NON-PROFIT JOINT VENTURES, MERGERS AND ACQUISITIONS Agenda: Strategic Alliances and Mergers Mark Deitcher, Mission First Housing Group Joint Ventures Non-profit Perspective Rose Gray, Asociación Puertorriqueños en Marcha Joint Ventures For-profit Perspective Charlie Lewis, Conifer Joint Ventures Legal Perspective Josh Cohen, Greenberg Traurig Housing Alliance of PA: Homes Within Reach Conference Monday, November 14, 2016
STRATEGIC ALLIANCES AND MERGERS Mark Deitcher Director of Business Development Mission First Housing Group mdeitcher@missionfirsthousing.org (215) 557-8414x3200
ABOUT THE ORGANIZATIONS Organizational Snapshots ACHIEVEability, a West Philadelphia-based supportive housing provider for families. Founded in 1981 $2M budget, 20 employees Headquartered in West Philadelphia, with 150+ nearby units and offices Renowned program Mission First Housing Group, a Mid-Atlantic nonprofit developer and property management organization. Founded in 1988 $41.4 M budget, 150 employees Headquartered in Center City, with over 3,000 units from NJ to VA Strong financial performance missionfirsthousing.org 1
ABOUT THE ORGANIZATIONS Individual Strengths ACHIEVEability Self-sufficiency outcomes and history Community service Fundraising and events Loyal staff, volunteers, donors and community support Mission First Housing Group Real estate expertise Financial and operational procedures Government contracting and compliance Management experience missionfirsthousing.org 2
PROBLEMS TO BE ADDRESSED FOR ACHIEVEability Current Scale was inefficient Difficult granting environment Open positions reduced barriers to integration Increased competition for LIHTCs denied ACHA the regular unrestricted revenue that it historically has relied on missionfirsthousing.org 3
BENEFITS OF THE STRATEGIC ALLIANCE For ACHIEVEability Focus on program Fundraising for program rather than fill operating holes Support of more sophisticated back office operation For Mission First Add 150+ units to portfolio for no cost Allows us to eventually add more robust service program for families across our portfolio Additive to our development pipeline Preservation projects missionfirsthousing.org 4
OVERVIEW OF THE STRATEGIC ALLIANCE ACHIEVEability is a nonprofit member of Mission First. Integration of property management, real estate, HR and IT functions of ACHIEVEability. ACHIEVEability Executive Director to oversee social services and fundraising Mission First appointed 2 people to ACHIEVEability Board Mission First COO, ACHIEVEability ED and Board to set annual budget. All substantive strategic decisions regarding programs approved by the ACHIEVEability Board of Directors and Mission First CEO missionfirsthousing.org 7 5
FACTORS CRITICAL TO THE SUCCESS OF THE ALLIANCE Communication Strategy Stakeholder Message: ACHIEVEability will emerge stronger Management and staff buy-in Needed to retain key staff and board members. Clearly delineated benefits to both organizations Need to answer why? missionfirsthousing.org 6
WHY PARTNER: Joint Ventures Non-profit Perspective APM/Rose Companies Case Study Rose Gray Senior Vice President Community and Economic Development Asociacion Puertorriquenos En Marcha (APM) Rose.Gray@apmphila.org 267-296-7305 www.apmphila.org www.apmphila.org
APM History Established 1971 as a Health, Human and Social service agency 1990 established APM s Community Development Corporation Community Development Corporation leverage over $160 million dollars in physical development projects. Physical Development Projects include; 8 LIHTC developments -253 rental units 46,250 square feet of retail space- 44,000sq ft. supermarket, 2,500 sq.. credit union and a 4,000 sq.ft. Laundromat. 148 for sale home ownership units Preserved over 200 units of home ownership Developed 3 early childhood /daycare centers In partnership with PHS stabilized and maintain 20 acres of vacant land Through CEPTED stabilized 2 community play grounds Quality of Life programs /Sustainable Community Initiatives Operate a Financial Opportunity Center and Housing Counseling program Food Buying Club serving over 600 families Neighborhood Advisory Council Lead People partner in the HUD CHOICE Initiative 9 www.apmphila.org
AMP Overview 10 www.apmphila.org
Jonathan Rose Companies Our Mission is to repair the fabric of communities while preserving the land around them. Jonathan Rose Companies is a national development, owners representative and investment firm. The company s mission is to develop communities that enhance opportunity for all. Since its founding in 1989, the firm has completed over $1.8 Billion of work. The Company is widely recognized as a leader for design excellence, walkability, and economic, social and ecological responsibility, creating successful models that also enhance the ability of their cities to thrive. 11 www.apmphila.org
JRCo Overview Rose Investments Rose Development Project Management Urban Planning 12 www.apmphila.org
Transit Oriented Development Site 13 www.apmphila.org
WHEN THE STARS ALIGN In 2002 APM s Livable Community Plan addressed Transit Oriented Development Between 2002-2009 no political support for TOD Political Will emerges with Mayor Michael Nutter Urban Land Institute Meeting brings together APM /Jonathan Rose companies. Former HUD Secretary Cisneros, Former HUD Attorney Nelson Diaz visits site and recommends TOD project for site. Jonathan Rose visits site with staff and formerly acknowledges 9 th and Berks is a TOD site! APM/Jonathan Rose decide to pursue TOD RFP Pre-development will be the testing grounds for a partnership APM through Citi Group brings $100,000 of predevelopment funds to the table. 14 www.apmphila.org
15 WHAT DO YOU BRING TO THE TABLE? SWOT APM Jonathan Rose CO Strengths Weaknesses Opportunities 26 year CDC history-non profit 160 million of project Experience LIHTC, home ownership commercial development, preservation, greening Guarantee limits Community buy in Political Will Philadelphia presence Risk sensitive 20 million dollar comfort level for projects No knowledge of NMTC Or mixed use/mixed income projects No experience with TOD projects Combine strengths Use this as a learning experience National perspective Ability of partner to guarantee a complex financing structure. www.apmphila.org 27 year development history-for profit 1.8 Billion Experience LIHTC, NMTC, mixed use/mixed income, green development strategies, consultant team, project and asset management. Strong financial position Commercial Leasing National presence New to Philadelphia Market AMI very low for a TOD mixed market /use project Need for subsidies Cost of construction vs market TOD experience Enter the Philadelphia Market Build on CDC success to secure subsidies and land Threats Control issues Ability to partner effectively without a Philadelphia presence.
THE DEAL! 50-50 Partnership between APM and Jonathan Rose companies Owner structure -40 years with Right of First Refusal Jonathan Rose Guaranteed $ 9 million of debt on NMTC. There is no debt on the LIHTC condo. APM secured $9 million in grants and subsidies NMTC- Jonathan Rose Companies (Lead and Guarantor, Managing Partner) LIHTC APM ( Lead and Managing General Partner) Jonathan rose company guaranteed construction, APM guaranteed occupancy. Developer Fee equitably distributed Cash Flow equitably distributed 16 www.apmphila.org
Project Financing Condo Unit #1 Transit Village Affordable Housing 53 residential units targeted to persons at or below 60% AMI Sources Agency Amount LIHTC Equity ($0.97) PA Housing Finance Agency $ 10,937,922 HOME Funds City of Philadelphia $ 4,000,000 AHP Funds Federal Home Loan Bank SF $ 520,423 Total Project Cost $ 15,458,345 17 www.apmphila.org
Condo Unit #2 - Grant Sources Loan D1 Grants Amount LISC $352,000 LISC LEED ND $ 13,750 EGC Charrette Grant $ 5,000 Citibank Foundation $150,000 Bank of America/USGBC $ 25,000 City of Philadelphia $ 30,696 Additional Contribution $313,536 Loan D1 Bridge Loan RACP PA Industrial Development Corp. $5,500,000 Senator Casey $487,000 Home Depot/PHS $100,000 City of Philadelphia $ 19,304 Comcast Foundation $ 50,000 PA Dept. Community & Econ. Development $500,000 Loan D2 Housing Trust Fund $1,500,000 Total Grant Sources $9,046,286 Project Financing 18 www.apmphila.org
Funding Summary 19 Funding Sources City, State and Federal Public Sources Both Traditional and Nontraditional Private Sources Low-Income Housing Tax Credits Structure New Market Tax Credits Structure Four Different Community Development Enterprises (CDE s) 19 www.apmphila.org
Supplemental Schedule of Flow of Funds 20 www.apmphila.org
GOOD PROJECT, GOOD PARNTERS, GOOD DEAL! Paseo Verde TOD was build within $48 million budget and on time! First Triple LEED Platinum Building in the Nation and second in the world. Certified by the US Green Building Council LIHTC rental units -100% occupied within the first 90 days of CO. Project remains 100% occupied NMTC- Market rental units -100% occupied within 6 months of CO. Project remains 100% occupied. NMTC- 30,000 square feet of Commercial space, Federally Qualified Health Center, Pharmacy and APM CUA program and headquarters fully occupied since CO and remains 100% occupied. Model of a strong partnership with like minded partners who each brought talent, strength, integrity and hard work to the project. 21 www.apmphila.org
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PLATINUM SMART LOCATION & LINKAGE NEIGHBORHOOD PATTERN & DESIGN GREEN INFRASTRUCTURE & BUILDINGS INNOVATION & DESIGN PROCESS REGIONAL PRIORITY CREDITS 24 www.apmphila.org
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Joint Ventures For-profit Perspective Charlie Lewis Senior VP Development Conifer clewis@coniferllc.com (856) 793-2082
What For Profits Offer Nonprofits Financial Capacity 28
What For Profits Offer Nonprofits Financial Capacity Fund predevelopment costs Provide financial guarantees Assume all general partner liability 29
What For Profits Offer Nonprofits Staff Capacity 30
What For Profits Offer Nonprofits Staff Capacity More staff Staff responsible only for development Staff with more diverse experience Specialized staff 31
What For Profits Offer Nonprofits Further Nonprofit Mission 32
What For Profits Offer Nonprofits Further Nonprofit Mission Different type of development Housing on larger scale Control neighborhood development Provide housing for service provider s clients 33
What For Profits Offer Nonprofits Relationships 34
What For Profits Offer Nonprofits Relationships Lenders Syndicators Investors Professionals Politicians 35
What Nonprofits Offer For Profits Financing Advantages 36
What Nonprofits Offer For Profits Financing Advantages Preference for nonprofits in funding programs Nonprofit set-aside in tax credit rounds 37
What Nonprofits Offer For Profits Relationships 38
What Nonprofits Offer For Profits Relationships Image Lenders Investors Politicians Community organizations and leaders 39
What Nonprofits Offer For Profits Knowledge of Community 40
What Nonprofits Offer For Profits Knowledge of Community Design Marketing Meeting obligations for local hiring, local business participation and affirmative action Community Support for Zoning and Funding 41
What Nonprofits Offer For Profits Real Estate 42
What Nonprofits Offer For Profits Real Estate May own or control property Better able to obtain it from municipality Better able to assemble multiple sites 43
Things to Negotiate Economic Developer fee Cash flow Back end Right of first refusal Purchase option Funding resident services 44
Things to Negotiate Decision Making Hiring Professionals Design Decisions Neighborhood Investments Supportive Service Providers Green Building Who gets top billing 45
Things to Negotiate Construction Selecting general contractor Hiring local people Using local businesses Affirmative action 46
Things to Negotiate Management Marketing Resident Selection Eviction policies Hiring of site staff Using local businesses Joint management 47
Joint Ventures Legal Perspective Josh Cohen Shareholder Greenberg, Traurig, LLP cohenjos@gtlaw.com 215-988-7815 G R E E N B E R G T R A U R I G, L L P A T T O R N E Y S A T L A W W W W. G T L A W. C O M 2016 Greenberg Traurig, LLP. All rights reserved.
Fundamental Terms > CONTROL > ECONOMICS > FINANCING STRUCTURE > RESPONSIBILITIES > GUARANTIES > EXIT STRATEGY 49 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
CONTROL > Whose project is it? > Phases Pre-Development Pre-Closing Funded Project Construction Lease-up Stabilized Occupancy 50 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
Control > Aspects of Control Project Design Project Structure Financing Structure Day-to-day Budget Major Decisions Compliance Social/Supportive Services and Programs 51 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
Economics > Developer Fees Split Payment Schedule Minimums Asset Management and other Fees > Cash Flow Split Are all parties remaining in the deal for tax credit period? 52 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
Financing Structure > Investor Identity Financial Terms 168(h) Election Issues > Debt Structure of hard debt Types of soft debt and repayment terms Contribution of non-profit partner (seller loans, soft loans and subsidies) 53 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
Responsibilities > Assembling Project Team (including affiliates) > Tax Credit Application > Identifying financing sources and subsidies > Land Development Approvals > Construction Management > Project Management (including leasing) > Supportive Services > Community Outreach > Marketing/Advertising 54 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
Guaranties > Completion Is contractor an affiliate? Is the project turnkey? > Stabilization Who is responsible for lease-up/marketing? Rehab/new construction? > Operating Deficit Who is the property manager Are all parties participating in operating period? 55 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures
Exit Strategy > Year 15 ROFR/Purchase Option Whose project is this? Is developer participating in deal through Year 15? Conversion to homeownership? > Exit Taxes Always check projections and budget accordingly > Redevelopment Rights Does developer have the right to participate in any redevelopment? 56 Greenberg Traurig, LLP gtlaw.com Non-Profit Joint-Ventures