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2008 Real Estate Update Public Housing Authority Capital Grants and Other Funding

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

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2008 Real Estate Update Public Housing Authority Capital Grants and Other Funding

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  1. 2008 Real Estate Update Public Housing Authority Capital Grants and Other Funding Michael Hawes ReardonNixon Peabody LLP December 12, 2008San Juan, Puerto Rico

  2. 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

  3. 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

  4. 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

  5. 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 (1993-2006) • $392 million in Demolition Grants (1996-2003) • 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)

  6. 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

  7. Use of Public Housing Capital Funds • Public Housing Capital Fund • Capital Fund – annual formula amount that PHAs receive from HUD for capital improvements • FY 2009 - $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

  8. 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

  9. Capital Fund Financing Program (cont’d) • General Guidelines for use • Need HUD approval – generally 60-90 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

  10. 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 2003 - $693 million • June, 2008 refunded @ $379 million with private activity bonds

  11. 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

  12. 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

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