CASE STUDY – 501c3 AFFORDABLE HOUSING PROVIDER
Sunrise MHP, North Palm Springs, CA
Sunrise MHP is a 174-site low and very low-income park located in North PalmSprings, California. The park was developed in 1987 and was acquired by the seller shortly there after. The seller sold the park to a 501c3 Nonprofit Affordable Housing Provider(NFP) in November 2003.
PMC Financial Services acted as consultant to the FHA lender providing the insured first mortgage loan to the project.
The park is considered a two/three star family park with approximately 50% single wide homes, although all sites will accommodate doublewide homes. Amenities include a swimming pool, tot lot, laundry room and a picnic area with barbecue. The design of the community is unique, with two central covered car-parking areas. The homes are located along meandering paths throughout the park.
The park was originally constructed on ground leased from the City of Palm Springs. As part of the acquisition process, the NFP purchased the land from the City. The City carried back subordinated debt on the park in exchange for the NFP meeting certain affordable housing requirements.
The project was financed by a $3,770,000 FHA insured first mortgage loan from an FHA approved lender, which was used as credit enhancement for a “AAA” rated, tax exempt, GNMA backed, fixed rate bond issue. The FHA program used was 207m, which provided a 40-year, FHA insured, fully amortizing, fixed rate, non-recourse, prepayable first mortgage loan. Such a loan can be combined with a GNMA certificate to produce financing that is fully guaranteed by an agency of the Federal Government.
Loans under the FHA 207m program can provide funding for up to 90% of the value of the park. The combination of FHA first mortgage financing and City of Palm Springs subordinated debt enabled the NFP to acquire the park and land, provide for needed repairs, fund operating reserves and pay all costs and fees of the transaction with no out-of-pocket funds required from the NFP.
Sources of Funds:
Face Amount of tax-exempt bonds $3,770,000
Re-offering premium $ 250,000
Subordinated Debt – City of Palm Springs $1,015,691
Total Sources of Funds $5,035,691
Uses of Funds:
Purchase Price of Park $4,200,000
Real Estate Commission $ 130,000
Initial Deposit – Reserve $ 36,184
Repairs Escrow $ 165,164
GNMA Fee $ 18,600
NFP Legal Fee $ 10,000
Mortgage Insurance Premium $ 18,850
Lender Fee $ 75,400
Mortgage Discount $ 56,550
Title & Recording $ 10,000
FHA Exam Fee $ 11,310
FHA Inspection Fee $ 1,101
Third Party Reports & Survey $ 17,000
Financial Advisor $ 39,000
Consulting Fees $ 65,000
Issuer Fee $ 5,000
Bond Attorney Legal Fee $ 40,000
Underwriter’s Attorney Legal Fee $ 15,000
Disclosure Attorney Legal Fee $ 15,000
Local Attorney Legal Fee $ 7,500
Trustee & Trustee Legal Fee $ 4,500
Rating Agency Fee $ 12,000
Official Statement Costs $ 10,000
Prepaid Interest $ 22,000
Hazard Insurance $ 7,500
501c3 Legal Tax Opinion $ 21,500
Contingency $ 20,000
Total Uses of Funds $5,035,691
Although providing very high leverage financing and low tax-exempt interest rates,use of credit enhanced first mortgage financing is complex, requires extensive legal and financial expertise and can require long periods of time to complete successfully.
For additional information, contact Deane Sargent (deane.f.sargent; 415-271-3919)