HEHFB Bond Program
INTRODUCTION
General
The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee is a public not-for-profit corporation duly organized and validly existing under the laws of the State of Tennessee (the “HEHFB”, “Board” or “Issuer”). The HEHFB was created pursuant to Tennessee Code Annotated Section 48-101-301 et seq., as amended (the “Act”) for the purposes, among other things, to provide quality, safe, affordable, and sanitary housing through issuing revenue bonds and exploring other methodologies for financing the acquisition, development, and maintenance of residential rental facilities for the benefit of low and/or moderate-income families and individuals as set forth in the Act. The HEHFB is authorized under the Act to acquire and develop residential rental facilities for low and moderate-income families or individuals as an aid to facilitate the preservation, growth, and development of quality and affordable multifamily housing. It is the intention of the HEHFB to conduct its activities consistent with its statutory and public purpose pursuant to the provisions of the Act, any and all other laws of the State of Tennessee, and with the enactments of the local legislative bodies of the Memphis City Council applicable to the HEHFB.
The HEHFB created its Policies and Procedures with the intent to ensure compliance with applicable laws and regulations, give appropriate guidance to applicants and bondholders for better informed decision-making, and streamline internal and external processes (the “Policies and Procedures”). Similarly, the HEHFB created Policies and Procedures each for its PILOT program and for the Memphis Housing Authority PILOTs, wherein the HEHFB administers all PILOTs on behalf of the Memphis Housing Authority.
The HEHFB reserves the right to amend or waive these Policies and Procedures, all Bond applications, and other related documentation duly adopted and approved by the Board of Directors, as necessary, for good cause shown, upon a majority vote of the Board of Directors, in order to effectively perpetuate its mission of fostering the preservation and financing the acquisition, development, and maintenance of quality and sustainable affordable multifamily housing through exploring other methodologies and economic avenues to appropriately meet the health, educational and affordable housing needs of low and moderate-income families and individuals residing in the City of Memphis, including the adoption, incorporation, and implementation of any available laws, programs, or other measures made available under the laws of the State of Tennessee and the City of Memphis.
Types of Bonds
There are two main types of bonds that can be used to finance affordable housing projects: (i) governmental bonds that are defined as tax-exempt bonds issued to finance projects owned by a governmental entity, and (ii) private activity bonds that are defined as tax-exempt bonds issued to finance projects owned by a private entity, not-for-profit entity or a 501(c)(3) entity. Qualified Exempt Facility Bonds, a type of private activity bond, are the most common type of affordable multifamily housing bonds utilized by the Board and are issued pursuant to Section 142(d) of the Internal Revenue Code, as amended (the “Code”), and are eligible to receive the four percent (4%) low-income housing tax credits (“LITHC”) allocation.
LITHCs provide an economic incentive for the private markets to invest in affordable housing by providing a certain amount of tax credits (which reduce tax liability dollar-for-dollar) to affordable residential rental facilities based on a certain formula. Typically, LIHTCs are then sold to investors in exchange for an equity investment in the proposed project. In order to receive the four percent (4%) LIHTC allocation, at least fifty percent (50%) of a project’s aggregate basis must be financed with the proceeds of Qualified Exempt Facility Bonds. LIHTCs are not available for public housing units financed with the proceeds of governmental bonds.
“Qualified Exempt Facility Bonds” must satisfy the requirements of Section 142 of the Code, which requires that ninety-five percent (95%) or more of the net proceeds of any qualifying bond issue must be used to provide one or more qualified residential rental projects, being any project for residential rental property that meets to set-aside requirements under Section 142(d) of the Code during the Qualified Project Period (as hereinafter defined). The income set aside requirements are the 20/50 Test (i.e. 20% or more of the residential units must be occupied by individuals whose income is 50% or less of the area median gross income) or the 40/60 Test (i.e. 40% or more of the residential units occupied by individuals whose income is 60% or less of area median gross income).
“Qualified Project Period” begins on the first day on which ten percent (10%) of the residential rental units in a project are occupied and ending on the latest of: (i) the date that is 15 years after the date on which fifty percent (50%) of the residential rental units are occupied; (ii) the first day on which no issued tax-exempt bond and maturity therewith is outstanding; or (iii) the date on which any assistance provided to the project under Section 8 of the United States Housing Act of 1937 terminates. If the issue date of such tax-exempt bond occurs after the first day on which at least ten percent (10%) of the residential rental units are occupied, then the Qualified Project Period begins on the issue date of such tax-exempt bond. For example, with many tenant-in-place rehabilitation projects, the Qualified Project Period begins when the tax-exempt bonds for the project are issued.
Type of Bond Transactions
The Board’s Policies and Procedures regarding publicly sold and privately placed multifamily housing bond issues include the following:
Public Sale – wherein the tax-exempt bonds are offered for sale to the general public in the retail securities market. In connection with any public sale of tax-exempt bonds, such bonds shall: (i) involve the necessary public disclosure through an Official Statement or other related public offering document or related disclosure; (ii) be purchased by a nationally recognized underwriter or broker-dealer; (iii) be rated or insured to provide at least an “A” rating by Moody’s Investors Service, Inc., Standard & Poor’s Corporation, or provide a substantially equal credit enhancement satisfactory to the Board.
Private Placement – wherein the tax-exempt bonds are placed with a single purchaser through a private placement, whereby the marketing of the tax-exempt bonds is limited to fewer than thirty-five (35) potential “Accredited Investors” as defined under Regulation D under the Securities Act of 1933. These transactions involve a placement agent, usually an underwriter who acts in a limited capacity to identify investors and facilitate the sale. Private placements are similar to a public offering but can allow borrowers to negotiate deal terms directly with investors. In connection with any private placement of tax-exempt bonds, the Board will require that the bonds and applicable bond documents contain provisions restricting transfers only to institutional investors, limiting participation in the purchase of bonds and setting minimum denominations on the bonds satisfactory to the Board.
Direct Purchase – wherein the tax-exempt bonds are acquired by an institution through a direct purchase. Many financial institutions, including banks, insurance companies, large corporations, including the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) have programs that allow them to purchase tax-exempt bonds directly from the Board.
The Board requires that with all above-mentioned bond issues for multifamily housing residential rental facilities, the Applicant must utilize the services of a Bond Trustee (the “Trustee”). The Trustee acts as representative of the bondholders, generally administers the bonds and its scheduled payments, and is authorized by the Trust Indenture (as hereinafter defined) to take certain actions and enforce certain rights and remedies on the bondholders’ behalf. Trustees are typically corporate trust departments of large national or regional banks. The Board retains final approval of any bank or related entity selected as Trustee.
No financing will be approved unless the Board has first determined that such proposed bond financing is in the public interest as required by the Act. All Applicants will be required to appear before the Board to respond to questions from the Board prior to approval of any bond application and related documentation. Prior to approval of any bond financing, the Applicant must make satisfactory arrangements with the Board with respect to payment of its closing costs, legal fees, and administrative expenses in connection with the proposed bond financing.
THE BOARD DOES NOT MAKE ANY RECOMMENDATIONS WITH REGARD TO THE PURCHASE OF BONDS OR NOTES, NOR SHOULD ITS APPROVAL OF A FINANCING BE CONSTRUED AS A REPRESENTATION OF ANY SORT WITH REGARD TO THE FINANCIAL CONDITION OR SUITABILITY OF ANY FIRM RECEIVING FINANCING THROUGH THE BOARD. ALL BOND OR NOTE PURCHASERS/INVESTORS ARE EXPECTED TO MAKE AN INDEPENDENT INVESTIGATION OF THE BONDS OR NOTES ISSUED BY THE BOARD AND THEIR RESPECTIVE SECURITY AND SOURCE FOR REPAYMENT THEREWITH.
BOND APPLICATION SUBMISSION AND APPROVAL PROCESS
Bond Application Submission
All Bond applications must be complete and timely submitted a minimum of thirty (30) days prior to the scheduled regular meeting of the Board of Directors at which time the submitted application will be considered. Incomplete Bond applications will not be accepted nor reviewed by the Issuer. The Issuer meets every first Wednesday of the month, subject to change as needed. Public meeting notices and meeting dates can be found on the Issuer’s website at http://www.mememphishehf.com. The Bond application must be submitted in compliance and conformity with these Policies and Procedures. If the format of the submitted Bond application does not comply with these Policies and Procedures and the guidelines set forth and more fully described herein for submission, then the Bond application will not be accepted or reviewed.
To appropriately submit a Bond application to the HEHFB staff, the Applicant shall submit: (i) an electronic copy of the Bond application in portable document format (PDF) to the HEHFB staff and (ii) the non-refundable application fee due and payable upon submission of the Bond application. If minor errors exist within a submitted Bond application, then the HEHFB staff may, in its sole discretion, allow the Applicant up to ten (10) business days to make the necessary corrections.
The submitted Bond application must contain the following subject line in the email:
“HEHFB Bond Financing (Type of Application) (Name of Applicant); (Month/Year)”
All Bond applications shall be collectively emailed to the individuals listed below:
Stephanie Bryant, Office Manager: Stephanie.Bryant@memphishehf.com
Martin Edwards, Jr., Executive Director: Martin.Edwards@memphishehf.com
Charles E. Carpenter, Esquire: Issuer’s Counsel: Charlesc@386beale.com
Corbin I. Carpenter, Esquire: Issuer’s Counsel: Corbinc@386beale.com
Upon submittal of a Bond application, all application fees associated therewith must be paid in full prior to the Bond application being added as an action item for consideration for approval at the Board of Directors’ next scheduled regular meeting.
The Applicant acknowledges and agrees that any and all paid Bond application fees are non-refundable.
Bond applications for all properties that are participating in any current United States Department of Housing and Urban Development (“HUD”) program must include the: (i) HUD application; (ii) HUD approval notifications; and (iii) latest HUD REAC inspection report and/or other third-party related report, as applicable.
PLEASE CLICK THE BELOW LINKS FOR THE BOARD’S COMPLETE BOND PROGRAM POLICIES AND PROCEDURES AND APPLICATION: