to: Roger L. Stancil, Town Manager
from: Kenneth C. Pennoyer, Director of Business Management
subject: Tax Exempt Financing Proposal for the Redevelopment of Timberlyne Apartments.
date: September 8, 2008
The purpose of this report is to inform the Council about a proposal from Related Companies, L.P., a firm that develops, manages and finances affordable apartment complexes, to redevelop the Timberlyne Apartments using tax exempt bonds issued by the Town of Chapel Hill, and to seek direction from the Council as to whether to proceed with the steps necessary to approve the financing.
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 low income 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.
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.
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 $8,000,000 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 element 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 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.
If the Council wishes to move forward with this proposed financing the following three resolutions must be adopted:
We believe that the Council Committee on Affordable Housing can examine this proposal in detail and report back to the full Council with its analysis and a recommendation on this proposal.
To refer this item to the Council Committee on Affordable Housing for review and recommendation.