Presentation Contents

1. Housing Assistance CouncilBuilding Rural Communities Since 1971Multifamily Housing Preservation ResourcesPresented toThe USDA Rural Development Buyers and Sellers ConferenceAlbany, New YorkJune 30, 2010

2. Presentation Contents • Background of Housing Assistance Council • Our Mission • Housing Assistance Council Services • Loan Products • Project Feasibility • Sucessful PRLF Financed Properties

3. Housing Assistance CouncilBuilding Rural Communities since 1971 Established in 1971 National nonprofit organization Created to increase the availability of decent and affordable housing for low-income people in rural areas throughout the U.S. Provide services to local, state, and national organizations

4. Our Mission “To improve housing conditions for the rural poor, with an emphasis on the poorest of the poor in the most rural places.”

5. HAC Services Research and Information (R&I Division) Technical Assistance and Training(TA&T Division) Regional Offices Albuquerque, NM Atlanta, GA Kansas City, MO Loans (Loan Fund Division)

6. Technical Assistance • Assistance to those involved in the improvement of housing conditions for low-income residents in the rural United States. • Most of this help goes to local governments, private developers, and nonprofit organizations.

7. Types of Technical Assistance analysis of project feasibility; acquisition, housing construction or repair, and environmental regulation; assistance in the preparation and review of loan and grant applications; assistance with eligibility and processing requirements for federal, state and other housing programs; information and publications on topics that affect rural housing; and special initiatives focused on particular areas or events

8. Eligible Recipients Located in a rural area Already obtained some general information about the rural housing problems you wish to address, and ways to address them Specific questions about finding funding sources, using government housing programs, or overcoming obstacles to housing development

9. Training

10. Research & Information • Biweekly newsletter • Quarterly magazine • Reports • Manuals • Information sheets

11. Loan Fund’s Objectives Serve the underserved Target the highest need communities Empower low-income people Facilitate access to credit Leverage resources Provide technical assistance Exercise sound business practices Promote flexible partnerships

12. Eligible Projects Affordable and mixed-income housing projects in rural communities nationwide. Financing is available for single- and multi-family housing, with various forms of ownership and using traditional and alternative models of land tenure.

13. Eligible Borrowers Community-based nonprofit organizations Housing development corporations Self-help housing sponsors Farm worker organizations Housing cooperatives and condo associations Native American tribes Public agencies and units of local government Public utility districts Small businesses and minority contractors

14. Funding Sources • Grants • HUD • Rural Development (RD) • HOME • FHLB • AHP • LIHTC • Bonds • Housing Trust Funds • State Housing Finance Agencies • Private lenders (HAC)

15. Loan Uses & Structure • Uses • predevelopment • land acquisition • site development • construction • preservation • gap/interim Structure • loans • guarantees • compensating deposits • letters of credit • lines of credit

16. Loan Terms & Rates Loans up to five years in duration Below-market interest (currently 5.0%) Interest due quarterly 1% service fee (borrower also pays HAC's legal and other reasonable costs)

17. Loan Process • Inquiry. • Submission of loan application. • Comprehensive underwriting process. • Internal management review. • Loan committee review (approval, rejection or deferral). • If accepted, loan commitment issued. • Pre-closing conditions satisfied before disbursement of funds. • Loan closing and disbursement. • Servicing/monitoring loan throughout the term of the loan. • Full repayment of loan.

18. LOAN PRODUCTS

19. Pre-Development Standard 5 year term 5% interest rate and 1% HAC service fee No maximum loan amount Maximum 100% LTV Security of lien position on real property and/or assignments and UCC-1 filings on unrestricted net assets of borrower. Repayment typically upon sale of developed lots or closing of construction/permanent financing

20. Site Acquisition Standard 5 year term 5% interest rate and 1% HAC service fee Maximum 100% LTV as supported by current appraisal Security of lien position on the project property Repayment upon sale of developed lots or closing of construction/permanent financing

21. Site Development Standard 5 year term 5% interest rate and 1% HAC service fee Maximum 100% LTV as supported by current appraisal Security of lien position on the project property Repayment upon sale of developed lots or closing of construction/permanent financing Take-out financing must be identified or committed at time of application

22. Construction Loans $750,000 cap per loan and borrower Standard 2 year term with option to extend for 1 year. A 1% extension fee applies. 5% interest rate and 1% HAC service fee Maximum 100% LTV as supported by current appraisal Security of lien position on the project property Repayment upon sale of developed lots or closing permanent financing Permanent, take-out financing committed prior to disbursement.

23. The SHOP program is authorized under Section 11 of the Housing Opportunity Program Extension Act of 1996 Funded through the U.S. Department of Housing & Urban Development (HUD) Provides loans that can be turned into grant monies for land acquisition and infrastructure improvement costs associated with the development of self-help units Self-Help Homeownership Opportunity Program (SHOP)

24. Multi-Family Funding Programs HUD Section 202, Housing for the Elderly • Provides capital grants for construction • Provides tenant rental assistance • Non-profits only, create new subsidiary NP • Long term, non-interest loan • Part of the HUD Super NOFA • Now using leverage of other funds, last 2 years

25. Multi-Family Funding Programs HUD Section 811, Housing for Persons with Disabilities • Provides capital grants for construction • Provides tenant rental assistance • Non-profits only, create new subsidiary NP • Long term, non-interest loan • Part of the HUD Super NOFA

26. Multi-Family Funding Programs Rural Development 515 Multi-family Housing • Provides long term, low interest loans, often 1%, 50 year amortization; Limited Partnerships • Provides tenant rental assistance, for all or part • Involves leveraging of other resources, LIHTC, HOME, AHP, etc. RD 538 Loan Guarantee uses local lenders RD 514/516 Farm Worker Housing uses same basic structure for eligible farm worker projects

27. Filling the gaps How do we make deals work? • Reduce costs • Reduce debt service • Identify other funding sources; HOME, FHLB AHP, LIHTC, Bonds, Housing Trust Funds, private funds • Identify financing subsidies; HUD, RD, State Housing Finance Agencies to reduce cost of debt and/or provide rental assistance

28. Filling the gapsHOME • HOME is funding program of HUD • Funds are applied for through state for rural housing needs • Priorities established through state comprehensive/consolidated plan • Has extensive regulations, obtain copy. • Plan to meet both use, and reporting requirements

29. Filling the gapsFederal Home Loan Bank AHP • AHP is administered through 12 district Federal Home Loan Banks • Funds are awarded from usually two competitive application rounds • Priorities established by Bank and Advisory Council annually • Applications made through member bank; usually drafted/prepared by non-profit

30. Tax-Exempt Bonds Why are developers using tax-exempt bonds? • 4% or 9% Bonds • Because of demand for 9% credits • Automatic allocation of tax credits • Availability of bonds • Low interest rate on borrowing

31. Low-Income Housing Tax Credits (LIHTC) Background • Tax Reform act of 1986 • Section 42 of IRC of 1986 • Housing program in the tax code • Statute amended several times, including 2000 • Objective to provide investor equity • Credit is a dollar-for dollar tax reduction

32. Low Income Housing Tax Credits Where do I find more information? Your State Housing Agency HFA [Links from ncsha.org/main.cfm] “Annual Allocation Plan” – establishes how credits will be allocated; populations served, geography allocations, non-profit set-asides Trainings conducted by or sponsored by your state HFA

33. Project Feasibility

34. Basic Factors Critical To Determining The Financial Feasibility of A Project • Planning • Determination of the appropriate financing. • The availability of funding resources in the community to develop the project. • Identification of take-out financing • Project Type • Know your local needs and market • Take a conservative approach to costs; do not underestimate to make project “work” • Identify needed partners • Project the best, prepare for “worst”

35. Eligibility and Feasibility • Basic Feasibility Thresholds • CNA to determine needs, timing and funding • Underwriting to determine feasibility and tools • Additional funding is available (Agency or 3rd Party) • Basic Eligibility Thresholds • Project is needed in market • Post transaction Owner is eligible

36. Participating Lenders With HAC PRLF Financing • HUD Section 8 assisted state funded housing • USDA/Rural Housing Services • Section 515 (MPR) • Section 521 Rental Assistance • Low Income Housing Tax Credits • Commercial Lending Institutions

37. PROFILE OF PRLF FUNDED PROPERTIES • Aging properties and owners • All over 20 years old • Irreplaceable affordable rural rental housing option in the respective communities

38. Preservation Challenges • Portfolio risks: small projects, rural not full RA. • Aging physical asset with varying physical needs. • Federal Budget constraints that limit funds for incentives, RA, and equity & rehab loans. • Shortage or surplus of affordable rental housing/escalating or falling market values • Contractually at-risk. • Aging owners & ownership structures • Lack of experience in the preparation of Section 515 transactions on the part of sellers, buyers and lenders.

39. PUTTING THE DEAL TOGETHER • What Did Not Work or Needs Improvement… • Timing or Coordination is a challenge • Different funding cycles, different programs, different Agencies • Different closing deadlines due to different funding cycles • Can’t complete underwriting without certain items: • Capital Needs Assessment • Appraisal • Market Study

40. Putting the Deal Together • What Did Not Work or Needs Improvement… • Making the Deal Work Without New Funding while still Complying with Regulations • Addressing immediate capital needs at property • Replacement Reserve account has to be resized to meet long term capital needs identified in CNA • Must keep rents affordable • New Owner needs to understand that if reserve is not sufficient for capital improvements or deferred maintenance, they will be ultimately responsible

41. PUTTING THE DEAL TOGETHER • What Did Not Work or Needs Improvement… • Paperwork, Paperwork, Paperwork • Different Agencies require different applications • Different Agencies require different Legal Documents • Recognize that requirements may vary from state to state

42. PUTTING THE DEAL TOGETHER • What Did Not Work or Needs Improvement… • Replacement of Management during the interim • Communication was a struggle between seller/buyer and interim management • Hard for interim management to remain committed when they know it’s temporary • Hard for New Owner to let Management do their job • Need Training Program for new Owner’s management company in order for them to be qualified to manage RD financed properties • RD wants New Owner and New Management to be successful, so go slowly and don’t take on too much, too fast!

44. PUTTING THE DEAL TOGETHER • What Works…. • USDA Rural Development’s MPR Program. • This works well with transfers especially if there are no other funding sources • Debt deferral provides resources for making capital improvements as identified in CNA • Hold meetings with Management and Owner to discuss MPR program and responsibilities • Helps them understand the CNA report • Review legal documents and requirements

45. Successful Property in Iowa • Nonprofit entity requested a PRLF loan of $400,000 to pay acquisition and rehabilitation costs for a 90-unit multifamily complex. • The transaction involved the consolidation of three existing USDA RD Section 515 financed properties located on an 8.25-acre site in a small community consisted of a population less than 5,000. • Construction involved the rehabilitation of a 90-unit complex that serves residents with incomes at 30% -60% of AMI. • All 90 units have either USDA RD or HUD Section 8 Rental Assistance.

46. Transaction Facts • USDA RD holds a first lien on the property for $495,584 with a 20-year debt service deferral through the MPR Program. • Applicant obtained a $900,000 Section 515 loan (MPR) using the proceeds to fund the rehabilitation debt service deferment. • HAC’s PRLF loan is secured with a third lien against the real estate. • The HAC $400,000 PRLF Loan is the only remaining debt service with a 5% interest rate and a 28 year repayment period. • The property is receiving 100% Rental Assistance. • Total development cost of the project was $1,300,000. • No Low Income Housing Tax Credit Equity involved. • Loan to value not to exceed 100%.

47. Project Status • All loans have been closed for over a year. • LTV 17.21% • USDA Rural Development and PRLF accounts are current. • Replacement Reserve requirements are being met.

48. Successful Washington State Property • Applicant organization requested a HAC PRLF loan in the amount of $400,000 to acquire a 42-unit multi family property in Washington State. • The project will serve very low and low income tenants with 30% to 80% of area medium income.

49. Transaction Facts • Washington Department Housing Trust Fund provided no-debt-service funding in the amount of$515,000. • Local County Government provided $750,000 in grant funding. • USDA Rural Development approved an $800,000 transfer and assumption of a the existing Section 515 Loan secured by a first lien. • A new Section 515 Loan in the amount of $800,000 secured by a second lien. • HAC’s $400,000 PRLF loan is secured with a third lien against the real estate. • An equity contribution was made in the amount of $2,411,198 from the syndication of Low Income Housing Tax Credits. • The total funding from all sources amounted to $4,876,198 which is the total development cost. • The total rehabilitation cost per unit was $116,195. • Loan to value not to exceed 100%.

50. Project Status • All loans have been closed for over a year. • USDA Rural Development and PRLF accounts are current. • LTV 35.01% • Replacement Reserve requirements are being met. • Property is 100% occupied.