City Council Study Session Agenda and Packet 2012 05 08

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PAGE THREE SUBJECT: DISCUSSION WITH LOUISVILLE HOUSING AUTHORITY (LHA) - CONSIDERATION OF LHA CONSOLIDATION WITH BOULDER COUNTY HOUSING AUTHORITY DATE: MAY 8, 2012 "income approach" to valuation that shows a value of $1,120,000 assuming a capitalization rate of 7 %, and repayment of outstanding debt. That valuation does not include outstanding capital needs. The portfolio was built over the last 40 years, and most of the properties are aging and in need of significant renovation. BCHA staff has estimated the capital needs to be around $2,230,000. This creates a value of negative $897,000. We believe there is solid methodology behind these figures. Another way to assess the value of the portfolio would be to do market rate appraisals, and then adjust them for the cost to remove the restrictive covenants. This would likely yield an even larger negative value, as past investors and grantors would seek to recover the funds provided with adjusters for the present day value. BCHA staff and LHA Board members have agreed that BCHA has the mission, history, and values to be a good steward of the LHA assets. Rather than begin a prolonged and costly detailed due diligence on both sides of what the assets may be worth, LHA and BCHA have worked hard to keep the discussion oriented on the big picture around the challenges of the current portfolio; and ultimately the potential benefits of a new structure. The LHA and BCHA are committed to negotiating a deal that brings value to the Louisville community in excess of the portfolio valuation discussion. How are the Louisville Housing Authority properties operating now? From the perspective of providing affordable housing to families, elderly, and people with disabilities in Louisville the portfolio is very strong. Our vacancy rate is below 1%. At the time of this memo, we have zero vacancies. When a unit does come available, we usually receive several income qualified applicants within 24 hours of advertising. From a financial perspective, the picture is mixed. Over the past three years, the property operations for the aggregate portfolio (116 units in seven properties) have been relatively stable. However, each year, some properties do not generate enough income to cover their expenses and debt. Regal Square has the strongest net operating income, and tends to support the other properties which are at or below breakeven. Are LHA's properties financially viable into the future? To be financially viable, the properties require significant refinance and reinvestment. With several under - performing assets, and the expiration of the two Low Income Housing Tax Credit partnerships, it is a critical time to refinance and recapitalize the LHA portfolio. Lenders would offer more favorable terms if the portfolio was part of a larger collection, and if the loans were guaranteed by a stronger entity than LHA. The other key risk to the LHA portfolio is deferred maintenance. Because the portfolio was built over the past 40 years, most of the sites are in need a significant rehab in the next 2 -5 years. What would the timeline be for growing the affordable housing stock in Louisville? BCHA would work diligently to improve the quality and quantity of the affordable housing stock in Louisville for the foreseeable future, with a specific goal of adding 15 new units in the next five years. BCHA is actively acquiring and developing properties in Boulder County, including 74 units under construction now, and 12 units added to the housing stock in the past year, as well as several projects in the pipeline. BCHA has the capacity and expertise to support additional affordable housing for the community. If City Council approves this direction, what are the next steps? On May 15, 2012 the LHA Board will request that the City Council direct LHA and BCHA to draft an 4