New flexibility for repayment of Maryland DHCD Ffinancing

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Calculator TapeThe Maryland Department of Housing and Community Development (DHCD) has announced a new program to help developers resolve an issue that comes up in many if not most affordable housing deals in Maryland – how will available cash flow be split among DHCD, local government lenders providing soft loans and the developer. As developers well know, in a traditional DHCD loan 75% of available cash flow must be used to repay the DHCD loan. Once available cash flow is divvied up between DHCD and local lenders, there was little left for the developer or to be reinvested into the project for upgrades and improvements. DHCD’s new alternate repayment option should help to alleviate that problem for certain deals.

The payment option is driven by 3 main principles –

  • DHCD’s share of cash flow proceeds will never exceed 75% (it will usually range from 50% to 75%);
  • If there is deferred developer fee, DHCD’s share of cash flow will only be 50% until the fee is paid; and
  • The developer will always get 25% of cash flow.

Under the new program, the amount of cash flow to be received by DHCD and the local government lender will depend on the relative amount of project financing provided by each. Within certain set limits, the larger the local government’s loan is relative to DHCD debt, the more cash flow will go toward the repayment of the local lender’s loan. The calculation is too detailed to include here, but DHCD provides Examples of Cash Flow Split Calculation.

After repayment in full of the principal of the DHCD loan from cash flow payments as described above, DHCD will be entitled to payments of accrued interest, payable to the extent of a percentage of surplus cash. This “contingent interest” payment is based on an assumed 4% simple interest rate and is designed to compensate DHCD for its reduced share of cash flow. For more information on the structure of payments, click here (Repayment Terms).

This alternative interest arrangement only applies to Rental Housing Works, RHP and HOME Loans (not PHRP or other loan programs) and may not make sense for all projects, particularly those projected to have robust cash flow, but should be considered when structuring deals with DHCD and local government soft loans.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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