Financial Management Workshop.ppt by wangnuanzg

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									  Housing Assistance Council
Building Rural Communities Since
              1971
Multifamily Housing Preservation
            Resources
          Presented to
 The USDA Rural Development
 Buyers and Sellers Conference
       Albany, New York
          June 30, 2010
      Presentation Contents

• Background of Housing Assistance
  Council
• Our Mission
• Housing Assistance Council Services
• Loan Products
• Project Feasibility
• Sucessful PRLF Financed Properties
  Housing Assistance Council
 Building Rural Communities since
               1971
• Established in 1971
• National nonprofit organization
• Created to increase the availability of
  decent and affordable housing for
  low-income people in rural areas
  throughout the U.S.
• Provide services to local, state, and
  national organizations
            Our Mission

“To improve housing conditions for the
  rural poor, with an emphasis on the
  poorest of the poor in the most rural
  places.”
            HAC Services
 Research and Information (R&I Division)
 Technical Assistance and
  Training(TA&T Division)
   – Regional Offices
     • Albuquerque, NM
     • Atlanta, GA
     • Kansas City, MO


 Loans (Loan Fund Division)
   Technical Assistance

• Assistance to those involved in the
  improvement of housing conditions for
  low-income residents in the rural
  United States.

• Most of this help goes to local
  governments, private developers, and
  nonprofit organizations.
      Types of Technical
         Assistance
• analysis of project feasibility;
• acquisition, housing construction or
  repair, and environmental regulation;
• assistance in the preparation and
  review of loan and grant applications;
• assistance with eligibility and
  processing requirements for federal,
  state and other housing programs;
• information and publications on topics
  that affect rural housing; and
• special initiatives focused on particular
  areas or events
      Eligible Recipients

• Located in a rural area

• Already obtained some general
  information about the rural housing
  problems you wish to address, and
  ways to address them

• Specific questions about finding
  funding sources, using government
  housing programs, or overcoming
  obstacles to housing development
Training
 Research & Information

• Biweekly newsletter
• Quarterly magazine
• Reports
• Manuals
• Information sheets
     Loan Fund’s Objectives
• Serve the underserved
• Target the highest need communities
• Empower low-income people
• Facilitate access to credit
• Leverage resources
• Provide technical assistance
• Exercise sound business practices
• Promote flexible partnerships
          Eligible Projects
Affordable and mixed-income housing projects in
    rural communities nationwide.




Financing is available for single- and multi-family
    housing, with various forms of ownership and
    using traditional and alternative models of
    land tenure.
         Eligible Borrowers
•   Community-based nonprofit organizations
•   Housing development corporations
•   Self-help housing sponsors
•   Farm worker organizations
•   Housing cooperatives and condo
    associations
•   Native American tribes
•   Public agencies and units of local
    government
•   Public utility districts
•   Small businesses and minority contractors
            Funding Sources

•   Grants
•   HUD
•   Rural Development (RD)
•   HOME
•   FHLB
•   AHP
•   LIHTC
•   Bonds
•   Housing Trust Funds
•   State Housing Finance Agencies
•   Private lenders (HAC)
      Loan Uses & Structure
Uses                 Structure
• predevelopment     • loans
• land acquisition   • guarantees
• site development   • compensating
• construction           deposits
• preservation       • letters of credit
• gap/interim        • lines of credit
    Loan Terms & Rates

•   Loans up to five years in duration
•   Below-market interest (currently 5.0%)
•   Interest due quarterly
•   1% service fee (borrower also pays HAC's
    legal and other reasonable costs)
                  Loan Process
1.  Inquiry.
2.  Submission of loan application.
3.  Comprehensive underwriting process.
4.  Internal management review.
5.  Loan committee review (approval, rejection or deferral).
6.  If accepted, loan commitment issued.
7.  Pre-closing conditions satisfied before
    disbursement of funds.
8. Loan closing and disbursement.
9. Servicing/monitoring loan throughout the term of
    the loan.
10. Full repayment of loan.
LOAN PRODUCTS
         Pre-Development
• Standard 5 year term
• 5% interest rate and 1% HAC service fee
• No maximum loan amount
• Maximum 100% LTV
• Security of lien position on real property and/or
  assignments and UCC-1 filings on unrestricted net
  assets of borrower.
• Repayment typically upon sale of developed lots
  or closing of construction/permanent financing
          Site Acquisition
• Standard 5 year term
• 5% interest rate and 1% HAC service fee
• Maximum 100% LTV as supported by current
  appraisal
• Security of lien position on the project property
• Repayment upon sale of developed lots or closing
  of construction/permanent financing
         Site Development
• Standard 5 year term
• 5% interest rate and 1% HAC service fee
• Maximum 100% LTV as supported by current
  appraisal
• Security of lien position on the project property
• Repayment upon sale of developed lots or closing
  of construction/permanent financing
• Take-out financing must be identified or
  committed at time of application
        Construction Loans
• $750,000 cap per loan and borrower
• Standard 2 year term with option to extend for 1
  year. A 1% extension fee applies.
• 5% interest rate and 1% HAC service fee
• Maximum 100% LTV as supported by current
  appraisal
• Security of lien position on the project property
• Repayment upon sale of developed lots or closing
  permanent financing
• Permanent, take-out financing committed prior to
  disbursement.
   Self-Help Homeownership
     Opportunity Program
            (SHOP)
• The SHOP program is authorized
  under Section 11 of the Housing
  Opportunity Program Extension
  Act of 1996

• Funded through the U.S.
  Department of Housing & Urban
  Development (HUD)

• Provides loans that can be turned
  into grant monies for land
  acquisition and infrastructure
  improvement costs associated with
  the development of self-help units
           Multi-Family Funding
                 Programs

HUD Section 202, Housing for the Elderly
   Provides capital grants for construction
   Provides tenant rental assistance
   Non-profits only, create new subsidiary NP
   Long term, non-interest loan
   Part of the HUD Super NOFA
   Now using leverage of other funds, last 2 years
      Multi-Family Funding Programs


HUD Section 811, Housing for Persons with
Disabilities
    Provides capital grants for construction
    Provides tenant rental assistance
    Non-profits only, create new subsidiary NP
    Long term, non-interest loan
    Part of the HUD Super NOFA
      Multi-Family Funding Programs

Rural Development 515 Multi-family Housing
  Provides long term, low interest loans, often 1%, 50 year
 amortization; Limited Partnerships
  Provides tenant rental assistance, for all or part
  Involves leveraging of other resources, LIHTC, HOME,
 AHP, etc.

 RD 538 Loan Guarantee uses local lenders

 RD 514/516 Farm Worker Housing uses same basic
 structure for eligible farm worker projects
               Filling the gaps

How do we make deals work?
 Reduce costs
 Reduce debt service
 Identify other funding sources; HOME, FHLB
AHP, LIHTC, Bonds, Housing Trust Funds, private
funds
 Identify financing subsidies; HUD, RD, State
Housing Finance Agencies to reduce cost of debt
and/or provide rental assistance
             Filling the gaps
                  HOME

 HOME is funding program of HUD
 Funds are applied for through state for rural
housing needs
 Priorities established through state
comprehensive/consolidated plan
 Has extensive regulations, obtain copy.
 Plan to meet both use, and reporting requirements
              Filling the gaps
      Federal Home Loan Bank AHP

 AHP is administered through 12 district
Federal Home Loan Banks
 Funds are awarded from usually two
competitive application rounds
 Priorities established by Bank and Advisory
Council annually
 Applications made through member bank;
usually drafted/prepared by non-profit
        Tax-Exempt Bonds

 Why are developers using tax-exempt
                   bonds?
• 4% or 9% Bonds
• Because of demand for 9% credits
• Automatic allocation of tax credits
• Availability of bonds
• Low interest rate on borrowing
     Low-Income Housing Tax
         Credits (LIHTC)
                   Background

• Tax Reform act of 1986
• Section 42 of IRC of 1986
   – Housing program in the tax code
   – Statute amended several times, including 2000
• Objective to provide investor equity
• Credit is a dollar-for dollar tax reduction
     Low Income Housing
         Tax Credits
Where do I find more information?

Your State Housing Agency HFA
[Links from ncsha.org/main.cfm]
      “Annual Allocation Plan” –
establishes how credits will be allocated;
populations served, geography allocations,
non-profit set-asides
      Trainings conducted by or sponsored
by your state HFA
Project Feasibility
     Basic Factors Critical To
    Determining The Financial
     Feasibility of A Project

• Planning
• Determination of the appropriate financing.
• The availability of funding resources in the
  community to develop the project.
• Identification of take-out financing
• Project Type
• Know your local needs and market
• Take a conservative approach to costs; do not
  underestimate to make project “work”
• Identify needed partners
• Project the best, prepare for “worst”
    Eligibility and Feasibility

• Basic Feasibility Thresholds
  – CNA to determine needs, timing and
    funding
  – Underwriting to determine feasibility and
    tools
  – Additional funding is available (Agency
    or 3rd Party)
  – Basic Eligibility Thresholds
     • Project is needed in market
     • Post transaction Owner is eligible
    Participating Lenders With
      HAC PRLF Financing

– HUD Section 8 assisted state funded
  housing
– USDA/Rural Housing Services
–    Section 515 (MPR)
–    Section 521 Rental Assistance
– Low Income Housing Tax Credits
– Commercial Lending Institutions
 PROFILE OF PRLF FUNDED
       PROPERTIES

• Aging properties and owners

  – All over 20 years old

  – Irreplaceable affordable rural rental
    housing option in the respective
    communities
         Preservation Challenges

• Portfolio risks: small projects, rural not full RA.
• Aging physical asset with varying physical needs.
• Federal Budget constraints that limit funds for
  incentives, RA, and equity & rehab loans.
• Shortage or surplus of affordable rental
  housing/escalating or falling market values
• Contractually at-risk.
• Aging owners & ownership structures
• Lack of experience in the preparation of Section 515
  transactions on the part of sellers, buyers and
  lenders.
     PUTTING THE DEAL
        TOGETHER
What Did Not Work or Needs
 Improvement…
  Timing or Coordination is a challenge
    Different funding cycles, different programs,
     different Agencies
    Different closing deadlines due to different
     funding cycles
    Can’t complete underwriting without certain
     items:
        Capital Needs Assessment
        Appraisal
        Market Study
    Putting the Deal Together
 What Did Not Work or Needs Improvement…
   Making the Deal Work Without New Funding while
    still Complying with Regulations
      Addressing immediate capital needs at property
      Replacement Reserve account has to be resized to
        meet long term capital needs identified in CNA
      Must keep rents affordable
      New Owner needs to understand that if reserve is
        not sufficient for capital improvements or
        deferred maintenance, they will be ultimately
        responsible
     PUTTING THE DEAL
        TOGETHER
What Did Not Work or Needs
 Improvement…
  Paperwork, Paperwork, Paperwork
    Different Agencies require different
     applications
    Different Agencies require different Legal
     Documents
    Recognize that requirements may vary from
     state to state
       PUTTING THE DEAL
          TOGETHER
 What Did Not Work or Needs
  Improvement…
   Replacement of Management during the interim
      Communication was a struggle between seller/buyer
       and interim management
      Hard for interim management to remain committed
       when they know it’s temporary
      Hard for New Owner to let Management do their job
      Need Training Program for new Owner’s management
       company in order for them to be qualified to manage
       RD financed properties
         RD wants New Owner and New Management to be
          successful, so go slowly and don’t take on too much,
          too fast!
     PUTTING THE DEAL
        TOGETHER
What Works….
 USDA Rural Development’s MPR
  Program.
 This works well with transfers especially
  if there are no other funding sources
   Debt deferral provides resources for making
    capital improvements as identified in CNA
   Hold meetings with Management and Owner
    to discuss MPR program and responsibilities
       Helps them understand the CNA report
       Review legal documents and requirements
   Successful Property in Iowa
• Nonprofit entity requested a PRLF loan of $400,000
  to pay acquisition and rehabilitation costs for a 90-
  unit multifamily complex.

• The transaction involved the consolidation of three
  existing USDA RD Section 515 financed properties
  located on an 8.25-acre site in a small community
  consisted of a population less than 5,000.

• Construction involved the rehabilitation of a 90-
  unit complex that serves residents with incomes at
  30% -60% of AMI.

• All 90 units have either USDA RD or HUD Section
  8 Rental Assistance.
                 Transaction Facts
• USDA RD holds a first lien on the property for $495,584 with a 20-
  year debt service deferral through the MPR Program.

• Applicant obtained a $900,000 Section 515 loan (MPR) using the
  proceeds to fund the rehabilitation debt service deferment.

• HAC’s PRLF loan is secured with a third lien against the real estate.

• The HAC $400,000 PRLF Loan is the only remaining debt service
  with a 5% interest rate and a 28 year repayment period.

• The property is receiving 100% Rental Assistance.

• Total development cost of the project was $1,300,000.

• No Low Income Housing Tax Credit Equity involved.

• Loan to value not to exceed 100%.
            Project Status

• All loans have been closed for over a
  year.
• LTV 17.21%
• USDA Rural Development and PRLF
  accounts are current.

• Replacement Reserve requirements are
  being met.
  Successful Washington State
           Property
• Applicant organization requested a
  HAC PRLF loan in the amount of
  $400,000 to acquire a 42-unit multi
  family property in Washington State.

• The project will serve very low and
  low income tenants with 30% to 80%
  of area medium income.
                      Transaction Facts
•   Washington Department Housing Trust Fund provided no-debt-service funding in the
    amount of$515,000.

•   Local County Government provided $750,000 in grant funding.

•   USDA Rural Development approved an $800,000 transfer and assumption of a the
    existing Section 515 Loan secured by a first lien.

•   A new Section 515 Loan in the amount of $800,000 secured by a second lien.

•   HAC’s $400,000 PRLF loan is secured with a third lien against the real estate.

•   An equity contribution was made in the amount of $2,411,198 from the syndication of
    Low Income Housing Tax Credits.

•   The total funding from all sources amounted to $4,876,198 which is the total
    development cost.

•   The total rehabilitation cost per unit was $116,195.

•   Loan to value not to exceed 100%.
           Project Status

• All loans have been closed for over a
  year.
• USDA Rural Development and PRLF
  accounts are current.
• LTV 35.01%
• Replacement Reserve requirements are
  being met.
• Property is 100% occupied.
  Successful Property in Kansas
• Non Profit applicant entity requested a $300,000 PRLF loan
  for the rehabilitation of three multifamily properties located
  on three separate sites.

• Properties at each site received $100,000 of loan proceeds.

• The transaction involved the consolidation of three existing
  USDA RD Section 515 financed properties

• All three sites were at-risk properties.

• Construction involved the rehabilitation of a total of 32-units
  serving residents with incomes at 30% -80% of AMI.

• All 32 units have either USDA RD or HUD Section 8 rental
  assistance.
          Transaction Facts

• HAC as a first lien position on each
  site.
• The applicant received 9% LIHTC for
  each of these sites: $327,905, $388,635
  and $375,010 for a total of $1,091,550.
• Loan to value not to exceed 100%.
           Project Status
• All loans have been closed for over a
  year.
• LTV 23.48%
• USDA Rural Development and PRLF
  accounts are current.
• Replacement Reserve requirements are
  being met.
• Rehabilitation complete.
• Occupancy is 100%.
                  Office Locations
                     Housing Assistance Council
                     1025 Vermont Avenue, N.W., Suite 606
                     Washington, DC 20005
                     202-842-8600, fax: 202-347-3441
                     hac@ruralhome.org

                                         HAC Southwest Office
                                         3939 C San Pedro, N. E.
                                         Suite 7
HAC Southeast Office
                                         Albuquerque, NM 87110
600 West Peachtree Street, N. W.
                                         505-883-1003, fax: 505-883-1005
Suite 1500
                                         Southwest@ruralhome.org
Atlanta, GA 30309
404-892-4824, fax: 404-892-1204
                                         HAC Midwest Office
Southeast@ruralhome.org
                                         10920 Ambassador Drive
                                         Suite 220
                                         Kansas City, MO 64153
                                         816-880-0400, fax: 816-880-0500
                                         nicole@ruralhome.org
    Contact Information
     Housing Assistance Council
     (202) 842-8600
     (202) 347-3447 Fax


  Karin Klusmann                      Jann Yankauskas
 Loan Fund Director               Senior Loan Underwriter
Karin@ruralhome.org                 jann@ruralhome.org.
      Ext. 118                            Ext. 149
   Dierdra Pressley
     Loan Officer
Dierdra@ruralhome.org
       Ext. 154

								
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