Q&A for Special Meeting 8/6/24

Julio Gonzalez Altamirano

Dear Directors,

This is a thread to facilitate staff questions ahead of our special meeting on 8/6/24.

Please add your questions here so that staff can prepare answers.

Thank you.

JGA

Dianna Grey

Question from Director Becker: What exactly is Rise Residential proposing?

Rise Residential is requesting that SHFC induce (and eventually issue) additional private activity bonds for two projects that are already underway: Austin Manor Apartments (aka Manchester) and Lakeway Apartments (aka Cardinal Hills Villas), at $8.5M and $8M, respectively. SHFC issued the original bonds for these projects and serves as General Partner in the project partnerships. The bonds will provide construction and permanent financing and keep the projects in compliance with the LIHTC rule requiring that 50% of land and construction costs be paid for with tax exempt bonds. The projects are at risk of violating the 50% rule due to increased project costs. The transactions would also trigger the availability of additional LIHTC equity for the two projects. Estimated additional equity investments are $13.1M for Lakeway and $16.6M for Austin Manor.

Dianna Grey

Question from Director Becker: What are the consequences if we vote Yes and vote No?
Yes: Approving the initial inducements for supplementary bonds allows for applications to be submitted before the deadline for the 2024 Bond Review Board deadline. A 2024 application allows for, but does not guarantee, reservation, close, and project completion by the developer-projected March 2025 construction completion. The initial inducement does not obligate the Board to approve the final transaction. Final deal terms would be presented to the board once a reservation is received; staff is proposing the negotiation of number of conditions to close the transaction. Additional bonds and LIHTC equity would stabilize project financials and SHFC-related revenue.
No: Declining to induce additional bonds leaves the projects at risk of significant financing gaps in both the construction and permanent financing capital stacks, in part due to failing the LIHTC “50% Test”, which could seriously impact the amount of LIHTC equity received. The board could also postpone the inducement to allow for a 2025 application. In that case, bond reservations would likely be received in mid-2025, which would necessitate extending the construction schedule by several months, with associated increases in carrying costs.

Dianna Grey

Question from Director Becker:

Details on why Manchester is 52% complete after 4 years - when it was expected to be complete 2 years ago.

A summary of Rise communication regarding construction delays is provided below. Rise Residential principals will participate in the meeting (virtually and in-person) to answer additional Board questions.

Austin Manor (aka Manchester): The original construction timeline projected a July 2022 completion date. Rise Residential has cited challenges including COVID-related slowdowns, and a requirement from Travis County Fire that necessitated an additional entrance be added post-permitting, triggering a site plan amendment and additional approval process via TXDOT.

Austin Lakeway: The original construction timeline projected a July 2021 completion date. Rise has cited challenges including COVID, an unanticipated requirement from the local government to pave and adjacent street, and disagreements related to sewer infrastructure and related impact fees as sources of delay and additional expense.

Dianna Grey

Question from Director Becker: What was the initial agreement in 2020 with Rise for Manchester?

Key elements of both Austin Manor (aka Manchester) and Lakeway are provided below.

	Austin Manor Apartments	Lakeway Apartments
Bond Origination Fee (.5%)	$225,000	$181,000
Annual Bond Issuer Fee (.1%)	$45,000	$30,000
Construction Management Fee	$400,000	$250,000
Developer Fee (35%) 5% interest on deferred fees	$2,513,000 ($400K at close) plus interest	$1,540,000 ($300,000 at close), plus interest
Incentive Management Fee	35% of net cash flow	25% of net cash flow

DeLea Becker

Dianna Grey , have we received some of these fees? or none?

Dianna Grey

Question from Director Becker: We have 2 Rise operating properties in our portfolio. How are they performing?

SHFC serves as General Partner and bond issuer on two additional Rise Residential projects, Creekview and Colorado Creek. SHFC served as bond issuer for a third project Boyce Parmer (aka Bellingham) but has not entered into the deal as General Partner. As such it does not have shared ownership in the project or significant operational influence.

While SHFC’s comprehensive portfolio review is still underway, the following data points on Creekview and Colorado Creek are available.

Occupancy: The SHFC average portfolio occupancy rate was 88% as reported in July 2024. Creekview reported 84% occupancy, and Colorado Creek reported 85% occupancy.

TDHCA Final Construction Inspections. An SHFC third-party review of TDHCA compliance data noted higher than average number of deficiencies for these properties in TDHCA final inspections, “which focus on accessibility and the presence of required amenities.”

TDHCA Uniform Physical Condition Scores. The average score in SHFC’s portfolio is 92, which is similar to the entire TDHCA portfolio. At last inspection, Colorado Creek scored an 81, Creekview scored a 91, and Boyce Parmer/Bellingham scored an 83.

Payment of SHFC fees: Completion of a full analysis of partnership accounts is pending, but both projects owe several years’ worth of annual bond issuer fees.

Dianna Grey

Question from Director Becker: 2023 Financials show no income from Rise to SHFC? 2024 Finance Report does not show any income from Rise in Q1 of 2024.

This is correct. As noted in the board materials, Manor/Manchester and Lakeway owe SHFC a combined total of $285,000. Review is underway for three other Rise projects, but no fees have been received from associated projects since 2021. Staff has proposed that closing any additional bond issuance be conditioned to full payment of arrears, and that additional risk mitigation strategies be implemented to better ensure the timely receipt of any future SHFC fees.

Dianna Grey

1. Question from Director Wenig: When you state ‘at the partnership’s expense’ in discussion of mitigation strategies, etc. In simple terms, this would mean we would bear some of the expense?

No, this suggests that payment would be made (or possibly reimbursed) out of the individual project’s funds/bank account, which are maintained separately by developer partners for each project, rather than paid for out of SHFC’s operating funds.

Dianna Grey

Question from Director Wenig (paraphrased): An online search at https://www.levelset.com/projects/texas/manor/6625-e-parmer-ln-manor-tx-78653-1/ itemizes 9 mechanic’s liens on the property. Has SHFC has ever contemplated requiring a partial release of liens as part of pushing for better compliance from a developer?

Staff have identified the number of mechanic’s liens filed on Rise Residential developments as a concern, and communicated that these issues must be resolved. While the construction lender typically requires “down-date endorsements” (evidencing no active liens) to disburse draws on the project, staff has discussed requiring that these endorsements accompany the draw requests in order to sign off.

DeLea Becker

thank you for this. need more detailed information on delays. Travis Coutny Fire for Manchester. Timeline - when the fire requiment came to their attention - site plan amendment - site plan amendment approved. Same questions for Austin Lakeway. Timeline showing the Local Gov requirement to pave adjacent street. timeline of disagreements over swear and impact fees. when was this resolved or still ongoing?

Dianna Grey

DeLea Becker

Re: need more detailed information on delays. Travis Coutny Fire for Manchester. Timeline - when the fire requiment came to their attention - site plan amendment - site plan amendment approved. Same questions for Austin Lakeway. Timeline showing the Local Gov requirement to pave adjacent street. timeline of disagreements over swear and impact fees. when was this resolved or still ongoing?

Rise Residential will be in attendance today to answer these questions or offer additional follow-up information.

DeLea Becker

Need an understanding of construction timelines and contracts. For both projects. CONTRACT Lump Sum Contract? Cost Plus Contract? SCHEDULE 1. Original Baseline Schedule 2. Updated Schedule 3. Schedule Variance Analysis 4. Schedule of Values 5. Construction Schedule:

Dianna Grey

DeLea Becker Rise Residential will be in attendance today to answer these questions or offer additional follow-up information.

Dianna Grey

DeLea Becker

have we received some of these fees? or none?

Please see page 3 of the project-specific documents provided in the board package, where SHFC revenues are more fully discussed. Both projects received fees at closing, but annual bond issuer fees have gone unpaid. Payment of additional Developer Fees and/or Incentive Management Fees require progress on construction and income from operations.

DeLea Becker

YES / NO Vote -

we can vote to change the terms of our deal with Rise? And if they agree to our amendments, we will approve initial inducements for supplementary bonds

When is the 2024 Bond Review Board deadline? When must SHFC reach a decision and vote to meet the deadline?

Dianna Grey

DeLea Becker 🇦

YES / NO Vote -

we can vote to change the terms of our deal with Rise? And if they agree to our amendments, we will approve initial inducements for supplementary bonds

When is the 2024 Bond Review Board deadline? When must SHFC reach a decision and vote to meet the deadline?

Staff will be prepared to discuss this at today's meeting.

Jan Wenig

Good Morning Colleagues, I appreciate the close review of the issues at hand as we prepare to discuss Rise Residential's requests to SHFC at the Special Meeting later today. On the same website where I located the information re: Mechanics Liens on the Manor property, I found there are liens on all Rise properties developed with SHFC: On Lakeway there are 6 mechanics liens totalling $1,909,297; on Creekview there are 10 mechanics liens totalling$ 1,874,162; and on Colorado Creek there are 6 mechanics liens totally $661,518. I look forward to addressing this pattern of nonpayment, and late payment by Rise Residential, and discussing how we might make use of 'down date endorsements' as per our ED's comment above, and/or other steps we might take to improve compliance.