Better Housing Foundation, IL 2017A-1, A-2, B-2 Bond Ratings Placed On CreditWatch Neg On Vacancy Losses, Lower Revenues

NEW YORK (S&P Global Ratings) Jan. 29, 2019--S&P Global Ratings placed its 
'A-(sf)' and 'BBB-(sf)' ratings on Illinois Finance Authority's series 2017A-1 
to 2017A-2 and series 2017B-2 multifamily housing revenue bonds, issued for 
Better Housing Foundation (BHF) (the Windy City portfolio project) on 
CreditWatch with negative implications.

The bonds were issued on behalf of BHF to finance the acquisition, 
rehabilitation, and equipping of four multifamily residential-rental-housing 
properties. Embassy (Shaddle), Fox Run, Parkside, and Villa Brook apartments 
(collectively known as the Windy City Portfolio project), which are located in 
the suburbs of Chicago. 

The negative outlook reflects the following factors:
  • Higher-than-expected vacancy loss in 2018;
  • Lower-than-expected gross rent and net rent in 2018, resulting in net revenues of $5.6 million, which is 8.6% below pro forma revenues of $6.175 million; and
  • Significant unexpected repair expenses at two properties in the pool.
Based on unaudited financial statements we have received for the 2018 fiscal 
year, the project had about 10.4% vacancy loss throughout the portfolio, 
versus our assumed vacancy of 5.4% at issuance. Vacancy loss rates for 2018 
are as follows: 
  • Embassy (Shaddle) 5.4%
  • Villa Brook 9.3%
  • Parkside 20.8%
  • Fox Run 7.9%
The project owner reported that the elevated vacancy loss in 2018 was due in 
part to higher than anticipated capital needs at two properties in 2018: Villa 
Brook has had issues with its elevator, and Parkside had issues with its 
plumbing which required extensive repairs. S&P Global Ratings has requested 
additional information and clarification from the project owner regarding 
capital expenditures in the 2018 fiscal year in order to identify if any 
repair expenses were paid out of the project fund rather than operating 
revenues. Upon receipt of this information, we will provide an update on the 
project's financial performance and most likely lower the ratings within 90 
days of this rating action. In our view, the project will likely have debt 
service coverage below pro forma levels of 1.36x and 1.15x on the series 2017A 
and 2017B bonds for the 2018 fiscal year.

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