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23rd Annual Statewide Housing Conference
February 26, 2014
11
Housing 101: Getting StartedDevelopment Finance Basics
22
Challenges to Developing Affordable Housing
• Costs the same to develop whether rents are affordable or market rate
• Special needs housing may cost more• Rent revenue must be sufficient to cover
operating expenses and debt service• Direct relationship between development
costs and rent level
33
Options to Achieve Affordable Rents
• Reduce development costs
• Reduce operating expenses
• Subsidize rents (vouchers)
• Subsidize development costs
44
Development Subsidy’s Impact on Affordable Housing Development
• Low-cost development funding enables rents to be affordable to more people
• Affordability is ensured for the long term– Deed Restrictions limit incomes and rents
• One source may unlock the door to other private, local, state and federal resources
24 Unit Apartment Building$175,000 x 24 units = $4,200,000 Total Cost
Traditional Financing• Equity $1.26 million (30%)• Debt $2.94 million (70%)
$189,391 Debt Service (5%, 30 year)$120,000 Operating Expense$100,800 Return on Equity (8%)$410,191 Needed Annual Revenue
= $1,424 Average Monthly Rent per Unit
55
24 Unit Apartment Building$175,000 x 24 units = $4,200,000 Total Cost
Traditional Financing• Equity $1.26 million (30%)• Debt $2.94 million (70%)
$189,391 Debt Service (5%, 30 year)$120,000 Operating Expense$100,800 Return on Equity (8%)$410,191 Needed Annual Revenue
= $1,424 Average Monthly Rent per Unit
Development Subsidy• Equity $1.26 million (30%)• Soft Debt/Grant $1.26 mil. (30%)• Debt $1.68 million (40%)
$108,223 Debt Service (5%, 30 year)$120,000 Operating Expense$100,800 Return on Equity (8%)$329,023 Needed Annual Revenue
= $1,142 Average Monthly Rent per Unit
66
24 Unit Apartment BuildingMixed Income Property
Rent Distribution Scenario• 5 units @ $415 (30% AMI)• 5 units @ $670 (50% AMI)• 5 units @ $1,050 (80% AMI)
• 9 units @ $1,860 (“Market Rate”)
= $1,142 Average Unit Rent
77
Development Funding ResourcesGrant Programs
– No repayment– Provide equity into the project– Tenant income and rent requirements– Examples
• Affordable Housing Program - FHLB• Community Development Block Grant• Private philanthropic foundations• Low Income Housing Tax Credits
– 9% “competitive” credits– 4% credits with bond financing
8
Development Funding Resources
Soft Debt Programs– Repayment is flexible
• Deferred payments• Forgivable• Interest-only payments• Contingent payments based on cash flow
– Tenant income and rent requirements– Examples
• Housing Incentive Fund• HOME• Neighborhood Stabilization Program
9
Development Funding ResourcesOther Programs and Strategies• Interest Buydown
– Flex PACE (BND and Local EDC/JDA)– Rural Development Finance Corp. (NDAREC)
• Property Tax Reduction– NDCC Section 57-02-08(43)– Renaissance Zone
• Local concessions– Land– Utilities
10
24 Unit Senior ProjectCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding Sources
Total Funding Sources $0
11
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 35,000
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($114,700)Net Operating Income $121,892
Debt Service (Principal & Interest)
Net Cash FlowDebt Coverage Ratio
24 Unit Senior Project: Conventional FinancingCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (5% 15 years) $4,000,000Owner Equity Investment 500,000
Total Funding Sources $4,500,000
12
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 35,000
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($114,700)Net Operating Income $121,892
Debt Service (Principal & Interest) (379,581)
Net Cash Flow ($257,689)Debt Coverage Ratio 0.32
24 Unit Senior Project: LandCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (5% 15 years) $3,550,000Owner Equity Investment 500,000
Discounted Land (City) 450,000
Total Funding Sources $4,500,000
13
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 35,000
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($114,700)Net Operating Income $121,892
Debt Service (Principal & Interest) (336,878)
Net Cash Flow ($214,986)Debt Coverage Ratio 0.36
24 Unit Senior Project: Fees & PermitsCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (5% 15 years) $3,500,000Owner Equity Investment 500,000
Discounted Land (City) 450,000
Waive Fees/Permits (City) 50,000
Total Funding Sources $4,500,000
14
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 35,000
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($114,700)Net Operating Income $121,892
Debt Service (Principal & Interest) (332,133)
Net Cash Flow ($210,241)Debt Coverage Ratio 0.37
24 Unit Senior Project: Soft DebtCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (5% 15 years) $2,300,000Owner Equity Investment 500,000
Discounted Land (City) 450,000
Waive Fees/Permits (City) 50,000
Soft Debt (HIF, NSP) 1,200,000
Total Funding Sources $4,500,000
15
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 35,000
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($114,700)Net Operating Income $121,892
Debt Service (Principal & Interest) (218,259)
Net Cash Flow ($96,367)Debt Coverage Ratio 0.56
24 Unit Senior Project: Property TaxesCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (5% 15 years) $2,300,000Owner Equity Investment 500,000
Discounted Land (City) 450,000
Waive Fees/Permits (City) 50,000
Soft Debt (HIF, NSP) 1,200,000
Total Funding Sources $4,500,000
16
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 10,400Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($90,100)Net Operating Income $146,492
Debt Service (Principal & Interest) (218,259)
Net Cash Flow ($71,767)Debt Coverage Ratio 0.67
24 Unit Senior Project: GrantsCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (5% 15 years) $1,900,000Owner Equity Investment 500,000
Discounted Land (City) 450,000
Waive Fees/Permits (City) 50,000
Soft Debt (HIF, NSP) 1,200,000
Grants (Found’n, CDBG) 400,000
Total Funding Sources $4,500,000
17
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 10,400
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($90,100)Net Operating Income $146,492
Debt Service (Principal & Interest) (180,300)
Net Cash Flow ($33,808)Debt Coverage Ratio 0.81
24 Unit Senior Project: FlexPACECostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (Buydown to 1%) $1,900,000
Owner Equity Investment 500,000
Discounted Land (City) 450,000
Waive Fees/Permits (City) 50,000
Soft Debt (HIF, NSP) 1,200,000
Grants (Found’n, CDBG) 400,000
$175,000 Local FlexPACE Match (EDC/JDA)
Total Funding Sources $4,500,000
18
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 10,400
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($90,100)Net Operating Income $146,492
Debt Service (Principal & Interest) (136,457)
Net Cash Flow $10,035Debt Coverage Ratio 1.07
24 Unit Senior Project: Final Pro FormaCostsLand Acquisition $650,000
New Construction 3,200,000
Fees and Permits 50,000
Soft Costs 120,000
Finance Costs 100,000
Developer Fee 300,000
Operating Reserve 80,000Total Cost $4,500,000
Funding SourcesBank Debt (Buydown to 1%) $1,700,000Owner Equity Investment 500,000
Discounted Land (City) 450,000
Waive Fees/Permits (City) 50,000
Soft Debt (HIF, NSP) 1,200,000
Grants (Found’n, CDBG) 400,000
$175,000 Local FlexPACE Match (EDC/JDA)
Deferred Developer Fee 200,000Total Funding Sources $4,500,000
19
Operating BudgetTenant # Units Rent Annual
30% AMI 8 $450 $43,200
50% AMI 6 $750 54,000
80% AMI 4 $1,100 52,800
120%AMI 6 $1,450 104,400
Gross Potential Rent $254,400Less Vacancy & Bad Debt (17,808)
Effective Gross Income $236,592Administrative Expense $23,500
Utility Expense 30,000
Operating and Maintenance 19,000
Property Taxes 10,400
Replacement Reserve ($300/unit) 7,200
Total Operating Expenses ($90,100)Net Operating Income $146,492
Debt Service (Principal & Interest) (122,093)
Net Cash Flow $24,399Debt Coverage Ratio 1.20
2020
Questions?
North Dakota Housing Finance Agency
Bill HouriganHousing Outreach Officer
701/328-8080 or 800/[email protected]
Multifamily Development AssistanceProgram Agency
Type of Assistance Eligible Applicant Maximum Award Term (Months) Interest/Fees Income Target Maximum Rent Matching Funds
Application Period Notes
Housing Market Survey Grant NDHFA Grant Communities Under 35,000
50% of Survey Cost, Max of $5,000 N/A N/A N/A N/A
At least 50% of cost is borne by the applicant community Ongoing
Cost sharing incentive for rural communities to develop a local housing strategy.
Rural Rehabilitation Loan NDHFA Loan
Owners of multi-family property in community < 35,000
75% of project cost, Max of $100,000 25
Interest rate based on Agency cost of funds at time of application. 1% Origination Fee.
Min 20% of units at or below 100% AMI N/A
Minimum 25% equity investment Ongoing
Must be used to cure significant deferred maintenance, and improve the property to a decent, safe and sanitary condition.
Housing Incentive Fund (HIF) NDHFA Soft Loan
Any non-profit or for-profit entities with experience in housing development.
The least of 30% of development costs, $3,000,000, or the amount necessary for feasibility. 180+
0% interest. Origination fee of 5%. Annual compliance fee of $50 plus $35 per restricted unit.
30% to 140% of AMI for the restricted units.
30% of qualifying median income.
Developers must assist in raising contributions to the HIF. Quarterly
Program exhausted funding in 2013. Reauthorization will be sought during the 2015 Legislative session.
Rural Housing Development Loan NDHFA Loan
Developers in communities < 35,000
75% of project cost, Max of $200,000 36
Interest rate based on Agency cost of funds at time of application. 1% Origination Fee. N/A N/A
Minimum 25% equity investment Ongoing
Assistance to cover pre-development costs such as land acquisition, site development, infrastructure. Interest-only payments. Must have permanent financing approved.
Neighborhood Stabilization Program NDHFA Grant/Loan
Developers within qualifying census tracts N/A Varies Interest rate varies.
Maximum of 120% AMI. Half of the funding must be for 50% AMI households.
Fair Market Rents. Very low income households: lesser of FMR or 30% of 50% AMI. N/A
By publication of Request for Proposals.
Projects must be located within the communities of Alexander, Belfield, Bowman, Dickinson, Fargo, Glenburn, Grand Forks, Mohall, Ray, Rolla, Rolette, Sherwood, South Heart, Tioga, and Williston.
Low Income Housing Tax Credits (LIHTC) NDHFA Grant
Any non-profit or for-profit entities with experience in housing development.
Up to 70% of the project's "Qualified Basis". Maximum 25% of the State's annual allocation.
30 year affordability requirement
$500 processing + 10% allocation fee. Annual compliance fee of $50 plus $35 per restricted unit.
Minimum 20% of units at 50% AMI or 40% of units at 60% AMI.
30% of qualifying median income. Optional Annually Sherwood, South Heart, Tioga, and Williston.
Historic Rehabilitation Tax Credits (HRTC) NDHFA Grant
Developer reahbbing a property on or eligible to be on the National Register of Historic Places
20% of the project's qualifying expenses Minimum 5 years Up to $6,500 N/A N/A N/A Ongoing
Inquiry should begin by contacting the State Historic Preservation Officer
Property Tax Exemption (NDCC) County
Tax abatement
501(c)(3) owner of affordable housing subject to a deed restriction N/A N/A N/A N/A N/A N/A Ongoing
NDHFA certifies a project's eligibility to the county tax director.
Rural Rental Housing Direct Loan (Section 515) USDA-RD Loan
Developers in communities < 35,000
Up to 100% of total development cost (97% for-profit developers)
360 term / up to 600 amortization 1%
80% AMI + $5,500 30% of adjusted income. N/A Ongoing
Rural Rental Housing Guaranteed Loan (Section 538) USDA-RD
Loan Guarantee
Developers in communities < 35,000
Up to 97% loan-to-value (90% for-profit developers)
300 to 480 amortization
Interest rate according to lender 115% AMI 30% of 115% AMI
3% equity required for non-profits. 10% for for-profits. Ongoing
Loan is originated by a participating financial institution.
Community Development Block Grant Program
ND Dept of Commerce (Division of Community Services) Grant
City or County units of government $500,000 N/A N/A 30%, 50%, 80%
Based on 30% of qualifying median income Varies Ongoing
Funding is applied for through one of the eight Regional Planning Councils.
HOME Investment Partnerships Program
ND Dept of Commerce (Division of Community Services) Grant or Loan
Any non-profit or for-profit entities with experience in housing development.
Up to $40,000 or more per unit Varies Varies 80% AMI
Based on 30% of qualifying median income 25% Annually
Funds administered through two Community Housing Development Organizations: Eastern Dakota Housing Alliance and Affordable Housing Developers, Inc.
Renaissance Zone Program Local jurisdiction
Tax abatement
Projects within a community's Renaissance Zone boundaries. Varies Up to 5 years. N/A N/A N/A N/A Ongoing
Program is administered by the ND Department of Commerce Division of Community Services.
Flex PACE Affordable Housing Program
Bank of North Dakota
Interest rate buydown
Any non-profit or for-profit entities with experience in housing development.
$25,000 per unit, up to $500,000 total award.
Terms negotiated between lender and BND.
Pre-buydown interest rate according to lender
Varies based on the community percentage factor Ongoing
BND must participate in 50% to 80% of the loan. Program ends 6/30/15.
Community Loan Fund
Eastern Dakota Housing Alliance Loan
Developers in communities in eastern North Dakota
Up to 15% of total loan capital Varies per project Varies per project
80% AMI new construction; 120% AMI urban rehab.
Based on 30% of qualifying median income N/A Ongoing Maximum LTV: Rural - 85%; Urban - 95%.
Interest buydown shall not exceed the projected amount of rental relief. The locality will verify current market rates and the rental concessions made.
