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

• 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

HCR Tools for the Preservation/Improvement of Section 515s

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

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

Rural and Urban Community Investment Fund Continued

John L. Kelly, Partner

Nixon Peabody, LLP

USDA Appropriations

Loans FY 2011 Final

FY 2012 Final

FY2013 + Admin. Proposed

FY2013+ Final CR

FY2014+ Admin. Proposed

FY14 + House Bill (H.R. 2410)

FY14 + Senate Bill (S.1244)

514/516 $27 M/ $9.8 M

$21 M/ $7 M

$26 M/ $9 M

$16.5 M $23.5 M/ $14 M

$24 M/

$8.2 M

$24 M/ $8.3 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 Assistance

$955.6 M $905 M $907.1 M $907 M** $1.015 B $1.012 B $1.015 B

542 Rural Vouchers

$14 M $11 M $12.6 M $10 M $12.5 M $10 M $13 M

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

Who is exempt?

Uniform military Social Security Medicaid Food Stamps Children health insurance

Veterans benefits

Mandatory cuts in both military and discretionary programs

Sequestration began March 1, 2013

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

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

USDA Rural Development 538 Program

• 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 Properties

• New construction costs • Acquisition with rehab of at least $6,500

per unit • Sales proceeds • Developer’s fee

Eligible 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

Ineligible Uses

• For-profit and non-profit single asset, single purpose entity

• New Construction • Substantial rehab of at least $6,500 per unit • Acquisition and rehabilitation

Qualified Borrowers

• 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

Loan Parameters

• 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

Program Fees

Application Process

• Notice of Funding Availability (NOFA) in Federal Register

• Continuous review and selection of lender responses to NOFA until published deadline

• Review and selection continues until funds exhausted

• Submit proof of lender eligibility and lender approval

• Completion of National Environmental Protection Act (NEPA) requirement

• Submission of complete application

• Obligation of Funds and Issuance of Conditional Commitment

• Construction Phase • Loan Closing • Issuance of Loan Note Guarantee • Lender Monitoring and Servicing

• 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%

Example

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

• 3rd 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

• 9% or 4% LIHTC? A combination? • 538 loan or tax exempt bonds? • Subordinate or pay-off existing 515 debt?

Key Financing Decisions

• Financial Viability • Agency Coordination • 3rd Party Reporting

Unique Challenges of RD Preservation

• 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

Financial Viability

HCR / HFA / HUD / RD

• Agency Goals • Underwriting Standards • Eligible Users • Loan Position

Coordination of Agencies

• Format and Coordination – CNA & Scope of Work

• Responsibility – Who is allowed/required to order the reports?

• Timing – Each agency has different requirements

3rd Party Reporting

www.hvpg.com