New Rural Preservation Strategies Presented by: Panelists •Lenny Skrill, NYS Homes and Community Renewal •Richard Price, Nixon Peabody, LLP •Scott Harrold, Lancaster Pollard •Jason Bordainick, Hudson Valley Preservation Group Moderator: Roger Brandt, Rochester’s Cornerstone Group, Ltd.
Lenny Skrill, Director, Upstate Capital Projects New York State Homes and Community Renewal
HCR Tools for the Preservation/Improvement of Section 515s • Low Income Housing Credit • Housing Trust Fund • HOME • Section 8 Project Based Rent Subsidies • Weatherization • Tax Credit Assistance Program • Rural Area Revitalization Program • Tax Exempt Bond financing/LIHB/HWF
Rural and Urban Community Investment Fund 1) How Much $$ - $5,400,000 with $2,160,00 for Rural Areas 2) What is a "Rural Area " - 25,000 or less in population 3) What is eligible: a) non residential components of eligible mixed use affordable rental projects b) in rural areas only - preservation of eligible affordable rental projects 4) Who can apply - not for profits, for profits affiliates of not for profits and for profit developers. 5) How much can you apply for in the Rural Areas: a) the lesser of $1,000,000 or $30,000 per unit in Early Award round b) the lesser of $500,000 or $30,000 per unit in the regular round. In Early Award round, one could only apply for the fund, but in Regular Round one could ask for additional HCR resources.
Rural and Urban Community Investment Fund Continued 6) Are there Match Requirements - Applicants are required to have a 1/3 match of requested funding amount. Some relief for projects in an a declared disaster area. 7) Design Standards HTFC design standards apply but consider requests to allow USDA to be lead agency. 8) What is the regulatory term - the greater of 10 years or the amount coterminous with balance of USDA loan. 9) How do you apply: a) Early Award Round b) Regular Award Round c) Open Window
John L. Kelly, Partner Nixon Peabody, LLP
USDA Appropriations FY14 + FY2013 + FY2014+ FY14 + FY 2011 FY 2012 FY2013+ House Loans Admin. Admin. Senate Final Final Final CR Bill (H.R. Proposed Proposed Bill (S.1244) 2410) 514/516 $27 M/ $21 M/ $26 M/ $16.5 M $23.5 M/ $24 M/ $24 M/ $9.8 M $7 M $9 M $14 M $8.3 M $8.2 M 515 $69.5 M $64.5 M $0 $31 M $28 M $28 M $28 M 538 Guarantee $31 M $130 M $150 M $150 M $150 M $150 M $150 M 521 Rental $955.6 M $905 M $907.1 M $907 M** $1.015 B $1.012 B $1.015 B Assistance 542 Rural $14 M $11 M $12.6 M $10 M $12.5 M $10 M $13 M Vouchers MPR $15 M $2 M $34.4 M $17.8 M $20 M $17.3 M $20 M 502 Direct $1.121 B $900 M $652.8 M $900 M $360 M $820 M $900 M 502 Guarantee $24 B $24 B $24 B $24 B $24 B $24 B $24 B
Sequestration Sequestration began March 1, 2013 Mandatory cuts in both military and discretionary programs Who is exempt? Children health Veterans Uniform military Social Security Medicaid Food Stamps insurance benefits
New York-RD Statistics NEW YORK STATE 2010 2012 Number of 514/515 Projects 452 467 Number of 514/515 Households 12,469 12,477 RA Households 5,230 5,326 Average Income $12,540 $12,730
Multi-Family Housing Occupancy Statistics as of April 2010 Source: RD Unnumbered Letter dated August 5, 2010
Multi-Family Housing Occupancy Statistics as of April 2010 (cont’d)
Multi-Family Housing Occupancy Statistics as of April 2012 Source RD Unnumbered Letter dated August 1, 2012
Multi-Family Housing Occupancy Statistics as of April 2012 (cont’d)
Questions? Richard Michael Price Nixon Peabody LLP 401 9th Street, NW, Suite 900 Washington, DC 20004 (202) 585-8000
Scott Harrold, Vice President Lancaster Pollard Mortgage Company
USDA Rural Development 538 Program Program Purpose • To encourage economic development in rural areas • To Increase and preserve the supply of affordable multifamily housing in rural areas • To ensure the availability of housing for rural residents whose incomes are 115% of area median income (or less) • Foster risk-sharing partnerships with public and private lenders
Eligible Properties • Existing or proposed multifamily properties containing five or more residential units • Must be located in rural community (20,000 persons or less) based on census data • Tenant income cannot exceed 115% of AMI • Average rents and Maximum rents cannot exceed 30% of 115% of AMI • Rehab must be at least $6,500 per unit
Eligible Uses • New construction costs • Acquisition with rehab of at least $6,500 per unit • Sales proceeds • Developer’s fee
Ineligible Uses • Housing in military impact areas • Housing that services primarily temporary and transient residents • Institutional type homes that require licensing as a medical care facility • Refinancing existing debt
Qualified Borrowers • For-profit and non-profit single asset, single purpose entity • New Construction • Substantial rehab of at least $6,500 per unit • Acquisition and rehabilitation
Loan Parameters • Loan Amount: No minimum or maximum • Recourse: Non-recourse • Interest Rate: Fixed for term of the Loan • Term: Maximum of 40 years or 75% of remaining economic useful life • Amortization: Fully amortizing with level principal and interest payments • Commercial Space: Limited to 10% of gross floor area and/or 10% of total project income • Criteria: 90% LTV, 50% LTC, 1.20 DSCR
Program Fees • USDA Guarantee Fee – Initial: 1.00% of loan amount due at closing – Ongoing: 0.50% on unpaid balance per annum • O&M Reserve – Minimum of 2% of loan amount funded at closing – Released as surplus cash after stabilization
Application Process • Notice of Funding Availability • Submission of complete (NOFA) in Federal Register application • Continuous review and selection • Obligation of Funds and Issuance of lender responses to NOFA until of Conditional Commitment published deadline • Construction Phase • Review and selection continues • Loan Closing until funds exhausted • Issuance of Loan Note Guarantee • Submit proof of lender eligibility • Lender Monitoring and Servicing and lender approval • Completion of National Environmental Protection Act (NEPA) requirement
Example • Type: Rehab of Existing 72-unit Apartment Community • Financing Structure: – 9% LIHTC – 538 Loan • Total Development Costs: $8,300,000 – Rehab of ~$40,000 per unit • 538 Loan: $1,555,000 • Loan-to-Value: 22.1%
Before
After
After
Scott Harrold Vice President, Northeast Housing Lancaster Pollard Mortgage Company 259 N. Radnor Chester Road, Suite 200 Radnor, Pennsylvania 19087 Phone: (610) 989-9006 x 205 Email: sharrold@lancasterpollard.com
Jason Bordainick, Managing Partner Hudson Valley Property Group
The Challenges of Rural Development Preservation
Key Financing Decisions • 9%? Or 4%? Or combination? • 538 loan or tax exempt bonds or other? • Subordination or pay-off of 515 debts?
Unique Challenges of a RD Preservation Project • Financial Viability of the project – – Limited Cash flow to support debt levels necessary to perform adequate rehab – Increases in rent require complicated, not easily obtainable increase adjuster – Comparable Rent Comparable Unit (CRCU) – Restricted Returns – Financing Programs Restrictions (ex. 538 program has restrictions that limit use of HFA soft monies) • Coordination of Agencies – HCR/HFA/HUD & RD – Agency Goals – Underwriting Standards – Eligible Uses – Loan Position • 3 rd Party Reporting – HCR/HFA & RD have different requirements – Format of the report (ex. RD CNA has detailed tables which need to be aligned with the scope of work) – Ordering of the reports (ex. RD allows reports ordered from the buyer while HFA wants reports ordered by the lender) – Timing of the Reports (ex. RD needs certain report analysis for initial review while HFA doesn’t require reports until submission)
A Lawyer’s dream… New York State Housing Finance Agency (HFA) …a Developer’s nightmare
Key Financing Decisions • 9% or 4% LIHTC? A combination? • 538 loan or tax exempt bonds? • Subordinate or pay-off existing 515 debt?
Unique Challenges of RD Preservation • Financial Viability • Agency Coordination • 3 rd Party Reporting
Financial Viability • Limited cash flow to support debt levels necessary to perform an adequate rehab • Increases in rent require RD specific increase adjuster – Conventional Rents for Comparable Units (CRCU) • Restricted Returns • Financing Program Restrictions
Coordination of Agencies HCR / HFA / HUD / RD • Agency Goals • Underwriting Standards • Eligible Users • Loan Position
3 rd Party Reporting • Format and Coordination – CNA & Scope of Work • Responsibility – Who is allowed/required to order the reports? • Timing – Each agency has different requirements
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