to: Mayor and Town Council
from: The Council Committee for Affordable Housing
Council Member Greene, Chair
Council Member Kleinschmidt
Council Member Strom
Council Member Czajkowski
subject: Council Committee for Affordable Housing Recommendation on the Tax Exempt Financing Proposal for the Redevelopment of Timberlyne Apartments
date: October 15, 2008
The purpose of this memorandum is to present the recommendation of the Council Committee for Affordable Housing concerning the proposal from Related Companies, L.P. to redevelop the Timberlyne Apartments using tax exempt bonds issued by the Town of Chapel Hill and federal income tax credits.
During July of this year Town staff were contacted by representatives of Related Companies, L.P., concerning a proposal to redevelop the Timberlyne Apartments. The proposed acquisition and rehabilitation would be financed through a combination of tax exempt bonds and federal low income housing tax credits. The tax exempt bond portion of the financing would require that the bonds be issued in the name of the Town of Chapel Hill using a pass-thru/conduit type arrangement.
Related Companies has told Town staff that it is purchasing the Timberlyne complex under a broader contract that calls for Related Companies to purchase a large number of multifamily housing developments across the country from the owners of the Timberlyne complex and that this purchase will proceed whether or not the Town agrees to provide for the issuance of the bonds. If the acquisition is not financed through these bonds, the new owner would not have the accompanying obligation under the terms of the financing to undertake the renovations at Timberlyne, or to maintain the availability at Timberlyne of affordable housing units. Through the issuance of the bonds, the Town can help facilitate the renovations and the maintenance, and expansion, of affordable housing units in the Town.
The Developer: Related Companies, L.P. (TRCLP) was founded in 1972 and represents itself as the largest private owner of affordable multifamily apartment complexes in the country, overseeing more than 1,100 properties in 47 states through its various affiliates. Related Companies, using Timberlyne Preservation, L.P., an entity it controls, proposes to acquire Timberlyne Apartments for the purpose of “substantial” rehabilitation.
Timberlyne Apartments: The Timberlyne Apartment Complex is located at 200 Westminster Drive and consists 144 garden style apartments: 72 one bedroom units and 72 two bedroom units. According to the developer, the complex has 80% market rate tenants and 20% low income tenants. After the rehabilitation project is complete 100% of the units will be set-aside for tenants who are 60% of the area median income or below. After the rehabilitation is complete, the Developer has indicated its desire to increase the number of units set aside as affordable housing to as much as 100%. For the purpose of this project, affordable units are designated for residents making not more than 60% of the area’s median income, adjusted for family size. The area’s median income for a family of four, within the meaning of the tax rules related to these housing projects, is approximately $71,312. The applicable tax rules do not allow groups of unrelated students to qualify as eligible low income residents.
The Financing Plan: According to representatives of TRCLP, Timberlyne Preservation, L.P. would purchase the apartment complex for $7,200,000 and spend approximately $2,500,000 or $18,000 per unit on the rehabilitation. They are looking for up to $9,000,000 of tax-exempt financing, issued by the Town of Chapel Hill, in addition to tax credits allocated by the North Carolina Housing Finance Agency (NCHFA). The tax-exempt bond portion of the financing would be a conduit or “pass-thru” financing that would not obligate the Town for payment of the bonds under any circumstances. If the project is done with tax-exempt bonds the project will also be eligible for 4% tax credits that will generate additional equity in the project.
Although the Town’s issuance of tax-exempt bonds for the project would be a pass-thru that would not result in any financial obligations on the part of the Town, there are elements of this transaction that pose other concerns. First, the bonds will be issued in the Town’s name and therefore if there is a default or other such problem the Town’s name will be always be linked to those bonds. Second, the structure of the project calls for a change in the composition of tenants from 20% low income to up to 100% low income. This could result in displacement of tenants and objections from neighboring property owners.
The Town would be entitled to a fee for its efforts in issuing the bonds and for ongoing compliance monitoring. The fee would compensate the Town for the time and effort of staff and the cost of outside advisors that may be engaged to assist the Town. The developer has provided a letter to the Town confirming its commitment to pay the Town’s fees and expenses incurred in connection with this process, whether or not the bonds are ultimately issued.
If the Council wishes to move forward with this proposed financing the following three resolutions must be adopted:
The Council Committee for Affordable Housing met with town staff, bond counsel and representatives from the developer on September 18, 2008 and September 25, 2008 to review the proposal.
The committee generally endorsed the proposal and recommends that the Council take the next step to permit the proposal to be considered further by adopting the attached inducement resolution that is described below. The bonds cannot be issued until all three of the resolutions described above have been approved by the Council.
Inducement Resolution – Indicates that the Town is willing to issue the tax-exempt bonds if the developer is able to obtain all of the approvals necessary to issue the bonds. This resolution is required prior to the developer making application for volume cap allocation through the NCHFA. The resolution, among other things, does the following:
The resolution takes effect immediately upon passage.
The Committee recommends that the Council adopt the attached resolution giving preliminary approval to issue multi-family housing revenue bonds for the Timberlyne redevelopment project.