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Pendergraph Development, LLC HUD MAP Tune-Up II Workshop

Pendergraph Development, LLC HUD MAP Tune-Up II Workshop. September 19-20, 2007. Frankie W. Pendergraph 28+ Years in the Housing Industry Owner of The Pendergraph Companies Development, Construction, Management and Consulting Headquartered in Raleigh. Benefits of HUD 221(d)(4).

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Pendergraph Development, LLC HUD MAP Tune-Up II Workshop

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  1. Pendergraph Development, LLCHUD MAP Tune-Up II Workshop September 19-20, 2007

  2. Frankie W. Pendergraph • 28+ Years in the Housing Industry • Owner of The Pendergraph Companies • Development, Construction, Management and Consulting • Headquartered in Raleigh

  3. Benefits of HUD 221(d)(4) • Construction-to-Permanent Financing • Great Interest Rate • Up to 40 year amortization • 1.11 debt service coverage ratio • Non-recourse debt • Credit enhancement for bond transactions

  4. Potential Pitfalls of HUD 221(d)(4) • Entails a higher level of knowledge and experience • Can be more time consuming – may need to have HUD commitment in hand prior to submission of tax credit application • Number lumping – good versus bad costs differ for each program • Interest Expense – automatic conversion • 2530 (non) issue • Government Regulations – may be less flexible if unexpected issues arise

  5. Tax Credits and 221(d)(4) • Brief explanation of tax credits • 221(d)(4) is consistent with Housing Credit Agency and Investor desires: (i) long term loan, (ii) favorable interest rate, and (iii) non-recourse. • Subordinate debt is allowed with HUD consent – usually must be soft debt. This is likely not an issue in the tax credit arena where subordinate debt is often very soft anyway.

  6. Tax Exempt Bonds and 221(d)(4) • Brief explanation of Tax Exempt Bonds • Very complex, many players, lots of moving parts • Costly – usually need $10 Million in bond debt to justify bond issuance costs – around 5-7% of bonds issued • Credit Enhancement – Types: HUD, Fannie Mae, RD 538 and Letter of Credit • Public Offering versus Private Placement

  7. USDA Rural Development and 221(d)(4) • Brief explanation of RD programs • Not often utilized with HUD Financing – because RD itself is a funding source. Sometimes HUD RA is used with RD Financing • Why use HUD and RD together? If the transaction also utilizes bonds, credit enhancement is needed.

  8. HUD & RD: Potential Issues • Multiple Government Agencies, many regulations • Subordination Rules and Requirements • Reserve Accounts – supervision • Amount of Rehabilitation – varies • Surplus Cash vs RD Return to Owner vs Cash Flow • Good versus Bad Costs (pots of money for HUD, RD, Bonds, Tax Credits – a multidimensional puzzle) … but doable.

  9. Other Issues • Every State is different • Each State has its own Housing Credit Agency • Each State has its own Qualified Allocation Plan addressing tax credits and tax exempt bonds • Each RD office operates a little differently • Each HUD office operates a little differently • Early and open communication is essential!

  10. Thank You. For Questions or Consulting Services contact: Frankie W. Pendergraph The Pendergraph Companies, LLC 3924 Browning Place Raleigh, NC 27609 (919) 755-0558

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