Project Feasibility and Compliance Workshop for Affordable Housing Programs

1. 2005 APPLICATION WORKSHOP Georgia Department of Community Affairs Presented by the Office of Affordable Housing

2. 1. Project Feasibility & Conformance with QAP • LIHTC Policies • HOME Loan Policies • Rental Charts • Utility Allowances • Appraisals

3. 1. Project Feasibility & Conformance with QAP LIHTC Policies

4. Assumption for land purchase Identity of Interest between buyer/seller: appraisal required Building Basis Lesser of sales price or appraised value of building(s) Contractor Fee Limitation Overhead: 2%* (Construction Contract Amt. - Contractor Fees) General Requirements: 6% Includes Letter of Credit fee in lieu of payment & performance bond Builder’s Profit: 6% Construction Contingency New construction: 2%-5% of construction hard cost Rehabilitation: 5%-7% of hard cost LIHTC Policies

5. LIHTC Policies • Relocation Budget • Compliance Monitoring Fee • Based on Total # of Units (not just Low Income Units) • Maximum Developer Fee Limitation • New construction/Rehab only: • 15% (TDC* - DF - Land - Builder’s Profit**) • Acquisition & Rehabilitation: • Acquisition: 15% building acquisition cost • Rehab: 15% (TDC* - DF - Land - Bldg. Acq.- Builder’s Profit**) • Consultant Fee: No Limitation, but considered part of Developer Fee * TDC limited to Unit Cost Limitations prior to any approved cost waiver **When Identity of Interest exists between Developer & General Contractor

6. LIHTC Policies • Tax Credit Percentages: for application purposes • Competitive: Credit percentages for April 2005 • Non Competitive (TEB financed): Credit percentage for the month preceding application submission • BMIR HOME Funding & QCT • 40-50 Rule: Requirement met on a building by building basis • “9% credit”: not eligible for 30% basis boost • Per Unit Cost Limitation • Waiver due 3/1/05

7. LIHTC Policies Sources of Funds: • Terms tie back to documents (including government financial assistance) • Housing Credit Equity • Deferred Developer’s Fee • Must be payable within 15 years from cash flow • Not considered in GAP method of credit calculation

8. Rent Issues • Fair Market Rents w/ HOME • Types of Employee Occupied Units • Common space: • No Rent can be charged • Must be occupied by employee • Employee does not have to be income qualified • Residential unit • Low-income unit: rent charged, must be occupied by an employee who is income qualified • Market rate unit: rent charged, no income or rent restrictions on employee resident • Public Housing units: tax credit/HOME cannot be used for public housing units except in mixed income projects.

9. Utility Allowance • Utility Allowance • USDA • HUD • Public Housing Authority / DCA • Utility Provider allowances for electricity

10. Operating Expense Budget • Minimum Annual Operating Expense Requirements • Urban: $3,000/unit • Rural County w/USDA funding source: $2,400/unit • Rural County w/out USDA funding source: $2,600/unit • Operating Expense Waiver: due by March 1, 2005 or submit with Application. • Note: if not approved, may result in project failing Threshold Requirement for Feasibility • Replacement reserve • New Construction: $200/year per unit • Rehabilitation: $300/year per unit • Single Family: $400/year per unit

11. Operating Pro Forma • Trending • Income: 2% • Expenses and Replacement Reserves: 3% • Vacancy& Collection Loss: 7% • Debt Coverage Ratio • First year: 1.15 - 1.35 • Tax Credit projects: no less than 1.15 for each year during 15 year compliance period • Tax Credit & HOME projects: no less than 1.15 for each year during compliance period, period of affordability, or HOME loan term, whichever is longest

12. Project Feasibility for Scattered Sites • Scattered Site Projects • DCR requirements must be met by the project as a whole

13. LIHTC Policies Question and Answer

14. 1. Project Feasibility & Conformance with QAP HOME Policies Additional Policies Applicable to HOME Funded Projects

15. Eligible DCA HOME Loan Costs • New Construction – any project that includes the addition of dwelling units outside the existing walls of a structure is considered new construction • Rehabilitation – the improvement or modification of an existing structure • Reconstruction – refers to rebuilding, on the same lot, where housing is standing at the time of project commitment • The number of units on the lot may not change as part of the reconstruction project, but the number of rooms per unit may change

16. Non-Amortizing Loan - Excess Cash Flow • 1/2 of the Excess Cash Flow (income after secured debt service payment) Deposited in Account (Excess Cash Flow Account) • Used for Principal Reduction of HOME loan and Capital Improvements • Disbursements Require DCA Prior Approval • Funds Must Remain in Account until HOME Loan is Paid in Full

17. Non-Amortizing Loans - Future Market Value • Outstanding Loan Balance at Maturity must be less than the Projected Appraised Value at Maturity • DCA Commissioned Appraisal Projects the Future Value of the Development • Interest and a Portion of Principal must be repaid in Each Year of the HOME Loan

18. Interest Rate Exception for Projects in Rural Counties If necessary to maintain project viability: • Years 8-15 Interest Rate may be less than 1%, but may not fall below 0.5% • Years 16-Maturity Interest Rate shall not fall below 0.25%

19. HOME Loan/Construction Contingency • DCA funds allocated to Contingency • DCA approves all change orders • Unused contingency used to reduce Senior Loan or HOME Loan

20. Construction Hard Cost Financing • Site Development • Unit/Building Construction • Contractor services • Builders overhead • Builders profit • HOME CHDO Pre-development Loan • Construction Bridge Loan is part of the financing package • HOME loans cannot be used to refinance or pay off an existing loan

21. Conversion • 24 months of HOME loan closing • Loan Agreements will set conversion date

22. Developer Overhead and Consultant fee(Drawn During Construction) • Lesser of 20% of the Maximum Allowable Developer Fee, or • 50% of the Total Developers Fee Requested • Developer Profit (80%) can not be disbursed prior to HOME Loan Conversion • Disbursement Condition reflected in HOME Loan Agreement and Other Funding Source Agreements

23. Identity of Interest Owner/Contractor, Developer/Contractor • Third Party Front End Analysis Required • Commissioned by DCA during Underwriting • Contractor Services must be reasonable as determined by DCA Owner/Provider of Other Service • Three Bids during Underwriting • Services must not exceed amount ordinarily paid • DCA will determine reasonableness

24. Syndicator Asset Management Fees • Paid - “After DCA Debt Service” • Paid - After Excess cash Flow Payment

25. Operating Deficit Reserve • No less than 4 times the secured monthly debt service plus no less than 4 months projected operating expenses • Funded at or prior to conversion • Held by DCA or Senior Lender • Required for Term of HOME Loan or Period of Affordability, whichever is longer • Withdrawals must be Approved by DCA and Requested in Writing

26. Partnership Agreement • Must Reflect Terms of HOME Loan • Executed Prior to HOME Loan closing

27. Payment and Performance Bonds • Required on all Developments (100% bond required on all developments) • Include the cost of Payment and Performance Bond in 6% General Requirements

28. Payment and Performance Bonds Identity of Interest • Letter of Credit (LOC) or Construction Loan (CL) • LOC - at least 50% of Construction Cost including Profit and Overhead • Construction Loan - Amount equal to DCA Construction Loan • DCA will disburse $2,500 per Draw Request • Include the cost of LOC or Construction Loan in 6% General Requirements

29. Payment and Performance Bonds Waiver Process • Waiver Request must be submitted with Application • DCA Waiver (Form O-3) • Tab 2 Application Binder

30. Disclosure of Lobbying Activities(Byrd Amendment) • Each Owner who expects to receive a HOME loan in excess of $150,000 must certify that the funds will not be used to lobby Congress • Submittals • Certification for Contracts, Loans and Cooperative Agreements (Form B-4) • Applicant/Recipient Disclosure/Update Report (Form B-6)

31. Disclosure of Lobbying Activities • In addition, if an owner uses non-federal money to lobby Congress, the owner must submit a Disclosure of Lobbying Activities Form SF-LLL (Form B-5)

32. Disclosure of Lobbying Activities • Developers, contractors, subcontractors (including architects, engineers and other consultants) who receive federal funds in excess of $100,000 for any HOME activity must disclose lobbying activities • Submittals • Certification for Contracts, Loans and Cooperative Agreements (Form B-4) • Applicant/Recipient Disclosure/Update Report (Form B-6) • Owners are responsible for meeting submission requirements

33. Disclosure of Lobbying Activities • All forms are located in the HOME manual and @ www.dca.state.ga.us/housing/rentalfin.html: • Submit disclosure forms in Tab 18 of Application Binder

34. HOME Loan Policies Question and Answer

35. 1. Project Feasibility & Conformance with QAP Rent Charts

36. Rent Charts • Low Income Units with No PBRA • Low Income Units with PBRA • Non LIHTC Units with PBRA • Market rate units • Project Summary by Unit Rent Types

37. Low Income units with No PBRA • Unit rent and income type 30/50/60 • PHA Units – investment plus operating subsidy • Employee Units • Program Max Unit Rents LIHTC/HOME • Proposed Unit Rent (can’t exceed Program rent) • Utility Allowance • Unit Rent to Collect

38. PHA Units • Operating subsidy should be entered in the non occupancy based income part of the Other income sources section • Unit Rent to Collect should be reflected as 0

39. Low Income Units with PBRA • PBRA type: HUD, PHA, USDA and Governmental • PHA: investment/PBRA • Unit rent and income type (LIHTC) • Program max Unit rent (LIHTC/HOME) • Proposed unit rent • Unit rent to collect • Proposed unit rent without PBRA

40. Non LIHTC Units with PBRA • Used in rehabs • Tenants with income in excess of 60% less than 80% • Not market units because of PBRA units • Not tax credit because of income

41. Project Summary • Rent Type (LIHTC limitation) • Project configuration/project summary

42. Rent Charts Question and Answer

43. 1. Project Feasibility & Conformance with QAP Appraisals

44. Appraisals(applicable to LIHTC and/or HOME Projects) • All appraisers must be certified by the Georgia Real Estate Appraisers Board and participate in continuing education • The appraiser should have at minimum, five years experience in a combination of affordable housing and multi-family projects • Appraisal Manual located in Section I of the Application Manual

45. Appraisals All HOME Projects • Commissioned by DCA or Senior Lender during Underwriting • Senior Lender Commissioned Appraisals must meet DCA Requirements as defined in the Appraisal Manual • DCA’s Cost of Appraisal Passed to Developer • If project does not meet DCA requirements, funding may be revoked

46. Appraisals Applicant Commissioned Appraisals required when there is an Identity of Interest between Purchaser and Seller • Appraisal Commissioned by Applicant • Appraisal must meet DCA Appraisal Manual Requirements • “as is” Value Required Scattered Site Projects: • Appraisal for each non-contiguous Parcel is Required

47. Appraisal Guidelines • Values - “Tax Credit”, As is” (Land and Building), “As Complete” (encumbered and unencumbered) • Value at Maturity of Loan (Non-Amortizing HOME Loan) • Favorable Financing Value

48. Appraisal Guidelines Question and Answer

49. 1. Project Feasibility & Conformance with QAP Utility Allowance

50. Utility Allowance • USDA • Building with USDA must use USDA Allowance • Tenant with USDA assistance must use USDA Allowance • HUD Regulated Buildings (such as Section 8 or 236) • Must use utility allowance reviewed by HUD annually • Tenants with Section 8 Assistance • Must use the Local PHA Utility Allowance that administers the Section 8 Program. • This allowance must be approved for use by HUD for use in the Section 8 Voucher /Housing Choice Program.