65A - AFFORDABLE HOUSING OPTIONS

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Natalie Verlinich, City of Santa Ana April 15, 2016 First Street Apartments: Financial Gap Analysis Page 13 The Developer is requesting $8.9 million in financial assistance from the City, which is $105,000 higher than the financial gap identified in the KMA financial analysis. This less than 2% differential can be considered inconsequential. As such, KMA concludes that the Developer's request for $8.9 million in financial assistance is warranted by the Project economics. ADDITIONAL FINANCIAL CONSIDERATIONS Tax Credit Consideration Approximately 40% of the Project's funding is anticipated to be derived from the receipt of competitively awarded 9% Tax Credits. While the Project is structured to achieve the maximum available points in the competitive process, the Tax Credit Program is consistently oversubscribed. As a result, TCAC created an allocation process that distributes Tax Credits on a geographical basis, and applies a tie-breaker formula in each region. The tie-breaker calculation is weighted heavily towards the amount of outside financial assistance as a function of the project's development costs. The Orange County region receives funding for one or two projects in each Tax Credit allocation round. Historically, there have not been sufficient Tax Credit dollars to fund all the projects submitted, and thus the tie-breaker formula comes into play. As currently structured, the Project generates a tie-breaker score of 46%. This score falls within the range of the tie-breaker scores that have received Tax Credit awards in the Orange County region during recent Tax Credit allocation rounds. However, the tie- breaker scores have been volatile in Orange County, so it uncertain what tie-breaker score will win in any Tax Credit allocation round. Developer Fee UnderTCAC regulations, the proposed Project qualifies for a Developer Fee of up to $2.0 million. However, it is important to note that only $1.4 million of the Developer Fee can be included in the Project's eligible Tax Credit basis. In some cases, it would be financially prudent to require the Developer to defer payment of $600,000 of the Developer Fee, and to recoup those funds from the cash flow generated by the Project over time. To test this concept, KMA prepared pro forma analyses for the Project with and without the requirement that $600,000 of the Developer Fee be deferred. The results of this comparative analysis indicate that given tiebreaker considerations 1604007:SA,TRB 19090.014.001 65A-53