Did you find 501c3 private activity bonds to be difficult to underwrite?
What was your experience with this execution? Anyone have a template underwriting model I can look at? Many thanks in advance!
[{"id": "i2un30a", "text": "I\u2019ve underwritten PAB before for a LIHTC multifamily project that was forced to take them.  I honestly couldn\u2019t tell you the point, they were used to cash collateralize FHA debt as a credit enhancer but interest rates were so low it just ended up adding costs and work.  I guess if the 501c3 can\u2019t get debt otherwise it may be worth it, but the fees from the custodian, attorneys, investment bank and consultant cost more than any interest savings the bonds provided.\n\nDon\u2019t have a model I can share but glad to answer any general questions if they\u2019re being used in a similar way.", "replies": [{"id": "i33jvmv", "text": "Thanks for this. Really appreciate your insight.\n\nYeah, the 501c3 bonds are the only way the non profit can scale up a significant portfolio purchase. I\u2019ve tried phasing the acq rehab into tranches using private debt and some cash on hand but they simply don\u2019t have the balance sheet. If they can\u2019t acquire this portfolio, a significant number of affordable units will go to market and one thousand families will be displaced.", "replies": [{"id": "i33lo40", "text": "We typically use 221(d)(4) loans for big acq/rehab jobs like that.  We\u2019ve done some 223(f) loans as well but less likely if it\u2019s a rehab, or there\u2019s some specific agency debt for TEB programs.  Are they using 4% tax credits?\n\nI\u2019m on the other side of this deal as the developer and we\u2019re going through about that amount of units in 4% TEB acq/rehab deals now.  If I was the nonprofit, I\u2019d try and get a minority GP that can support the debt to act as co-developer.  Even if all they do is help underwrite the debt for some fee there\u2019s plenty of developers, both for-profit and non-profit who will do that type of deal.  We have to bring in nonprofit partners all the time for tax abatement, soft debt, tax credits, etc.  Standard practice.", "replies": [{"id": "i33ohkp", "text": "A UW 4% bond execution would eat up too much of State\u2019s bond cap so the agencies aren\u2019t excited about that approach. This isn\u2019t a substantial rehab so doesn\u2019t qualify for 221d either. \n\nYeah we usually underwrite these kinds of deals with a co developer but the non profit is insistent on finding a path they alone can pursue. I\u2019m creating a few scenarios so they can compare and contrast options in terms of timing, fees, etc as well as the qualitative aspects including capacity and feasibility based on risks and migrants. I\u2019m fairly sure we are going to come out of this exercise advising the non profit to JV to facilitate the transaction.", "replies": [], "depth": 4}], "depth": 3}, {"id": "i33mhg2", "text": "Or is it possible to let them close with the tax credit investor and bridge financing secured by the tax credit equity, then refi into perm debt once they have the equity in the door and a stronger balance sheet?", "replies": [{"id": "i33sxvu", "text": "That makes a lot of sense. Might be more palatable than trying to get the State we are in to even agree to the 501c3 bond execution when they aren\u2019t entirely psyched about the model.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]