U.S. Department of Housing and Urban Development San Francisco Regional Office - Region IX One Sansome Street, 12 th Floor San Francisco, California 94104 www.hud.gov espanol.hud.gov 1 San Francisco Production Industry Meeting Agenda Wednesday, November 4 2015 – 10:00AM to 2:00PM Time Subject Matter Speaker(s) 9:30 a.m. Meet & Greet Coffee and Welcome 10 a.m. Multifamily Transformation Update Angela Corcoran Director of Operations 10:30 a.m. Update on LIHTC Pilot Expansion to 221(d)(4) Larry Fergison And Tax Credit Underwriting Best Practices Chief of Production 11:00 a.m. Panel Discussion Stan Toal Architecture and Valuation James Raymond Kevin Han Jim Myers Laura Stutzman 12:00 p.m. Lunch, thank you WMAC 12:45 p.m. Panel Discussion, Endorsement Coordination Erica Kodiyan Shannon Bergman Daryl Mutton Lora Han 1:30 p.m. Asset Management Coordination on Alexa Jeffress Preservation Projects Director Asset Management 1:50 p.m. RAD Updates and Coordination Angela Corcoran Director of Operations 2:00 p.m. Closing and Thanks Jim Raymond
Transcript
U.S. Department of Housing and Urban Development
San Francisco Regional Office - Region IX One Sansome Street, 12th Floor San Francisco, California 94104 www.hud.gov espanol.hud.gov
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San Francisco Production Industry Meeting Agenda Wednesday, November 4 2015 – 10:00AM to 2:00PM
Time Subject Matter Speaker(s) 9:30 a.m. Meet & Greet Coffee and Welcome 10 a.m. Multifamily Transformation Update Angela Corcoran Director of Operations 10:30 a.m. Update on LIHTC Pilot Expansion to 221(d)(4) Larry Fergison And Tax Credit Underwriting Best Practices Chief of Production 11:00 a.m. Panel Discussion Stan Toal Architecture and Valuation James Raymond
Kevin Han Jim Myers Laura Stutzman 12:00 p.m. Lunch, thank you WMAC 12:45 p.m. Panel Discussion, Endorsement Coordination Erica Kodiyan
Shannon Bergman Daryl Mutton Lora Han
1:30 p.m. Asset Management Coordination on Alexa Jeffress Preservation Projects Director Asset Management 1:50 p.m. RAD Updates and Coordination Angela Corcoran Director of Operations 2:00 p.m. Closing and Thanks Jim Raymond
San Francisco Production Industry Meeting
San Francisco, Los Angeles and Denver Multifamily Hubs
Western Hubs’ FY 2015 Accomplishments and Multifamily
Transformation
Angela Corcoran
Director of Operations
San Francisco Multifamily Production
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FHA Commitments Issued FY 2015
SAN FRANCISCO AND PHOENIX
Program No. of Projects Dollar Amount
223(a)(7) 12 $168,026,900
223(f) 21 $191,827,600
221(d)(4) 18 $243,235,500
542 Risk Share 4 $29,700,000
TOTAL 55 $632,790,000
PORTLAND AND SEATTLE
Program No. of Projects Dollar Amount
223(a)(7) 7 $85,035,400
223(f) 17 $206,886,800
221(d)(4) 16 $246,670,900
231 Elderly
Housing. 1 $13,903,400
TOTAL 41 $552,496,500
LOS ANGELES
Program No. of
Projects
Dollar
Amount
223(a)(7) 19 $90,587,700
223(f) 29 $264,209,900
221(d)(4) 4 $124,974,300
542 Risk Share 0 $0
TOTAL 52 $479,771,900
DENVER
Program No. of
Projects Dollar Amount
223(a)(7) 7 $105,136,100
223(f) 21 $148,882,000
221(d)(4) 10 $184,023,500
542 Risk Share 7 $11,160,000
TOTAL 45 $449,201,600
*PRE-DECISIONAL, PROPRIETARY AND CONFIDENTIAL*
This document contains pre-decisional opinions, advice, and recommendations that are offered as part of deliberations necessary to the formulation of
government policies and processes. It is protected from disclosure under the Freedom of Information Act (“FOIA”) pursuant to the Deliberative Process
Privilege under 5 U.S.C. § 552(b)(5). This document also contains commercially sensitive and confidential proprietary and trade secret information that is
exempt from disclosure under Section (b)(4) of FOIA, 5 U.S.C. § 552 et seq.
Overview of Multifamily for Tomorrow Transformation
Transformation
• By 2016 the Office of Multifamily Housing (MFH) will complete a transformation of the way we work from a 1970s operating model to a 21st-century model that applies industry best practices, improves our ability to manage risk and deliver excellent customer service, and increases accountability and national consistency.
Transform the way we work
Multifamily for Tomorrow (MFT) has four components
Workload sharing
Underwriter model and risk-based processing in Production
Account Executive and Troubled Specialist model in Asset Management
Streamlined organizational structures in HQ and field
1
2
3
4 Streamline our structure
MFH’s historic field model had 17 “hubs” and 50+ offices
Through MFT, we are moving to 5 Streamlined Regions
Organization Chart for Multifamily’s Streamlined HQ Model
Ben Metcalf
Deputy Assistant
Secretary
Office of Multifamily
Housing
Tom Davis
Office of
Recapitalization
Director, ReCap
Peter Duklis
Office of Field Support
and Operations
Director, OFSO
Nancie-Ann Bodell
Office of Asset
Management and
Portfolio Oversight
Director, OAMPO
Ted Toon
Office of Multifamily
Production
Director
Carolyn Cockrell
Program Systems
Management Office
Director
Priya Jayachandran
Program Administration
Office
Director
Each Region will have 1 Regional Center and 1 or 2 Satellite offices. Asset Management staff have the option to remain in existing locations
Northeast
▪ New York
▪ Boston ▪ Baltimore ▪ Buffalo ▪ Charleston ▪ Hartford ▪ Manchester ▪ Newark ▪ New York ▪ Philadelphia ▪ Pittsburgh ▪ Providence ▪ Richmond ▪ Washington
Southeast
▪ Atlanta
▪ Jacksonville
▪ Birmingham ▪ Columbia ▪ Greensboro ▪ Jackson ▪ Knoxville ▪ Louisville ▪ Miami ▪ Nashville ▪ San Juan
Midwest
▪ Chicago
▪ Minneapolis ▪ Detroit
▪ Cleveland ▪ Columbus ▪ Indianapolis ▪ Milwaukee
Southwest
▪ Fort Worth
▪ Kansas City
▪ Albuquerque ▪ Des Moines ▪ Houston ▪ Little Rock ▪ New Orleans ▪ Oklahoma City ▪ Omaha ▪ San Antonio ▪ St. Louis ▪ Tulsa
West
▪ San Francisco
▪ Denver
▪ Anchorage ▪ Boise ▪ Honolulu ▪ Las Vegas ▪ Los Angeles ▪ Phoenix ▪ Seattle ▪ Portland
Regional Center:
Satellite Office(s):
Asset Management:
Wave/ Region:
1 2 3 4 5
DONE DONE FALL ’15 SPRING ’16 SUMMER ‘16
States Covered by Each Regional Center
Northeast
▪ New York
▪ Boston ▪ Baltimore
▪ Connecticut ▪ D.C. ▪ Delaware ▪ Massachusetts ▪ Maine ▪ Maryland ▪ New Hampshire ▪ New Jersey ▪ New York ▪ Pennsylvania ▪ Rhode Island ▪ Virginia ▪ Vermont ▪ West Virginia
Southeast
▪ Atlanta
▪ Jacksonville
▪ Alabama ▪ Florida ▪ Georgia ▪ Kentucky ▪ Mississippi ▪ North Carolina ▪ Puerto Rico ▪ South Carolina ▪ Tennessee
Applications will be uploaded and assigned to a Multifamily Field Office or to a contractor for processing. Lenders will be notified of the office processing the application and receive instructions from the San Francisco Office.
1. Concept Meetings: Please submit all concept meetings for Alaska, Idaho, Oregon, and Washington to San Francisco at the following email box: [email protected]. Larry Fergison, Production Chief, 415-489-6618, is the point of contact for all concept meetings. 2. Early FHA Numbers: Please submit all requests for Early FHA numbers along with the required form for Alaska, Idaho, Oregon, and Washington to San Francisco at the following email box: [email protected]
*Please note that the Los Angeles (Southern California) and Denver (Colorado, Montana, Utah, Wyoming, North Dakota, and South Dakota) offices will continue to accept Pre-applications, Firm Applications, concept meetings and early FHA numbers requests for their current geographical regions until further notice.
When there are repairs or allowable improvements proposed, these appraisals must be prepared
assuming those repairs / improvements have been completed and rents and expenses must reflect
completion of the proposed repairs or improvements.
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Section 223(f) – The Assumption Effects of the proposed repairs or improvements may include an assumed:
increased effective rents decreased vacancy and collection loss absorption rate decreased operating expenses an extension of the economic life of the improvements;
and/or a combination of some or all of these results.
Expected increase in net income and its present worth results in an “As-If Complete” appraisal assignment, which employs an Hypothetical Condition.
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Hypothetical Condition For any appraisal employing the income approach to valuation,
assumptions made about the forecasted net income will be key to the credibility and reliability of the value estimate and underwritten net income.
The appraiser must prepare a thorough, detailed stabilized income and expense statement for demonstrating the effects of the assumptions.
The appraiser must convince the reviewer of the appraisal report of the reliability of the net income estimate. If he or she does not, the development of an appropriate capitalization rate in the income approach will be of little interest or value, however, clearly and convincingly it is presented.
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Net Income Estimate – Rental Income Assumptions
Extremely aggressive rent growth assumptions in the multifamily industry right now.
Assumptions are being justified because of the supply-demand dynamics.
At this point in the cycle, supply taken hold almost everywhere.
Market-rate rent increases across all bedroom categories and sectors.
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Rents: Two Tiered System
Market-rate rents are significantly higher than long-term tenancies. While one can assume that new renters are not renting units they cannot afford, relatively high rent levels potentially affect the markets in two ways.
First, it could mean that the renter population is shifting to one with higher household incomes.
Second, it could mean that new and existing tenants are required to spend more of their income on rent versus other spending.
Data indicates that both are true.
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Rents: Two Tiered System High rents affect not only who can afford to move into markets, they affect how long tenants can afford to remain in their units.
Units at market-rate rents have high turnover whereas tenants with affordable rents tend to maintain longer tenancies.
Turnover require repairs or improvements to the unit interiors to remain competitive in the market.
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Tenant Refusal to Accept Increase Rent
In a market of many competitors, attempts to raise rents may extend vacancies, encourage unit turnover, and/or stir up tenant complaints.
Headline: Tenants of the Hampshire Tower Apartments in Takoma Park are being hit with sudden rent increases of as much as 70 percent, forcing many to move. They’re pleading for help, and getting support from state and local leaders.
It’s going to force poor people out of the neighborhood even more. There should not be less affordable housing.
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Reviewer: Test for Reasonableness Determination whether assumptions employed in the net
income forecast are reasonable in the aggregate should be based upon the experience of the property, unless it can be established that past experience of the property is not likely to recur and is not a good indication of future experience.
The appraiser must investigate and analyze the actual rent schedule of the property and compare it with the rent schedule of similar properties; assess the risk of losing good tenants (top-flight tenants).
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Reviewer: Test for Reasonableness As with a recent and unforced sale of the property under
appraisal, if the property is actually rented its current rent is often best evidence of its market rent and should be given appropriate consideration by the appraiser in estimating the gross rental income of the property.
Leases in-place at the property support the assumed net income. If they do not, then the assumptions made about future rents, vacancy, and absorption rates at the property must be consistent with market data and comparable properties, and thoroughly investigated and discussed.
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Reviewer: Test for Reasonableness The assumption / forecast is verifiable, at least in
principle.
The assumption employed is represented by an itemized scope-of-work and an operative and binding plan.
Proposed rent increase phase-in plan to handle significant difference between market rate and what existing tenants are paying; and for limited income tenants.
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Review for Underwriting Risk Year-over-year growth in effective rents decelerating in high
end of the market as well as in tertiary and secondary markets.
Lack of affordability capping rent growth.
Widening affordability gap of a two-tiered market during projection period.
Reliance on tenant move-outs or evictions so that the repairs or improvements can be performed.
Eviction protections for existing tenants.
Tenant Protections - Rent Phase-in Period.
Retention and releasing plan post renovations.
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223(f) Underwriting Tips
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o 223f LIHTC Pilot Program
• $40,000/unit limit is fixed – no way around it. No deductive change orders or downgrades allowed.
• Plan Accordingly! Scope, cost and sequence of the work (schedule priorities and big costs first) Lender and HUD review and approve all changes to the work
• HUD Inspectors less involved 35%, 65% and 100% - so little assistance /oversight, limited eyes and ears for Lender and HUD. Therefore – relying on Architect and their administration much more.
• “A-Teams” better perform at an “A -level “ - the people on the job need to be the best. – not just in company name.
• Relocation Plan needs to be properly executed by qualified team and coordinated with Construction.
223(f) Underwriting Tips
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o 223f LIHTC Pilot Program
TIPS: 1. Use a lump sum/GMP Construction Contract 2. Hire Experienced and Skilled Architect – for thorough and complete
CDs, then excellent Administration of the Construction Contract – especially any changes to the work.
3. Allow only Necessary changes to the work. If on schedule and budget and at the end – might entertain betterments, but risky.
4. Lender 3rd party Architect scrutinize the CDs for accuracy and completeness to minimize change orders not related to latent conditions.
5. Anticipate changes – necessities due to latent conditions, fire marshal or code inspector last minute requests, …
6. Allow for room in budget/cost – less than the $40,000/unit maximum – to accommodate added cost during construction via change order.
Resident Relocation & Relocation Plans
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o Resident Relocation (in general) • How the residents are treated during a rehabilitation or occupied
rehabilitation is a big deal! • Can have serious health and safety consequences - stress, injury,
security, … liability • Can impact construction cost and schedule if fail to plan and properly
execute resident relocation • When is it necessary to relocate residents, even temporarily and when
not? Tied to scope of work. • Our focus is the asset/property, and the residents. • Often Relocation Plans must meet the URA as well as approval from
CPD.
Resident Relocation & Relocation Plans
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o Intended (Promised) Relocation Plan INCOMPLETE
• Boiler plate document with little value typically used to check off compliance with requirements.
• Going to interview residents • Going to develop a schedule or a non-specific schedule
provided • Costs for relocation are rough estimates and unreliable
Resident Relocation & Relocation Plans
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o Implementation (Real) Relocation Plan OF VALUE & REQUIRED
• Accurate data, dates and dollars • WHO is responsible – the individuals, their names, contact information
and roles provided? Requires a designated Relocation Liaison with right skill set – not the Property Manager, not the Contractor. Liaison needs to attend OAC site meetings.
• WHICH resident are moving in which specific units? • WHEN – the relocation schedule - specific dates for each unit,
sequenced and coordinated with the construction schedule • HOW – how will effective communication by done, how and who is
responsible for packing, moving, inspections (in and out), dealing with residents special needs or complaints, etc.
• HOW MUCH – the cost – an accurate cost of relocation so that the relocation escrow is correct.
Owner, Architect, Contractor Roles & Responsibility during Construction
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o Owner Representative 1. Required to designate in writing one person to act as the Owner
Representative during construction. Must have the authority to bind the Owner legally and financially – and sign all documents (draws, change orders,). at the site. Must attend the on-site Draw Meetings and ideally the bi-monthly Progress meetings on-site as well.
2. RAD deals – require the Housing Authority Board to pass a resolution to designate a HA staffer to act as the Owner’s Rep., attend the meeting, sign the documents at the site, etc.
3. Why? This is required for timely decision making and timely processing of documents.
Building a Strong Team for Success. Things to Know and Discuss Early
Owner, Architect, Contractor Roles & Responsibility during Construction
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o Architect 1. Administrator of Construction Contract (Leadership not Passive Role) 2. Provide OAC meeting agendas, run meetings, write the meeting notes, track
and monitor tasks, administrator changes. 3. Know this before Firm/Close – so Architect Fee appropriate. 4. Weakness of the industry – need to hire a good and experienced
Supervisory Architect 5. HUD Inspector less involved – thus Lender and HUD will need to rely on the
Architect much more!
o Contractor 1. Strict compliance with the Contract Documents – any changes administered
through the Architect. 2. No value engineering or design-build during construction 3. Their organization, operations, supervision & scheduling are keys to success.
Note – No Changes or Amendments to the AIA A201 General Conditions (except required deletion of Mediation and Arbitration).
Building a Strong Team for Success. Things to Know and Discuss Early
Owner, Architect, Contractor Roles & Responsibility during Construction
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o Others/Consultants
1. Consultants only for Owner contract responsibilities – geotechnical, environmental, etc.
2. Construction Managers – not appropriate, not allowed - conflicts
with HUD required contracts for new construction and sub rehab. - AIA B108 with HUD Amendment, Construction Contract and AIA A201 GC.
3. If Owner wants more oversight then recommend an increase in
Architect role with AIA B352.
Building a Strong Team for Success. Things to Know and Discuss Early
223f Properties: Identifying Repairs
• Assessing capital improvement and repair needs
– Recognize Risks Particular to the project
– Not “one-size fits all” type of reports and inspections
• Risks based on:
– Current Condition
– Age
– History (maintenance practice & capital investment)
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223f Properties: Identifying Repairs
• Age:
– Building is made of various different building system components.
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223f Properties: Identifying Repairs
• Age:
– These components have different Estimated Useful Life spans.
– Consider the age of the property in terms of the life span of the components and their replacement needs;
• What parts of the buildings need closer inspection and investigation.
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223f Properties: Identifying Repairs
• History:
– Why is this important in assessing older properties?
– Ex. of buying a used car.
• Replacement history: Timing belt, tires, transmissions, etc.
– Regular maintenance prevents long term damages and affects longevity.
– Indicative of the Owner/Management’s competency and habitual maintenance patterns.
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223f Properties: Identifying Repairs
• Recognize Risks Particular to the project:
– Current Condition: What’s apparent and readily visible may not be sufficient.
– Age: Guides what to look at, to what level of inspection and testing needed
– History: Lowers the risk of:
• Outdated and aged components
• System-wide failure
• Expensive repairs
• Occupancy disruption
• Reputation and marketability
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223f Properties: Repairs vs. R4R
• Priorities: Building Systems vs. Interior Finishes
• Building Systems take the priority:
– Building Envelope: Roofs, Exterior cladding, doors/windows, flashing/sealants, grading/slopes, gutter/downspouts.
– Structural integrity: Seismic upgrades, condition of structural elements, dry rot, termite damage, etc.
– Mechanical and fire safety systems: Performance, energy efficiency
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223f Properties: Repairs vs. R4R
• Consider the impact on health and safety, livability and marketability:
– Components that are nearing/beyond the end of Estimated Useful life, but still functioning:
• Consider the consequences of living with the broken component.
• Ex: Wooden stairs and landing - Would not want to wait until some part breaks before replacing them. Need to refurbish or replace before the actual breakdown.
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223f Properties: Repairs vs. R4R
• Interior Finish Items:
– Components that are nearing/beyond the end of Estimated Useful life, but still functioning:
• Already broken and deteriorated items: Replace + Repair
• Aged but functioning: Put appropriate amount of $ in the R4R, appropriate to market and competition.
• Ex: Kitchen cabinets – Appropriate to the market and comps, do not need to automatically replace and remodel just because they have reached their typical Estimated Useful Life span.
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223f Properties: Scope of Work
• Scope of Work (Repair Description):
– Thorough and detailed
– Clearly defined (plans, specs, details if necessary) for all work.
• No “Copy and Paste” from description of the condition from the actual PCNA report.
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223f Properties: Scope of Work • Prescriptive and Instructional, not passive voice or vague
or undetermined. – Ex. “Unit 10 and 20 are potentially the designated handicap units
(to be selected by borrower).”
– Ex. “If base cabinets door are provided, they should be removable.”
– Ex. “Renovate the kitchen cabinets so as to provide a 30” wide work-counter at the kitchen sink with a maximum of 34” above the floor.”
• No alternatives. Choose one and prescribe. – Ex. “The drinking fountain is protruding from the wall…either add
a wing wall, or recede the drinking fountains…”
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223f Properties: Repair Schedule
• Repair Schedule
– The scope of work, cost and schedule of the work need to be determined in advance
• Start immediately upon closing,
• Show necessary sequence and order to optimize timeline
• Complete repairs as early as possible
• Cannot be dependent upon any undetermined or unscheduled circumstances or conditions
– Not “AT UNIT TURN-OVER” • Not dependent upon when or if a tenant decides to move out
(temporarily or permanently).
• Tenant reluctance to allow improvements and then pay a higher rent often disrupts planned work under this “unit turn-over” approach.
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223f Properties: Termite Report
• Wood Destroying Pests and Organisms Inspection Report
• Often referred to as the “Termite Report” but includes more than Termites
– Dry rot, mold, excessive moisture conditions, conditions conducive to damages, etc.
– Useful for wood framed buildings/structures.
– Often provides more thorough inspections than the PCNA.
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223f Properties: Termite Report
• “Complete” vs. “Limited Report”
– 100% of exterior inspection
– Appropriate % of units and interiors
– “Further Inspection” recommendations must be investigated further.
• WDO Reports required for:
– Wood framed buildings in CA, NV, HI
• Currently not required for:
– Concrete Buildings,
– Projects in AZ
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223f Properties: New MAP Directions
• New Classifications of work– levels 1, 2 & 3
– Required Architectural Services & contracts for design work on Level 2 & 3
• HUD reviews faster, but either accept or reject –
– No fixing or working it out
• Site plans are required for flat work, site work, and landscape work
• More due diligence & test reports required
– Get accurate scope, cost, etc.
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223f Properties: New MAP Directions • Electronic tool required on all CNAs:
– More specifics
– Specific Times for Completion – for critical, accessible and non-critical repairs
• Schedule requirements better defined: • A construction schedule required to have graph or table illustrating
both elapsed time for particular tasks, trades or discrete portions of the work as well as necessary sequence or order of tasks or trade
• For NC repairs within the first year of mortgage:
– To include any items except that which would occur at unit turnover.
– Work to improve quality, suitability, marketability and operating efficiency.
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Low-Income Housing Tax Credit Pilot Program Expansion to Section 221(d)(4)
and General Underwriting Best Practices/Tips and Tricks
HUD-WMAC Conference, November 4, 2015
Presented by: Larry Fergison
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THE LIHTC PILOT:
PAST AND PRESENT
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HUD/LIHTC Background
o Affordable Housing is a Top Priority for Multifamily Housing
o Using FHA Insured Loans with Low Income Housing Tax Credit Program is Essential to Sustain FHA’s Affordable Production
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FHA TAX CREDIT LOAN VOLUME IN DOLLARS, FY10-FY15(YTD)
Tax Credit Deals Account for 25% of Total Firms, Above the Number Closed in FY2014
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$0.412
$0.581 $0.514
$1.3
$2.2
$1.93
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
2010 2011 2012 2013 2014 2015
FHA LIHTC Loan Volume (Firm Commitments Issued)
$Billions
Original Tax Credit Pilot Program Features
LIHTC Pilot Program Provided Opportunity to Increase Production and Test New Application Processing Methods. • Implemented in 2012 • Section 223(f) Loans only • Designated Senior Underwriters (Supervisory) • Designated Pilot Hubs • Streamlined Application Exhibits • Increased Repairs to $40,000 per unit w/out D-B • 120-day processing from intake to HUD endorsement
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Pilot Pipeline Status Nationally (9/9/15)
o Active MAP Lenders: 28 of 52
o States with Projects: 34
o Pipeline Projects: 144
o Housing Units affected: 16,700
o Firm Approvals Issued: 73
o Projects Closed: 61
o Project Types: Family 72%, Elderly 28%
o Average Days to Close 101 (Well Below 120 Day Goal)
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THE LIHTC PILOT’S
FUTURE
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Ongoing Pilot Program Development Efforts
o Integration of Pilot with RAD
o Development of new Pilot Section 221(d)(4) Program, in order to:
• Continue to Increase Pilot Production
• Facilitate expedited processing of New Construction and Substantial Rehabs
• Continue to test and refine HUD processing methods
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Low-Income Housing Tax Credit Pilot Section 221(d)(4) Key Elements
• Sub-Rehabs or New Construction
• Not Limited by 223(f)s $40K /Unit Rehab Limit.
• Projects w/no Subsidies Must Have Rents at a 10% Discount to Market, or a 20 Year Project Based Section 8 Contract for at least 90% of the Units
• BSPRA/SPRA or Developer Fee – not both. Dev Fee mortgagable, with Waiver (until revised MAP Guide issued).
• Solid, HUD-experienced Developer, General Contractor and Architect
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Likely (d)(4) Processing Fundamentals
• Concept Meetings Required
• Single Designated Underwriter with Assistance from Architect, plus Assistance from Valuation and Other Tech Staff Only “As Needed”
• Use of Simplified MAP Checklists for (d)(4)s and Elimination of Redundant or Unnecessary Documents
• Abridged Loan Committee Template for HUD Underwriter Use (Narrative)
• Commitment to Expedited, High Priority 221(d)(4) Processing In Field Offices
• Dedicated HQ Staff in Production and Asset Management
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Current/Next Steps
o HUD Internal Design Council established July
o HUD-MBA LIHTC Working Group met September
o HUD-MBA Sub-Group on Application Checklist (met several times, with solid progress)
o HUD-MBA Sub-Group on Abridged Narrative (upcoming)
o Drafting of Notice to follow Publication of MAP Guide (still predecisional)
o Kick off With Lenders/Staff Training Early 2016
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Low-Income Housing Tax Credits and HUD Multifamily:
General Underwriting Best Practices/Tips and Tricks
San Francisco Multifamily Hub
Larry Fergison
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Long Lead-Time Items:
• Vet at Concept Stage
• Scope of work/design
• Environmental Resolution/development of plan, Historic Preservation, Cultural/Agricultural Resources, etc.
• Complex Legal and Intergovernmental Issues, including Subordinate Debt as well as existing AND proposed Financing Restrictions/Requirements
• Compound interest on Seller Notes: Can’t spiral up
• Asset Managment approvals (e.g. prepays and 20-yr HAP approvals)
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Firm Commitment Application and General Best Practices/Tips and Tricks:
Most applications are complete and well put together ( ), and ALL have a great deal of time and effort put into them. But our shop has encountered some issues that have delayed HUD commitment issuance or otherwise impacted customer service. We offer these suggestions:
Narrative (Key Document):
1. Provide a clear “roadmap” when necessary to support underwriting. Narrative should be complete enough so that HUD can underwrite based on narrative.
2. Narrative by lender should focus on risk, and provide its own UW analysis, and minimize “cut and paste” from 3rd party reports.
3. Clearly identify all waivers needed, and include a draft HUD-2 as a starting point for HUD staff. (Also, discuss at Concept).
4. Give HUD a LOUD and CLEAR heads-up of hard deadlines.
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Firm Commitment Application and General Best Practices/Tips and Tricks: (continued)
• Due Diligence: 3rd party reports s/b accurate and critically reviewed by lender, with modifications made, as appropriate/necessary
• Watch $40K in repairs for 223f Pilot. Allow for prudent cushion
• Make sure S&U balance and provide cash-flow waterfalls, when helpful
Hot Issue: Variances in Past Operating History vs. Proposed Underwriting
• Stress test to show worst case if increased rents not achieved
• Mitigate risks to protect existing tenants (Op Service Reserve, relocation assistance, and/or phased timing of rent increases)
• Provide clear “Roadmap” in narrative demonstrating UW justifications
Lastly…
• Electronic vs. Hard Copy 2530s. Suggest e2530s since needed by AM.
Daryl Mutton, Associate Regional Counsel, California
Lora Han, Associate Regional Counsel, Hawaii and
Acting Regional Counsel, California
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Panel Discussion Endorsement Coordination
• California requires recording the payment bond, and filing the construction contract along with plans and specs with County Recorder
• Special condition to California 221(d(4) firm commitments:
“On or before closing, pursuant to the requirements of the California Civil Code (including without limitation, section 8432 and sections 8600 et seq.), the payment bond shall be recorded and an original of the entire construction contract (including all plans and specifications) shall be filed with the office of the county recorder where the project is located.“
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Panel Discussion Endorsement Coordination
Surety requirements, The Closing Guide, 2015 • Surety Bond. Form HUD-3259, Surety Bond Against Defects Due to Defective Materials and/or Faulty
Workmanship, by a surety on the U.S. Treasury Listing of Approved Sureties (Department Circular 570), and drawn in an amount not less than 10% of the cost of construction as estimated by Housing, Sec. 2.12(A)(4)(a)
• . . .In those instances where the assurance of completion is provided in the form of performance and payment bonds, the Construction Contract must be dated on or before the date of the surety bonds, and never after the date of the surety bonds, Sec. 3.4(E)(1)
• Sureties must be on the accredited U.S. Treasury list, Circular 570, available online at www.fms.treas.gov/c570/c570.html, and published annually in the Federal Register on or about July 1. An original power-of-attorney from the surety company to its agent must be attached to each performance and payment bond. A facsimile transmission (or PDF file sent via email) addressed to the HUD Closing Attorney must be received in hand on the day of closing from the surety company (not local agent’s office) confirming the agent's power-of-attorney to bind the surety company as of the date the bonds are executed and delivered to Lender and HUD. The facsimile or PDF transmission shall identify the agent, date of bonds, amount of each bond, obligee(s), principal, FHA project name and number, and name and title of sender, Sec. 3.5(B)
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Panel Discussion Endorsement Coordination
Secondary Financing
• Private debt vs. Public debt – Section 5.1 Rider vs. Form HUD-92420M, “Subordination Agreement”
• Title issues – Subordinate to HUD’s first lien position
– Can be a long lead item if amending
71
Panel Discussion Endorsement Coordination
Waivers • Age/Occupancy restrictions
– Refinancing 202 properties: mixed tenant base
– Tax Credit age restrictions
72
Panel Discussion Endorsement Coordination
MAP Guide, Section 3.9.D & 3.4.S, WAIVER
Examples of programs eligible for this waiver:
• Old Section 202/8 Projects
• Old Section 202/162 Projects
• Old Section 202 (prepaid mortgage) Projects
• Section 236 that used the definition of “elderly” that included non-elderly disabled.
Note that Section 202 PRAC/Capital Advance projects do not need the waiver because they already operate under the 62+HOH standard.
73
Panel Discussion Endorsement Coordination
SECTION 3.2.L WAIVER
These projects are age-restricted at 55+, and a…
• MF Refi or Sub Rehab /New Construction LIHTC Transaction; or
• With age restrictions contained in the Use Agreement (LURA or Reg. Agreement), Zoning Documents, or Bond Documents; or
• With age restrictions found only in the LIHTC application or Qualified Allocation Plan; or
• Operating as an age-restricted project but lacking restrictions in normal documents or agreements: – These project types must provide management documents such as leases,
occupancy policies, marketing plans describing the restrictions.
74
Panel Discussion Endorsement Coordination
Waivers
• Application processing & Closing forms
– Statutory: very rare, only HQ can waive and only if the statute allows for a waiver
– Regulatory: HQ authority, long lead time, not encouraged to pursue
– Handbooks, memos, notices: Regional Director authority, case-by-case based on business decision with supportable justification
75
Panel Discussion Endorsement Coordination
• Examples of typical waivers requested include: – Appraisal expiration
– Tax abatement
– Credit reports
– Market study
– High cost factor
– Audited financials
– 3-year rule waiver
76
Panel Discussion Endorsement Coordination
Closing Coordination on Work-Share • Originating Office
– Issues firm commitment
– Coordinates Loan Committee, if required
– OGC office reviews closing docs
– Signs recordable documents
– Endorses Note
77
Panel Discussion Endorsement Coordination
Closing Coordination for Work-Share
• Processing Office
– Primary Point of Contact for Lender, OGC, originating office
• Proposed Rule issued August 10, 2015; Comments through October 9, 2015
• HUD proposes to replace the current previous participation regulations in their entirety.
• Proposed rule would clarify and simplify the 2530 review process, and also provide HUD with flexibility as to the necessary previous participation review for entities and individuals that is not possible in a one-size fits all approach.
Notice H 2015-03: Transferring Section 8 Budget Authority Under 8bb
• Defines procedures for transferring all or a portion of any remaining budget authority of a project-based HAP Contract to one or more contracts
• Can transfer all or a portion of subsidy; receiving project may amend existing contract or create new if no contract exists.
• Both parties must agree to transfer/receive the subsidy.
• Units to which the subsidy is being transferred must be in existence and ready for occupancy. Conditional approval (i.e. comfort letter) may be provided for new construction projects, but transfer cannot occur until certified full occupancy.
• HUD has no statutory authority to increase budget authority; proposed units must be able to be sufficiently funded with existing authority.
• Capital Repair needs in excess of $25.6B across portfolio.
• Public Housing funding is unreliable and and inhibits access to private debt and equity capital
• Losing 10,000 net units/year
• Section 8 Moderate Rehabilitation (Mod Rehab)
• Cannot renew on terms needed to secure financing
• Rent Supplement and RAP
• No option to renew when contracts expire
RAD Stats Through 09/01/2015
THE RAD BIG PICTURE
1st Component: Competitive, 60,000 Unit Cap
2nd Component: Non-Competitive, No-Cap
(subject to availability of TPVs)
Public Housing Mod Rehab Rent Supp and
RAP
PBV PBRA PBV
Project-Based Vouchers
(via PHAs) Project-Based Rental
Assistance (Multifamily)
*NEW* 185k unit cap *NEW* PBRA option
Component 1 - Public Housing
RAD allows Public Housing Authorities to take a project’s
capital fund subsidy and operating subsidy to fund a HAP
Contract, thusly allowing the PHA to borrow against the
asset for redevelopment while providing a steady stream of
income to service debt.
In order to allow access to public and private debt to preserve and renovate Public Housing units, HUD must:
1. Convert the existing operating assistance to project-based Section 8 which is long-term and stable, and
2. Allow properties to be removed from the Public Housing inventory so that they can be used as collateral for debt.
Tenant Rent $318
Tenant Rent $318
Capital Fund $144
Operating Fund $330
Housing Assistance Payment
$474
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
Pre-Conversion Post-Conversion
Sample Public Housing Conversion Per Unit Monthly (PUM)
$792
How are RAD Section 8 Rents Calculated?
At conversion, PHAs will convert
funding to a Section 8
contract rent
Contracts and Rents
Underwriting RAD Deals Using FHA
• Very High Priority, Expedited Processing, Designated Underwriters and Teams
• Underwriting will mirror FHA underwriting of affordable subsidized projects
• RAD project must be owned by a single asset entity. The new owner of the converted property must be a public or non-profit entity, except to facilitate Tax Credits
• Proposed versus Historical Expense Analysis
• Scattered Sites Challenges
• Environmental Reviews
• RAD Relocation Requirements/Right to Return
• Davis-Bacon Applies to all RAD 223(f)s
• Appraisal Guidelines, 223(f)s, Criteria 3, the valuation and rental assumptions are to be based on the Section 8 rental income and the restrictions in the Use Agreement
Within
30
Days 60
Days
180 Days
-221(d)(4) to RAD Processing
Center (Atlanta, Ft. Worth, or
Chicago)
-223(f) RAD Pilot to Pilot Office
-223(f) RAD to Contractor
40
Days
1(a) HUD issues the CHAP to the
PHA
1(b) HUD’s Office of Housing
assigns a Transaction Manager
(“TM”)
1(c) TM will schedule kick-off
meeting and monthly check-ins
2(a) The PHA must submit a
Letter of Engagement from
the Lender AND a Statement
of Development Team
Capacity to the TM.
2(b) the PHA submits a PIC
Application to be removed
from Public Housing.
3. The PHA must submit (1)
Significant Amendment to its
Annual 5 Year Plan and (2)
Conversion Type Decision
(PBRA or PBV)
4. FHA Firm Application must be
submitted (in place of Financing
Plan Requirement)
*Extensions allowed for LIHTC
5(a) The HUD originating
office issues the Firm
Commitment and the Office of
Recap issues a RAD
Conversion Commitment.
5(b) The Office of Recap
assigns a Closing Coordinator
5(c) The PHA has 30 days to
accept the RCC.
6. Closing
The project is removed from
Public Housing and the ACC
by means of release from
the DOT. (Declaration of
Trust)
Project is officially under the
secure Section 8 program.
Applying for RAD Using FHA Programs
Additional Resources 1. RAD Resource Network
http://www.radresource.net/
2. Rental Assistance Demonstration: Welcome Guide for New Awardees RAD 1st Component (February 27, 2015) http://portal.hud.gov/hudportal/documents/huddoc?id=RAD_WelcomeGui_1stComp.pdf
3. PIH Notice H 2012-20 (for FHA-specific guidance) http://portal.hud.gov/hudportal/documents/huddoc?id=12-20hsgn.pdf
4. PIH Notice 2012-32, Revised Version 6-15-15 http://www.radresource.net/sources/public/pihnotice_2012-32_062015.pdf
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