AHMA 2014 Preserving Existing HUD Subsidized Housing

Report
Preserving Existing HUD
Subsidized Housing
2014 ARHC-AHMA Joint Convention, Yakima, WA
Sarah Nichols, Senior Project Manager
Brian Lloyd, Director of Development
Who is Beacon Development Group?
 Formed in 1999; To date, has developed /
preserved 3,129 units valued at over $461
million
 Works with non-profits and housing authorities
that are committed to serving low- and
moderate-income households
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Acquisition / Rehab
Farmworker Family Housing
Green / Sustainable / LEED Certified Buildings
Historic Rehab
New Multi-story Construction
Senior / Special Needs Housing
Preservation Experience
 Recently completed / currently working on 8
HUD housing preservation transactions
 HUD Section 202, Section 236 and RAD (Rental
Assistance Demonstration) projects
 All large, 125-200 unit projects
 Refinances include FHA 223f and 221d4, LIHTC,
restructuring of existing subsidy
 Awarded Senior Preservation Rental Assistance
(SPRAC) – one of twelve awards nationwide
 Closed first RAD transaction in Washington
State
Why Preservation? Why Now?
 Many Section 236 and
Section 202 buildings
are 40+ years old with
maturing mortgages
and expiring subsidy
 Recent HUD policies
provide new subsidy
options with
prepayment, refinance
and rehabilitation
 Current FHA mortgage
rates are low
Key Preservation Elements
1. Existing project subsidy
2. Potential future subsidy / available funding
3. Current rents and occupancy history
4. Project capital needs
5. Tenant services
6. Tenant income mix
7. Project ownership
1. Existing project subsidy
 Section 202 Direct Loan (pre or post 1974)
 Section 236 loan and Interest Reduction Payments
(IRP)
 Multifamily HAP Contract
 Flexible Subsidy Loan
 Rent Supplement or RAP
 Public Housing
 Local PHA Project Based or Housing Choice
Vouchers
2. Potential future subsidy / funding
 Rent increases / HAP contract renewal
 Tenant protection vouchers (regular, enhanced or
converted to project based)
 SPRAC
 Deferral of flexible subsidy loan
 RAD PBRA or PBV
 FHA loans
 Tax Credits (4 or 9%)
 Tax Exempt Bonds
 Other local sources (CDBG, State HTF)
3. Current rents and occupancy history
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At or below market rents?
Assisted rents compared to unassisted rents?
Local PHA FMR and payment standards
Current vacancy rate
Historic occupancy issues
Demand for unit types (studios vs. one
bedrooms)
4. Project capital needs
 Identify both critical and discretionary needs
 HUD form of capital needs assessment (PCNA,
RAD SOW) may be required
 Encourage clients to complete an owner directed
CNA outside of HUD requirements
 Prioritize
5. Tenant services
 Meal program
 Service coordinator
 Wellness and activity programs (limitations on
what can be funded by a HAP contract)
 Assisted living
 Additions or changes to existing services
6. Tenant income mix
 Current snapshot of income mix
 # of rent burdened tenants
 Expected or desired future income mix /
demand
 Income qualification for new funding varies
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SPRAC eligibility
SPRAC funding preference
Tax credits
Flexible subsidy deferral
Preservation vouchers
PHA voucher eligibility
<80%
<50%
<60%
<80%
<95%
<50%
of
of
of
of
of
of
MI
MI
MI
MI
MI
MI
7. Project ownership
 Section 202 and 236 require single asset entities
 Often only housing project associated with the
sponsoring organization
 Typically non-profit, volunteer boards
 May not have the skill, experience or desire for a
refinance transaction
 Limited financial resources for predevelopment funding
Northaven Apartments
 Located in North
Seattle
 198 studios and onebedroom units
 8 stories
 Built in 1972
1. Northaven existing project subsidy
 Section 236 loan and Interest Reduction Payments
(IRP) – $3MM original mortgage maturing in 2012;
8.5% interest rate written down to 1% with IRP
 Multifamily HAP Contract – 61 units
 Flexible Subsidy Loan - $2.9MM, 1%
2. Northaven potential future
subsidy/funding
 HAP Contract rent increases/renewal
 Increase HAP rents to support new debt service
(HAP Renewal Guide Ch. 15, Option 2)
 20 year HAP contract with rents reset to market at Yr. 6, 11
and 16
 Allowable 10% across the board increase prior to refinance
 Deferral of flexible subsidy loan – Requested; payments
from surplus cash
 Tenant protection vouchers triggered by prepayment
 All tenants <95% of MI eligible for enhanced vouchers
 Potential to project base enhanced vouchers
 FHA loans – 223f; 35 year amortization
3. Northaven current rents and
occupancy history
 Section 236 basic and HAP
contract rents 45-60% of
market rents
 Section 236 “market rents”
– 50-70% of true market
rents
 50-80% of Seattle Housing
Authority Voucher Payment
Standards (which are
slightly below market)
 No vacancy issues
 Occupancy at or above
97% for past three years
 Content with current mix
of 70% studios; 30% one
bedroom units
4. Northaven project capital needs
 $3MM ($15K per unit) in hard
cost repairs identified (223f
limit $17.6K per unit)
 Additional $450K in hard cost
contingency and $300K in soft
costs
 Unit cabinetry, roof, call system and standard
GFCI and ADA improvements considered HUD
critical and non-critical repairs –
approximately $400K
 $2.6MM of discretionary repairs
5. Northaven tenant services
 Meal program
 Requested waiver under FHA program; mandatory
program, self sustaining
 Considered an important element to promote tenant
well being and independence
 Commercial kitchen upgrades included in refinance
 Service coordinator
 Continuing eligibility
 Funding subject to annual appropriations
6. Northaven tenant income mix
 70% of tenants below 50% of MI
 40% of tenants below 30% of MI
 11 non-HAP tenants rent burdened even at
the severely depressed Section 236 rent
levels
 Owner declined opportunity to pursue project
based vouchers to preserve income mix of
tenants (not all low or extremely low)
7. Northaven project ownership
 Founded by Olympic View Community Church of the
Brethren
 Board committed to remain involved with project
 Constructed an adjacent, related 40 unit assisted living
project in 1993
 Separate non-profit, Northaven Foundation able to
advance predevelopment funds
 Strong administrator and maintenance staff in support
of the refinance transaction
Northaven Outcomes
 $4.8MM; 35 year loan; all-in
rate <4%
 Over $500K funded into
replacement reserves
 Deferral of flex sub loan with
repayment from surplus cash
 20 year HAP contract for 61
units; rents still well below
market; reset to market in Yr. 6
 64 tenants with preservation
vouchers
 Non-HAP / non-voucher tenant
rents fixed at closing based on
flex sub deferral
Northaven Outcomes (cont.)
 No tenant relocation, only displaced during work hours
 Rehab scope included New roof
 Electrical panels
 Emergency call system
 New storefront/entry
 Unit kitchens, heaters and closet doors
 Commercial kitchen upgrades
 Elevator modernization
 Corridor carpets and maintenance
building added out of contingency
funds
Garden Terrace Apartments
 Located in Wenatchee
 146 studios and onebedroom units
 6 stories
 Built in two phases
 1970
 1981
1. Garden Terrace - existing project
subsidy
 Section 202 loan – $3.5MM original mortgages
maturing in 2021 & 2023; 3% and 7.6% interest
rates
 Two Multifamily HAP Contracts – 16+70 units
 Flexible Subsidy Loan - $154K, 1%
2. Garden Terrace - potential future
subsidy/funding
 HAP Contract rent increases/renewal
 Increased HAP rents to support new debt service
(HAP Renewal Guide Ch. 15, Option 2)
 20 year HAP contract with rents reset to market at Yr. 6, 11
and 16
 Allowable 10% increase prior to refinance
 Deferral of flexible subsidy loan – payments from surplus
cash
 Tenant protection vouchers triggered by flex sub deferral
 All tenants <80% of MI eligible for enhanced vouchers
 Potential to project base vouchers – HA declined
 EV’s had no impact because no rent increase
 FHA loans – 223f; 35 year amortization
3. Garden Terrace -- current rents and
occupancy history
 Section 202 rents (assisted
and non-assisted) were
50-70% of market rents
 Low vacancy history
 Occupancy at or above
90% for past three years
 Some challenge renting
unassisted studios
 Current mix of 35%
studios; 65% one bedroom
units
4. Garden Terrace - project capital
needs
 $2.4MM repairs identified in
PCNA
 Initial contractor estimate:
$3.8MM
 VE process and scope reduction
 Final contract: $2.3MM (15,700/unit)
 223(f) limit in this region: 17,500/unit
 Limited by loan amount (rate blip prior to
close)
 230K contingency + 356K soft costs
4. Garden Terrace - project capital
needs (cont’d)
 Safety: fire sprinkler
and alarm systems
 New windows
 Low flow toilets and
bath faucets (all)
 Kitchen cabinets,
counters, sinks (GT)
 PTAC heat/AC units (GT)
 Accessibility changes
 Add backs: GT boiler,
corridor changes, entry
improvements
5. Garden Terrace - tenant services
 Meal program
 Requested waiver under FHA program; mandatory
program, self sustaining
 Considered an important element to promote tenant
well being and independence
 No commercial kitchen upgrades included in refinance;
planned for future phase
 Service coordinator
 Continuing eligibility
 Funding subject to annual appropriations
6. Garden Terrace - tenant income mix
 Tenant incomes
 65% below 30% AMI
 20% below 50% AMI
 15% below 80% AMI
 Housing Authority declined opportunity to
pursue project based vouchers
 HA screened for households eligible for
enhanced vouchers; no rent increase post
closing, so no households eligible
7. Garden Terrace - project ownership
 Founded by Brethren Baptist Church of Wenatchee
 Board committed to remain involved with project; very
engaged in re-fi process
 Motivated by safety concerns; long-term preservation;
needed upgrades and improvements
 Important community asset; largest low income senior
housing project in the area
 Administrator and staff critical in making the
transaction work:
 Tenant communication
 Budgeting and HUD processing
 Tenant relocation
Garden Terrace Outcomes
 $5MM; 35 year loan; all-in rate
= 4.57% (4.12% plus .45%
MIP)
 Consolidated loan structure –
single budget going forward
 Deferral of flex sub loan with
repayment from surplus cash
 20 year HAP contracts for 86
units
 Unassisted rents still well below
market
Garden Terrace Outcomes (cont.)
•
Internal tenant relocation for GT units; day-work for GTW
 Significant building improvements
 Safety
 Accessibility
 Sustainability
 Comfort

Replenished the Replacement Reserve

Resident concern turned to satisfaction and relief

20 Year reset
Preservation Challenges
 Sorting out potential funding opportunities based on
multiple layers of existing subsidy and conflicting programs
 FHA and Asset Management rules are often not in sync
 Resolving all HUD asset management issues ahead of new
FHA loan (chicken before the egg)
 Securing a source of predevelopment funding (est. $75K$100K for 223f program; $400K plus for 221d4 program)
 Tenant relocation to accommodate rehab
Preservation Opportunities
 Increasing HUD flexibility and new
policies to address preservation
 Without preservation, wave of
mortgage and subsidy expirations will
result in loss of affordable units
 Low interest rates
 <3.75% for 223f
 <5% for 221d4
Questions?
Sarah Nichols
sarahn@beacondevgroup.com
206-914-3023
Brian Lloyd
brianl@beacondevgroup.com
206-860-2491 Ext. 210

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