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

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

3. 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/ However, many PHAs have unused Faircloth units that they can “bring back” to access their corresponding subsidy from HUD.

4. 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.

5. 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)

6. 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)

7. 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)

8. 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)

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

10. 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: Bottom:
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.

11. 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.

12. 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.

13. 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.

14. 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: Bottom:

15. 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

16. 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.

17. 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.