6/3/2014 AFFORDABLE HOUSING ISSUES TOOLS AND TOPICS FOR TURBULENT - PDF document

6/3/2014 AFFORDABLE HOUSING ISSUES TOOLS AND TOPICS FOR TURBULENT TIMES ALABAMA MISSISSIPPI CONNECTICUT VIRGINIA 500 Office Park Drive, Suite 300 / Birmingham, AL 35203 www.navigatehousing.com ERIC Q. STRONG, CEO estrong@navigatehousing.com THE REALITY OF THE LAST TEN YEARS OVERVIEW Deferred Maintenance A 2010 Report showed the Public Housing stock had a $26 billion dollar backlog in deferred maintenance. Fewer Affordable Housing Units HUD is losing over 12,000 units annually Unstable Funding Public Housing Operating and Capital Funds are declining. The current Capital need is projected to be $25,000 per unit and increasing by $3,000 annually. PHA reserves are being offset. Section 8Multi-Family funding is also stressed. While still never pro-rated, funding is short-term -- less than 1 year -- with residual receipts being offset to cover HAP payments (does not apply to RAD deal HAP contracts). PAGE 2 OVERVIEW PAGE 3 1

6/3/2014 TOOLS AND HOT TOPICS FOR TURBULENT TIMES Strategic Planning – Assessing organizational structure and corporate OVERVIEW culture - determining and defining the future of your agency Portfolio Re-engineering – Taking a holistic view of the “ tools in the toolbox” • RAD • LIHTC • Demolition/Disposition • FHA Mortgages • Consortia Regulatory Changes • New HUD Secretary • HUD Multi-family Transformation • Flat Rents PAGE 4 TOOLS IN THE TOOLBOX STRATEGIC PLANNING Strategic planning can generally be divided into two areas, Planning for Physical Assets and Planning for the Organization. Components of a Strategic Plan for an Organization: • Vision Statement – which describes what your PHA will look like at a certain point in the future. • Mission Statement – which briefly expresses the purpose of your PHA, specifically, “why do we exist?” • Values Statement – which describes the principles that guide the planning, operations, and programs of your PHA “Framework for a Basic Strategic Plan Document for a Nonprofit.” Management Help, October 2013. http://www.managementhelp.org/freenonprofittraining/strategic-plan-framework.htm Mittenhal, Richard A. (2002). “Ten Keys to Successful Strategic Planning for Nonprofit and Foundation Leaders.” The TCC Group. Retrieved from http://www.tccgrp.com/knowledge/strategy.phd PAGE 5 TOOLS IN THE TOOLBOX STRATEGIC PLANNING Components of a Strategic Plan for an Organization (continued) • External Strategic Analysis – to define the external challenges and obstacles along with the opportunities for your PHA • Internal Strategic Analysis – to define the strengths or weaknesses of the organization. In example, human resources, the budget, or technology could all be considered a strength or weakness for a PHA. • Board of Commissioners/Directors Goals and Objectives • Staff Goals and Objectives • PHA Action Plan PAGE 6 2

6/3/2014 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING RENTAL ASSISTANCE DEMONSTRATION (RAD) • Can provide the framework for using the other portfolio re-engineering tools PAGE 7 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING LOW INCOME HOUSING TAX CREDIT (LIHTC) 4% LIHTC – Non-competitive – depending upon the Qualified Allocation Plan AP in your state, can be as good or better option than 9%; works great with FHA financing 9% LIHTC – Great capital generator; fierce competition; review your state’s QAP. There are three primary documents that govern the terms of most LIHTC deals. They are: • Development Agreements • Partnership/Operating Agreements • Management Agreements PAGE 8 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING LOW INCOME HOUSING TAX CREDIT (LIHTC) continued Development Agreements – will be between the PHA and Developer and: • List the obligations of both parties with respect to the development and generally be entered into before the closing of the financing for the project. • Lay out the financial commitments of both parties, including who will pay for pre-construction cost such as architectural and engineering fees • Set out the milestones to be met by the Developer, such as a date certain for a funding commitment, closing and completion of construction • Give the PHA the right to terminate the agreement if the milestones are not met PAGE 9 3

6/3/2014 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING LOW INCOME HOUSING TAX CREDIT (LIHTC) continued Partnership/Operating Agreements – will govern the entity created to own and operate the redeveloped project. It will set out: • The ownership interest of the Developer and the PHA • Set out how decisions are made by the entity owning the redeveloped project The key issue is to limit the Developer's ability to make decisions regarding the project without input from or control by the PHA. Management Agreements – will be between the entity created to own the redeveloped project and the day to day manager of the project. If the Developer wants to manage the project, the Agreement will: • Outline compensation • Give standards for how the redeveloped project will be managed day to day. • Provide clear standards for termination of the manager for non-performance PAGE 10 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING LOW INCOME HOUSING TAX CREDIT (LIHTC) continued How to Protect Your PHA and Reduce Risk of “Loss of Control” • Find and work with people who excel in the industry because of skills, integrity, reputation and experience. Do not use professionals who are not experienced in the field – even if they are good. • Call you colleagues • Construct a Term Sheet that defines everyone’s role, responsibilities, guarantees, compensation, etc. and that reflects the business and operational aspects of the deal. Give it to your lawyer to guide the legal aspects of the deal. • READ EVERYTHING . Your lawyer’s perspective is legal. Your perspective is operational. PAGE 11 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING LOW INCOME HOUSING TAX CREDIT (LIHTC) continued How to Protect Your PHA and Reduce Risk of Loss of Control • Require the property comply with specified HUD rules and regulations. In example, all but the LP will need to be in the APPS (F47) system with no flags. • Include performance standards in the management agreement, maintain approval of management fees or a range of fees, and any bonus payments • The development agreement should explicitly spell out the right to buy out the developer at a predetermined price or based on a predetermined formula at the end of the holding period • Maintain approval of any substantial changes to the project • Maintain approval of any capital expenditure above a specific threshold PAGE 12 4

6/3/2014 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING SECTION 18 DEMOLITION/DISPOSITION Historically, the most common disposition option due to the flexibility of the use of the proceeds and the high likelihood of tenant protection vouchers. • Change in neighborhood • Value of underlying land allows replacement • PHA otherwise determined that disposition appropriate Section 18 Disposition can be used with RAD – not either/or Allows for partial vouchers and ability to convert less than 1 for 1 units under RAD. Notice PIH 2012-07 raised the bar for disposition. PAGE 13 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING SECTION 18 DEMOLITION/DISPOSITION (continued) Notice PIH 2012-07 requirements include: Must have environmental review completed before submission (Part 50 or Part 58) PHA Plan/Significant Amendment Resident Input into “Overall Plan of Disposition”– not just an offer to sell Specific guidelines on “safe harbor” when disposition is for physical condition and not feasible to be remedied. PAGE 14 TOOLS IN THE TOOLBOX PORTFOLIO RE-ENGINEERING THE “OTHER” DISPOSITION Two disposition options in QHWRA • Section 33 required conversions: Nuanced and complex conversion that works best for large bedrooms/highest PHA cost properties • Section 22 “voluntary” conversions Similar in outcome (not identical) to RAD with PVA option – though no 60,000 unit cap May be best option for poorest performing /highest cost PHA assets Proper Strategic Planning – understand the spread between the PHA payment standard (Cap Funds + Op Funds) vs voucher payment PAGE 15 5