Analysis of Potential Sale of Maplewood Manor Albert A. Bogdan
Mar 26, 2015
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
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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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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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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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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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
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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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
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Alternative Design Changes
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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%
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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
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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
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
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
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
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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
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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