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Bonds
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BRIEF OVERVIEW AND HISTORY...
The Illinois Housing Development Authority (IHDA) is empowered to issue tax-exempt and taxable bonds to provide construction and permanent financing for multifamily rental developments. The program offers developers low-interest rate construction and permanent loan financing through one application process. Rehabilitation and refinance loans are considered on a case-by-case basis. Proposed developments wholly owned by non-profit organizations may be eligible for 501(c)(3) bonds. (Contact IHDA for 501(c)(3) bond eligibility requirements).
Development Type:
- New Construction
- Substantial Rehabilitation
- Moderate Rehabilitation
Refinancings are considered on a case-by-case basis
Loan Amount:
$2 million minimum - $25 million maximum (exceptions are considered).
Loan Term:
Typically, loans fully amortize with terms of 15 to 40 years, depending upon the form of credit enhancement and type of development.
Debt Coverage:
* Minimum 1.15:1 for new construction loans
* Minimum 1.25 for rehabilitation loans
* Minimum 1.40 for supportive living facility (SLF) loans
For refinancing and rehabilitation, debt coverage ratio may vary, depending upon property characteristics, generally 1.25:1. Special purpose properties are required to have a higher debt coverage ratio.
Interest Rate:
Fixed or variable interest rate programs are available. Interest rates are determined by the prevailing market just prior to the time of closing. Interest rate protection is available for an additional fee.
Low/Moderate Income Requirements:
A minimum of 20% of the units must be set aside for households earning at or below 50% of the area median income, or a minimum of 40% of the units must be set aside for households earning at or below 60% of the area median income.
Prepayment:
Prepayment is generally prohibited for 10 years for loans financed with bonds at a fixed interest rate. Shorter prepayment lockout periods are available at higher costs.
Return on Equity:
Return on equity is established by IHDA at two times the yield on a 30-year Ginnie Mae (GNMA) mortgage certificate, as of the date of loan commitment.
Liability:
Non-recourse after construction, except for special cases such as fraud, etc.
Fees:
Application Stage:
* $1,000 to $1,500 non-refundable application fee
* estimated $9,500 for market study
Feasibility Letter Stage:
* $22,000 for other third-party studies.
Closing Stage:
* IHDA origination fee 0.75% - 2% contingent on par amount and complexity
No IHDA legal fees for loans closed in-house;
Bond issuance costs, which includes bond legal team fees.
Annual Fee:
* 25 basis point servicing fee on the declining balance of the loan
* 25 basis point administrative fee on the declining balance of the loan
* minimum 50 - 88 basis point credit enhancement fee if provided by IHDA
Contingent on par amount and complexity
(All fees escrowed at closing for the construction period)
Most bond financing requires credit enhancement to achieve the lowest possible interest rate. FHA mortgage insurance, bond insurance, and letters of credit are examples of credit enhancement vehicles. Credit enhancement fees are mortgageable. Other fees associated with processing vary, depending upon the form of enhancement and the type of financing.
Timing:
Loan Commitment may be issued approximately 3-6 months after receipt of a complete application, depending on the form of credit enhancement.
Please note: All loan terms and conditions described above are subject to change without notice.
Additional Loan Requirements For Tax-Exempt Bond Projects with Authority Credit Enhancement
The Authority also requires that sponsors provide the following irrevocable, unconditional Letters of Credit (LOC) issued by a bank, acceptable to the Authority, as additional security for the loan:
* A Construction Completion LOC in an amount equal to 25% of the construction contract or a 100% Payment and Performance Bond in the amount of the construction contract, provided by the general contractor until the Authority approves the final cost certification.
*A Working Capital LOC equal to 3% of the loan amount for latent construction defects and operating deficits, which the Authority will retain for 12 months after conversion to permanent financing.
* An Initial Rent-Up Reserves LOC or a cash reserve equal to the greater of 3% of the amount of the loan or the expected cumulative negative cash flow during the lease-up period. The LOC or cash reserve will be held by the Authority until the development generates sufficient cash flow for four consecutive quarters to produce an aggregate debt coverage ratio of at least 1.15:1.
* Additional LOC and reserves are required for supportive living facilities.
Additionally, the Authority requires the following reserve accounts:
* A Replacement Reserve funded from project operations at a minimum of $300 per unit per year for a newly constructed elderly development, $350 per unit per year for a newly constructed family development, or $400 per unit per year for a rehabilitated development. The project can draw on this reserve on demonstrated need once the account balance exceeds $1,000 per unit. The required reserve deposit for each development are determined by the Authority at its sole discretion.
* A Real Estate Tax and Property Liability Insurance Escrow in an amount determined by the Authority.
* A Debt Service Reserve between one and 13 months principal and interest payment, depending on the type of credit enhancement and market conditions.
Note: On the basis of its underwriting, the Authority may require other reserves or LOCs at its sole discretion.
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