Jill Odom - Financial Integrity by qingyunliuliu


									November 2009

                       Financial Integrity of a
                      Rental Property – Whose

                2010 North Carolina Affordable Housing Conference
                              September 17, 2010
                                Jill Odom, CAHEC
Question - Who’s Responsible
for achieving and Maintaining
     Financial Integrity?
…Anyone with a vested interest in the property.
This would include:
• The owner
• The management agent
• The syndicator/investor
• The lender(s)
• The State allocating agency
• Who else?
Financial Integrity cannot be achieved without a
  coordinated team effort
1.The state or quality of being entire or complete;
  wholeness; entireness; unbroken state;
2. Moral soundness; honesty; freedom from corrupting
  influence or motive; -- used especially with reference to
  the fulfillment of contracts, the discharge of agencies,
  trusts, and the like;
3. Unimpaired, unadulterated, or genuine state; entire
  correspondence with an original condition; purity.

Syn: Honesty; truthfulness, veracity, reliability, honor.
 What is Financial Integrity? –
From the Investor’s perspective
                 Financial Integrity
• Synonymous with Financial Stability, or Financial
   • The ability of a property to achieve or exceed all of the
     financial projections relating to its development and
     operational phases
   • Adhering to or exceeding expectations with regard to timing
     and delivery of projected tax credits
   • Maintaining property performance standards in accordance
     with IRC regulations, Federal, State and local laws
   • The ability to generate revenue and absorb costs with
     minimal variances using a realistic and achievable budget.
Tools for determining Financial Integrity
• AHIC Watchlist Criteria
   • Development Phase, including lease-up
      • Construction Delays over 3 months
      • Construction cost overruns exceeding15% of contract or contingency
        reserves spent
      • Leasing delays over 3 months
      • First mortgage closing delays over 3 months
      • Mechanics Liens
      • Revenue & Expense variances
      • Any change in qualifying units
      • Litigation
      • Bankruptcy
Tools for determining Financial Integrity
• AHIC Watchlist Criteria
   • Operational Phase
      •   High Receivables/High Vacancies
      •   Debt Coverage
      •   Unpaid real estate taxes
      •   Insurance coverage
      •   Mortgage or guarantee delinquency or default
      •   Deferred Maintenance or extraordinary repairs not budgeted
      •   Physical Inspection/Physical Deterioration
      •   Significant life-safety issues
      •   Unauthorized debt
      •   Required Deposits and adequate funding of reserves
      •   GP Removal/replacement
      •   GP/management agent failure to perform
      •   Litigation or Bankruptcy
Tools for determining Financial Integrity
• Industry Best Practices – Risk Rating Policies
   • Development Phase
      •   Construction/Lease-Up Schedules
      •   Financial (sources and uses)
      •   Construction Loan status
      •   Permanent Loan status
      •   Program Compliance
      •   General Contractor
      •   GP/Sponsor/Management
      •   Recapture risk
Tools for determining Financial Integrity
• Industry Best Practices – Risk Ratings
   • Stabilized Phase
      •   Debt Service Coverage
      •   Occupancy
      •   Benefits (tax credit and losses)
      •   Reserves
      •   Physical issues
      •   GP/Sponsor/Management
      •   Program Compliance
      •   Insurance/Taxes
      •   Reporting
      •   Recapture/Foreclosure risk
Tools for determining Financial Integrity
• LIHTC Program regulations
• Contracts
  •   LIHTC Application and Awards letters
  •   Partnership Agreements
  •   Management Agreements
  •   Guarantee Agreements
  •   Loan Documents
• IRS 8823 Audit Guide
    Tips to Achieving and
Maintaining Financial Integrity
    Tips to Attain Financial Integrity
• To the Owner
  • Be aware of the terms and conditions of your agreements
    and contracts – insuring that they are reasonable and
  • Timing is EVERYTHING!
  • Use realistic and achievable revenue and expense
    assumptions – Voodoo math can cripple a project
  • Communication is CRITICAL – share the important details
    with your entire team, especially your property management
   Tips to Maintain Financial Integrity
• To the Management Agent
  The success or failure of the first year of operations almost
    always determines the long-term viability of the project
  • Hold a “kick off” meeting with your owners (and syndicator)
    – to confirm all the specifics of a new property
      •   Set-asides
      •   Rent/utility schedules
      •    Tax Credit delivery/lease-up schedule
      •   Review marketing plan
      •   Reserves: Funding amounts and timing
      •   Review budget
      •   Review all promises made in the TC application and pertinent terms of
          the partnership agreement (ie: reporting requirements)
   Tips to Maintain Financial Integrity
• To the Management Agent
  • Use a “By the Book” methodology of management
      • Know which housing program handbooks are applicable and which
        regulations to follow for determining initial and continued compliance
           •   HUD 4350.3 Handbook
           •   8823 Audit Guide
           •   State Allocating Agency guidelines and requirements
           •   Landlord/Tenant laws
           •   Fair Housing Laws
           •   Local Codes
           •   ADA/Accessibility & design requirements

  • Know your market and advertise pro-actively.
  • Focus on lease enforcement and resident retention
  • Recruit experienced site staff: provide on-going training,
    support and motivation!
Questions or Comments?
     Jill Odom, CAHEC

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