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Larry Anderson MFH Direct Revitilization

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Larry Anderson MFH Direct Revitilization Powered By Docstoc
					     Revitalizing Rural Development’s
  Multi-Family Housing (MFH) Portfolio
  “Saving and creating decent, safe, and
sanitary affordable homes for rural renters”


     * FY 2010 Presentation by: Larry Anderson,
 Director, MFH Preservation and Direct Loans (MPDL)
     Housing and Community Facilities Programs -
              laurence.anderson@usda.gov
       Basic Facts: 515/514 Portfolio (1-1-09)
• 16,000 Properties with 452,610 Units (28 units avg. size)
• $11.6 Billion Outstanding Principal (3.0% delinquent)
• The tenants who we serve:
   –   $11.2K Annual Average Income ($9.2K for RA)
   –   64 % receive RA
   –   15 % receive HUD project or tenant based subsidy or other
   –   21% receive no deep tenant subsidy
• Tenant Households headed by:
   –   59% Elderly
   –   71% Female
   –   30% Minority
   –   24% Handicapped or disabled
   –   30% Tenant turnover
• 30% Properties in Counties with Declining Income
 Fiscal Year 2009 Funds Commited ($ mil)


    $49.30                Direct Rural Rental
                $10.10    Housing (515 & MPR)
                          Guaranteed Rural Rental
                  $6.70
                          Housing (538)
                          Rental Assistance (521)
             $142.10
                          Farm Labor Housing
$902.50      $132.60      (514/516)
                          Housing Preservation
                          Grants (533)
                          Rural Housing Vouchers
Fiscal Year 2009 - Number of Units Served

                       210,618   Rental Assistance (521)

                         6441    Direct Rural Rental Housing
                                 (515 & MPR)
                          4252   Guaranteed Rural Rental
                                 Housing (538)
                          2332   Housing Preservation Grants
                                 (533)
                          2062   Rural Housing Vouchers

                                 Farm Labor Housing
                           866   (514/516)
Multi-Family Housing Delinquency
     Multi-Family Housing Delinquency

 6.00%


 4.00%


 2.00%


 0.00%
         2004    2005    2006    2007    2008    2009
         1.90%   2.20%   2.06%   2.57%   2.80%   2.70%



         • Delinquency is under control
      Direct Loan and Grant Program
           Direction for FY 2010
1. Preserve and revitalize the direct portfolio
  •    Fully identify capital needs
  •    Market based sustainable underwriting
2. Build “super green” new where most needed
  •    Goal of “zero net” energy consumption
  •    Goal for property is long term sustainability of rents
3. Use third party resources – ARRA and other
  •    Simplify, clarify and support the process
  •    Better working relationships with 3rd party funders
      SUPER GREEN – What does
            that mean?
1. Energy conservation plus generation
2. Build “super green” new where most needed
  •   Goal of “zero net” energy consumption
  •   Goal for property is long term sustainability of rents
3. NOFA Scoring Criteria
         Key Revitalization challenges:
•   Nature of the portfolio
     –   Aging – earliest projects from the 60’s
     –   Small properties
     –   Rural Markets
     –   Not enough RA
     –   Aging of physical structure is project specific
•   Nature of ownership entities
     – Aging owners and entities
     – Conflicting interests within ownership
     – Tax consequences for selling or not selling
•   Cloud of Prepayment statute litigation now lifting
     – Franconia – Damages to owners possible
     – Tucker Act Settlement – 731 projects going thru process
     – Goldhammer – APA violation to not follow regulation
•   Limited pool of purchasers and funding resources
•   Tightening Federal budget for traditional subsidized housing
  Key Revitalization Study findings
• Comprehensive Property Assessment (CPA) found:
   – Irreplaceable rural rental housing option
   – Portfolio in good shape, but aging and reserves under funded
   – Addressing now is more cost effective
• Study also said:
   – Portfolio breaks into 3 segments
       • 10% in great markets – expensive to preserve
       • 10% in bad markets – not feasible to preserve
       • 80% in the middle – feasible to preserve
   – Old way - Just using rent increases and “more” RA is too expensive
   – New way – Use new cost effective revitalization tools
   – Reinvent program delivery for smarter & faster decisions
The Working Revitalization Strategy
• Components of all deals
   – Project is needed in market
   – Post transaction Owner is eligible
• Basic Feasibility Thresholds
   – CNA to determine capital needs, timing and funding
   – Underwriting to determine feasibility and tools
       • SUSTAINABLE RENTS = SUSTAINABLE PROPERTIES!
       • CNA needs - O&M - operating cushion – vacancy - accounts current
   – Seller payments and increased RTO is market based
       • Market value for equity loan
       • CRCU limit for equity payment and increased RTO
       • CRCU test before any MPR tools
   – Consider impact on tenants
• Long Term Commitment – RD’s funding/Owner’s RUP
    Access to revitalization resources
•   MPR (MFH Preservation and Revitalization Demo)
     –   NOFA rules – Access RD rehab funds – key tool: deferrals (pre-92 only)
     –   Simple (stay in owners)
     –   Complex (transfers)
     –   Portfolio (now includes transfers and stay in owners)
•   Transfer
     –   Low rents = tight deals
     –   “Pie split” issues common
     –   Limited RD funding – rehab through MPR
     –   3rd party funding – only source of seller payment outside prepayment process
•   Prepayment process
     –   Incentives (stay in owners or transfers)
     –   Sales to Non-profits (transfers)
•   Substitution of GP’s or "no funds” transfers - “white knights” beware
•   3rd Party – ARRA funds
     –   DOE – HUD Green Retro Fit
     –   LIHTC – TCAP or Exchange
          Revitalization Activity
• MPR (2006 – 76, 2007 – 87, 2008 - 135, 2009 – 94; SC top State)
• Transfers (top State 2009 – SC)
   – 60% use third party funding
   – 2006 – 159 closed
   – 2007 – 194 closed
   – 2008 – 235 closed
   – 2009 – 165 closed
• Prepayment process (top State 2009 – NC)
   – Incentive Loans, RA or Sales to Non-Profits obligated:
   – 2006 - 35
   – 2007 - 48
   – 2008 - 47
   – 2009 - 57
      Preservation Transactions
450
400
350
300                               Transfers
250                               MPR
200                               Prepayment
150
100
 50
  0
      2006   2007   2008   2009
MPR Demo Overview - 06/ 07/08/09 results
1.       Borrower applies per NOFA (4,100/2,400/1,700/1,250)
2.       RD conducts competition and selects candidates
         (150/170/286/360)
3.       Selected properties get:
     •     Borrower, market eligibility review and CNA
     •     Underwriting to develop a Financial Feasibility Plan (FFP)
     •     Review Committee Approval
     •     Documents prepared to reflect deal and new RUPs
4.       USDA presents and owner approves the deal and mix of
         MPR tools
5.       USDA obligates financing and arranges closing
6.       Borrower and USDA close the deal
MPR Deals obligated by State 06/ 07/08
  65   SC           4   GA, IL, KY, PA, VT
  27   ME           3   VI, MI, AZ, CT, IN, MA, NY
  22   MO           2   WA, NV, OH, OR, MS, CA
  20   NC, OK       1   VA, NH, NM, RI, MN
  14   LA           0   AL, AK, CO, DE, MD, HI, NJ, PR
  13   IA               UT, WV
  10   WI
  8    ID, MT, SD
  7    NE, ND
  6    AR, KS, TX
  5    FL, TN
MPR “Tools” - 06/07/08 Demo results
1)    Partial or full 515 Deferral ($48M/$56M/$100M)
2)    “Bullet” aka “Soft-second” loans ($4.5M/$2.8M/$13M)
3)    Grants ($.2M/$.5M/$.4M)
4)    515 Loan @ zero percent interest ($.3M/$2.6M/$12.6M)
5)    Payment to owner of some costs (CNA from reserve)
6)    Forgiveness of 515 Debt ($0/$0/$0)
7)    Re-amortization of 515 Debt (yes/yes/yes)
8)    Subordination of 515 Debt (yes/yes/yes)
9)    Consolidation of 515 projects (yes/yes/yes)
10)   Other RD funds (Section 538/515) ($8.8M/$25M/$58M)
11)   Third party funds ($1.8M LIHTC/$45M/$65M)
   Operational Goals for FY 2010 MPR
• Gear up to handle more transactions
   – Encourage portfolio transactions/multiple property financing
   – Find ways to use more third party funding
• Build capacity in all States
• Improve key decision making points and reduce bottlenecks
   – CNA, CNA reviews Agreed to “scope of work”
   – Underwriting review and analysis
• Develop routine supervising and servicing
   – budget integrity and reserve use per CNA
   – Establish long term internal controls
• Continue to build funding pipeline of approved transactions
• Expand LH participation
        Other Demo Related Improvements
• Transfer handbook updated
    –   One - simplified application process
    –   Processing deadlines per HR 3873
    –   Better handling of third party funding
    –   Working with portfolio transfers
• Additional guidance
    – CNA and CNA review unnumbered letter (August 2008)
    – Underwriting unnumbered letter (October 23, 2008)
    – Construction unnumbered letter (under construction)
• Improve outreach to buyers, sellers, and funders
    – Clarify program benefits and rules
    – Reduce barriers to participation
    – Website access at: http://www.rurdev.usda.gov/rhs/mfh/MPR/MPRHome.htm
• Continue to seek permanent legislation
Revitalization Battleground – Sizing
the split: rehab, seller and soft costs
                             • Sustainable rents –
                                – What does CRCU support?
                             • Rehab
                                – upfront/spread out
                rehab
                seller
                             • Seller payment
                soft costs      – loan or cash?
                             • Soft costs
                                – loan/cash
                                – upfront/deferred
  Key concepts with the “pie split” and the MPR

• Stay in owners – No split - It’s all about rehab
   – Underwritten once
   – Full use of MPR tools to fund rehab
   – Some soft costs may be included.
• Transfer – It’s a three way split
   – Underwritten twice
   – First to fit the CRCU test
       • seller payment and soft costs must make economic sense
       • RD funds can be included if “in hand”
       • If not in hand - use 538 at AFR to size the transaction
   – Second to fit MPR underwriting
       • Deferral used to keep rents affordable
       • MPR tools not used for seller payment
         Why is the MPR a good idea for the Program?
•   Cheapest way to revitalize a project
     –    Deferral, soft money, grants and zero percent loans are cost effective tools
     –    08 average MPR rents went down by 2% or $17 PUPM
•   May be the only feasible way to address existing capital needs
     –    Last year – rehab plus 20-years CNA needs over $29K per unit
     –    Typical project could not afford rehab or higher reserves within CRCU without MPR
     –    Without MPR tools the cost is carried by RA
     –    Without MPR tool rehab is limited and may leave the job half done
•   Many owners have no ability to sell or pay off
     –    The gap between current rents and CRCU is a pivotal feasibility measure
     –    Many projects don’t have the market position to satisfy all expectations
     –    Bringing in third party funds through a transfer not an option – project starts a death spiral
•   Mechanism for stay in owner to recapitalize
     –    Over 50% of MPR transactions with stay in owners last year
     –    Government funds not used for equity payout or huge developer fees
•   Magnet for third party funding
     –    Last year $100 Million leveraged by $30 Million in MPR BA
     –    Provides additional funds to get the transaction to work
                Portfolio Management
                Direction for FY 2010
1.       Reduced portfolio energy consumption
     •     Improved operations at the property
     •     Promote energy generation at the property
2.       Seek better operations by Industry Collaboration
     •     Role model - IPIA improvement
     •     Continue to reduce duplicate monitoring
3.       Major update to automation systems
     •     Increase flexibility to new programs and relationships
     •     Improve Servicing – focus on major challenges and reduce
           the burden of routine tasks

				
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