Funds to undertake the work Requires high debt service coverage ratio and must include debt service coverage reserve for at least 12 months of debt service Independent 3rd party financial feasibility analysis and fairness opinion Limited to a 10-year term

Other Housing Authority Funding Sources (cont’d) Public Housing Mortgage Program –Section 516 of QHWRA added Section 30 to US Housing Act of 1937 and authorizes PHAs to pledge or mortgage public housing projects –There is a separate approval process for the Mortgage Program apart from CFFP and OFFP –Includes mortgages whose proceeds are used for public housing development or more likely rehabilitation needs of project, but could be used for development of Section 8 Project-Based Voucher units –Proceeds are considered non-public housing funds – but HUD approval may restrict uses of the proceeds