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Opportunities for Preservation of Overleveraged Multi-Family Housing

Opportunities for Preservation of Overleveraged Multi-Family Housing. Presented by: Harold Shultz, CHPC David Walsh, NYSHFA Dina Levy, UHAB. What is an Overleveraged Building?. An Example. Annual Per Apt/Month Total Debt Service $23,957,325 $1,108 Loans of $367 M

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Opportunities for Preservation of Overleveraged Multi-Family Housing

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  1. Opportunities for Preservation of Overleveraged Multi-Family Housing Presented by: Harold Shultz, CHPC David Walsh, NYSHFA Dina Levy, UHAB

  2. What is an Overleveraged Building?

  3. An Example Annual Per Apt/Month Total Debt Service $23,957,325 $1,108 Loans of $367 M O&M (Est) $14,704,320 $680 Total Debt + O&M $38,661,645 $1,788 Gross Income (2007) $17,310,476 $801 Net $(21,351,169) $(987) DSCR = .36 !

  4. Banks and CMBS • Two types of lenders • Banks • Commercial Mortgage Backed Securitized Trust

  5. CMBS Commercial Mortgage Backed Trust Investors Trustee Master Servicer/ Special Servicer

  6. What Will Happen? Extend Mortgage Recast Mortgage Sell Mortgage Foreclose Mortgage

  7. What Will Happen? Capital Starvation M & O cut to the bone Results in: Long term building deterioration Neighborhood deterioration

  8. Extent of the Problem • 2009: Potentially more than 70,000 units of over-leveraged housing in NYC • Rent Regulated • Mitchell Lama • PB S8

  9. Original Owner One Example: 4,000 unit portfolio(Non Securitized) Sale: in March of 2005 $295 million, or $74,000 per unit. 1st Private Equity/LL@ 20% = $59 M 1st Lender @ 80% = $236 M Sale: in May of 2007 $918 million, or $232,000 per unit. 2nd Private Equity/LL @ 20% = $184 M 2nd Lender @ 80% = $734 M DEBT SERVICE TRIPLES IN 2 YRS

  10. Transparency Pricing “Market Watchers” Barriers to Acquisition

  11. - Long-term responsible owners - Supportable debt based on existing income stream - Adequate operating and capital reserves - Use-restrictions (in some cases) Preservation Goals

  12. Administrative and Legislative Proposals: Voluntary Sales Phantom Tax Relief Debt Acquisition Restrictions on PIPP/LLP Restricted Foreclosure Sales? HUD/Treasury MF Preservation Program Opportunities for Acquisition

  13. Types Of Loans • Portfolio Loan – Originated by Lender and sitting on balance sheet. Lender may or may not want to remove loan through sale or securitization process. • CMBS – Loan may be pooled with other loans, transferred into a Trust, which then issues bonds that may vary in yield, duration and payment priority.

  14. CMBS Loan Participants CMBS Participants • Trustee – Holds all loan documents and distributes cash flow received from Servicer to Investors • Servicer – Manages the flow of payments and information and is responsible for communicating with the Borrower • Rating Agency – Establish ratings for each bond class and continually monitor performance • Investors – Rated versus Unrated Pieces

  15. Ownership – Who owns the various loan pieces? Valuation – How much is the property worth? First Loss Position – Who is controlling holder? Servicer – Will the servicer share information with you? Trustee – Trust not looking to sell if loan not in default Challenges with Securitized Loans

  16. Mezzanine Financing - Acquisition of various Mezzanine Loan pieces. Foreclose where collateral is equity ownership entity in the deal. Take subject to first mortgage. (ie: John Hancock Tower – Boston, MA) Alternative Property Usages – Property being reviewed as possible Supportive Housing project where traditional all-affordable deal in major trouble and lender may be willing to make deal. Supportive Housing financing structure may be applicable and may work Strategies

  17. Brokerage Firms – Cushman & Wakefield, Eastdil, Massey Knakal, Banks –Deutsche Bank, JP Morgan, NY Community Bank Law Firms – Dechert, Paul Hastings, Skadden Arps Mortgage Brokers – Ackman-Ziff, Holliday Fenoglio, Meridian Capital, Palisades Financial Opportunities: Where To Look

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