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Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan
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Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Mar 26, 2015

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Page 1: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Analysis of Potential Sale of Maplewood Manor

Albert A. Bogdan

Page 2: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Determine Status of Residuals and Replacement ReserveMaximize Funds Available for Neighborhood & Housing

Improvement ProgramModernize Maplewood Manor

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Goals

Page 3: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Residuals Available for New Projects Legal Opinion & HUD Concurrence $1 million+

Appraisal = $3.7 million Maplewood Manor (MM) Borrowing Capacity

3.6% Interest over 40 Years – Fannie Mae or FHA 0.87 Loan to Value Ratio $3.2 million Available for New Project & MM Rehabilitation Use Work Plan to Determine Mix

Total of $4.2 million Available for Rehab & New Projects + $550,000 Replacement Reserve Available for Rehab

Recommend Placing Property in Separate LLC Segregate Residuals, Liability & Profits (Residuals)

First – Do Nothing

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Page 4: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Basis for Appraised Value(Net Operating Income – Residual Value) / Cap Rate

Cash Available to InvestorCap Rate = Average Return on Investment Expected from

Real Estate InvestmentBay City Cap Rate = 9.5%Every $1 Increase in NOI = $10.35 in Value

Appraiser Has Significant Professional DiscretionNot Totally Dependent on Actual ExpenditureCap Rate is not a Precise Number

Appraisal = $3.7 millionFinal Appraiser Will Be Selected by Lender

Analyzing Value

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Page 5: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Increase Revenue BCHC Pays Rent

Decrease Expenditures Compared BCHC Expenditures Versus LIHTC Average

Administrative Cost Low (No Services to Seniors)Repair and Maintenance Cost Very HighUtilities SameLack of PILOT (Also Needed for LIHTC Application)

Obtain PILOT + Service Agreement with City = No $ Change to City Expenditures May be Reduced Substantially

If Changes Can be Made, Value is Increased Possible Increase in Value Up to $5.1 millionPossible Debt Available $4.4 million

How to Increase Value

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Page 6: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Two ProposalsAmerican Community Developers Housing Partners, Inc.

American Community Developers (ACD)Offered Appraised Value - Contingent on LIHTC Award

Award Highly Likely

For-ProfitExcellent Reputation – Primarily Michigan ProjectsMaplewood Manor will be Updated to 2014 StandardsLease space to BCHC @ $1.00/year for 10 yearsServices to Seniors Expanded

Second – Sell Maplewood Manor

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Page 7: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Housing Preservation, Inc. (HPI) Offered Appraised Value - $50,000 Down Payment National Nonprofit Relatively New Organization – No Michigan Presence

Growing by Substantial National Acquisitions Maplewood Manor May Not be Updated for Some Time

Will Have Trouble Scoring MSHDA LIHTC Points BCHC to Relocate – May Be Negotiable Services to Seniors Expanded

Funds Available for Other Projects Sales Price of $3,700,000+ +Residuals of $1,000,000 = $4,700,000+

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Second – Sell Maplewood Manor

Page 8: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Four Partnership Proposals Volunteers of America – Non-profit Presbyterian Village – Non - profit Lutheran Homes of Michigan - Non-profit Shelborne Development – For-profit

Proposals All Similar Form Development Partnership = Roles to be Defined Partner Must Have LIHTC Management Lead 50-50 w For-profit granting 50.1 to BCHC Form Limited Dividend Housing Association LLC LDHA LLC Purchase Property for Appraised Value Apply for LIHTC Award BCHC Continues Stay in Property – Pays Rent - Negotiable BCHC Participates in Development & Management Maplewood Manor will be Significantly Updated to 2014 Standards Services to Seniors Expanded

Third – LIHTC Partnership

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Page 9: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Prepared Work Plan Fusco, Schaffer, Pappas Criteria

Bring Property Up to 2014 Building Codes – Essentially Like NewMake All Apartment Visitable Improve Barrier Free ApartmentsMeet Updated Certificate of Needs AssessmentMeet New Green Standards

Work Plan Priced by Damone Group Major ContractorKey Subs Price ConceptsMinimum Hard Costs Required = $20,000/UnitLIHTC Points Granted if > $30,000/Unit

Tentatively Added 4 Apartments

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Understanding LIHTC

Page 10: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

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Alternative Design Changes

Page 11: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

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Use of Funds

Uses Amount Percent

Acquisition $3,715,000 30.03%

New Construction/Rehabilitation $6,127,354 49.53%

Soft Costs $656,654 6.94%

Reserves $170,000 1.37%

Developer Fee $1,500,000 12.13%

Total $12,371,018 100.00%

Page 12: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

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Calculation of Tax Credit EquityItem Acquisition Rehabilitation Eligible Basis $3,330,000 $8,226,068

QCT Boost 1.0 1.3

Total Qualified Basis $3,330,000 $10,693,889

Amount of Tax Credit 3.34% 9.0%

Eligible Annual Credit $111,222 $962,450

Total Annual Eligible Credit $1,073,672

Total Tax Credits $10,736,720

Equity Price x.84

Total Equity Available $9,018,845

Page 13: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

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Sources of FundsSources of Funds Amount

LIHTC Sale $9,018,845

Deferred Development Fee $750,000

FHA Guaranteed Loan $2,577,173

Total Source of Funds $12,346,013

Uses of Funds $12,346,018

Page 14: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Item / Year 1 2 3 4 5 

15

Net Revenue $1,244,408 $1,256,852 $1,271,959 $1,280,678 $1,297,525 $1,520,257

Less Expenditures 740,331 768,191 797,226 827,491 859,045 1,088,213

Less reserves 48,000 49,572 50,563 51,574 52,606 61,637

Debt Service $130,352 $130,352 $130,352 $130,352 $130,352 $130,352

Net Cash Flow $325,125 $308,737 $291,280 $272,697 $252,988 

$229,557

Deferred Dev. Fee $325,325 $308.737 $150,128       

Distribution 0 0 $141,152 $272,697 $252,988 

$229,557

Revenue Inflation =Expenditure Inflation

=

Initial1.0%3.0%

Future2%6%

Year 6Year 6

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Projected Cash Flow

Page 15: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

General Partner Experience>=6 Units, 3 Years

Management Agent Experience>=6 Units >= 3 years

Project SizeSuccessful Property

Points

Number of Projects

Total Properties

Michigan Properties

1 project 4 1-5 Projects 4 Points 1 Point

2-4 projects 8 6-11 Projects 7 Points 2 Points

5-8 projects 12 12-17 Projects 10 Points 3 Points

9-12 projects 16 18+ Projects 12 Points 4 Points

13+ projects 20 Maximum 15 Points

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Key LIHTC Partnership Points

Page 16: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

LIHTC Criteria LIHTC Points

PILOT 10

Rehab > $30,000/Unit 5

Community Space 5

All Units Visitable 5

10% Modern Barrier Free 5

Green Policy 10

Community Revitalization Plan 10

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Some Key LIHTC Points

Page 17: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

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Total Funds for New ProjectsUses

Do Nothing

SaleLIHTCPartner

Residuals $1.00M $1.00M $1.00M

Acquisition $0.00M >$3.70M >$3.70M

Borrowed Capital >$3.20M $0.00M $0.00M

Development Fee $0.00M $0.00M $.75M

Subtotal >$4.20M >$4.70M >$5.45MAnnual Operating Cash Flow $50k/yr $0k/yr $100k -$175k/yr

Extent of Modernization ModestACD = Max

HPI = ???Max

Page 18: Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan.

Transfer Property to a LLCTake Actions to Increase Net Cash Flow

Negotiate PILOT + Service Agreement Reduce Repair & Maintenance Expense - Use Replacement Reserve

Interview Potential Developer Partners Agreement for LDHA to Acquire MM for Appraised Value Agreement to 50-50 Development Fee Ask Partner to Define BCHC Staff Roles Agreement to Share in Predevelopment Costs Developer to Describe How They will Maximize LIHTC Points Select Partner Form Limited Dividend Housing Association LLC Apply for LIHTC Award in 2/2014 or 8/2013

Recommendation

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