San Francisco Multifamily Hub Asset Management: Tricks of the Trade. Western Mortgagee Advisory Council Conference April 24, 2014

Transcription

1 San Francisco Multifamily Hub Asset Management: Tricks of the Trade Western Mortgagee Advisory Council Conference April 24,

2 Introductions 1. Stephanie McFadden Managing Director, CBRE Capital Markets 2. Matt Naish Director of Project Management, HUD Multifamily SF 3. Gwen Kelleher Acting Supervisory Project Manager, HUD Multifamily SF 4. Alexa Jeffress Supervisory Project Manager, HUD Multifamily SF 5. Bob Boden Supervisory Project Manager, HUD Multifamily Honolulu 2

3 Overview 1. Asset Management Overview Tips and Tricks 2. Preservation Overview New Guidance 3. AM Process and Timelines 4. Recent Projects in the Region 3

4 Asset Management Overview: Tips and Tricks 4

5 Production-AM Coordination HUD understands the value of involving Asset Management up front, from the concept or pre-application stage. This is especially important in complex refinance transactions, such as those involving preservation of a HUD-subsidized property already in the HUD AM portfolio. 5

6 Reviewed by Asset Management Narrative and Scope of Work Is compared to previous R4R releases Rent Increase Requests Prepayment Requests 2530s When submitted electronically through APPS Review includes organizational chart Management documents, including: Management Entity Profile Management Certification Other Documents 6

7 Tips and Tricks Rent increases: Be sure the owner knows this request is separate from the FHA application. Be clear about the rents you seek and reflect these rents in your underwriting. Prepayment, rent increase, loan deferment, 2530 flags, REAC the earlier you address with AM, the better.

8 Tips and Tricks Predevelopment costs: How will 3rd party reports be funded? Timing is key (in advance of an application but ensure reports don t get stale)

9 Avoiding Delays AM issues that can delay HUD processing and closings Flags 2. Rent Increases 3. Missing Excess Reports 4. Prepayment Processing

10 2530 (APPS) Flags When and Why are Owners/Agents Flagged, and can the flags be resolved? 1. Late filing of Audited Financial Statements 2. Serious financial or regulatory compliance findings. 3. Management Review (MOR) Ratings Flag all Unsatisfactory ratings and some Below Average ratings. 4. Under 60 REAC score

11 Section 8 Rent Increases for Nonprofits A property generally can only have a rent increase once per year. Allow 120 days for processing of a rent increase. Contracts can be renewed or extended for a period of up to 20 years. Budget Based Rent Increase Owner submits a budget and Rent Comparability Study (RCS) Operating Cost Adjustment Factor (OCAF) Owner submits a request each year. No budget, No RCS required

12 Budget Based Rent Increase for Capital Repairs Covers the increased debt service directly related to capital repairs. Rents may not exceed market rents. Rents effective post-rehab 20 year Affordability Use Agreement Non-Section 8 units are not affected by rent increase Guidance in Chapter 15 of the Section 8 Renewal Policy Handbook

13 Missing Excess Income Reports Owners of Section 236 properties must submit an Excess Income Report to HUD every month. Shows the amount of excess income collected, if any, and either the repayment or indication that the excess income is being used for a HUD-approved use. Important: When the prepayment of a 236 loan is being processed by Headquarters, the history of excess income report submissions is reviewed. Section 236 properties almost always have several missing reports that must be submitted before the prepayment is approved.

14 Prepayment Processing 1. Current Lender submits Form 9807 to HUD Headquarters. 2. HQ s Desk Officer sends prepayment checklist to Field Office. 3. AM Project Manager has five days to complete and return to Desk Officer. 4. HQ s completes review and sends out approval letter, with or without conditions, or denial letter. 5. Timing is one to three months.

15 PRESERVATION OVERVIEW: NEW ASSET MANAGEMENT GUIDANCE 15

16 What is a Preservation Transaction? Recapitalization of existing housing stock to preserve longterm affordability and structural integrity, often involving: Long-term renewal and/or transfer of an active HUD assistance contract, Typically a Section 8 (HAP) contract; A maturing FHA mortgage, typically under Sections: (d)(3); and/or An active HUD Use Agreement, Ex. Title II or VI Preservation Use Agreement under the Low-Income Housing Preservation and Resident Homeownership Act (LIHPRHA); or Certain maturing non-fha mortgages (ex. Cal HFA projects). 16

17 Preservation Transaction Workload Projected 5yr National Workload: Property Type 236, BMIR or LIHPRHA includes: Maturing 236 or BMIR mortgages Title VI Use Restrictions with maturing mortgages 202 Direct Loans includes: Maturing 202 Direct Loans Loans with high (over 6%) interest rate # of Projects 833 2,253 Uninsured pre-mahra HAPs includes: Expiring pre-mahra HAP contracts; typically tied to non-fha maturing mortgages 523 TOTAL 3,609 17

18 Preservation Transaction Workload Hub Total Projects Total Units Boston ,253 Philadelphia ,775 New York ,882 Atlanta ,609 San Francisco ,725 Chicago ,154 Los Angeles ,796 Jacksonville ,266 Detroit ,692 Fort Worth ,501 Minneapolis ,575 Kansas City ,869 Baltimore ,708 Columbus ,662 Denver 132 5,993 Seattle 125 5,822 Greensboro 91 3,566 TOTAL 3, ,848 18

19 Recent HUD Policy Changes 1. Availability of Tenant Protection Vouchers and conversion to project-based vouchers. 2. Amending LIHPRHA Use Agreements 3. New procedures for prepaying 202 Direct Loans for Senior properties 3. Low Income Housing Tax Credit Pilot Program

20 Asset Management: New Guidance SPRACS: RAD: H : H : H : H : H H : H : Senior Preservation Rental Assistance Contracts Award Process Rental Assistance Demonstration Program (with PIH) Revision to : Funding for Tenant-Protection Vouchers for Certain At-Risk Households in Low-Vacancy Areas Updated Requirements for Prepayment and Refinance of Section 202 Direct Loans (see also ) Collection Procedures for Delinquent Section 201 Flexible Subsidy Loans; see also Policies and Procedures for the Deferred Repayment of Flexible Subsidy Loans Policy for Amending LIHPRHA Use Agreements (with PIH) Guidance on Eligibility for Tenant Protection Vouchers Following Certain Housing Conversion Actions Multifamily Low Income Housing Tax Credit Pilot Program Policy for Treatment of Proceeds Resulting from the Sale of FHA-insured or Secretary-held Projects by Nonprofit Owners 20

21 Easy Access to HUD Asset Management Info Check Out HUD s Preservation Page ram_offices/housing/mfh/presrv/presmfh Lots of Great Preservation Training doc?id=partners_mf_pres_training.pdf

22 ASSET MANAGEMENT PROCESS: PRESERVATION PROCEDURES AND TIMELINES 22

23 Asset Management: Transaction Timeline 6-12 months before closing 1. Contact HUD PM and/or FHA Production about Transaction Preferably 6-12 months before estimated closing date, depending on the complexity of the transaction Schedule and attend concept meeting Prepare and Submit summary of proposed transaction, including basic financing and project ownership structure 2. Begin process to Pay Off or Defer Flexible Subsidy Loan (if applicable) Decide whether to pay off or defer Requests to defer Flexible Subsidy require HUD HQ approval 23

24 Asset Management: Transaction Timeline 3-6 months before closing 1. Request Tenant Protection Vouchers (if applicable) Not less than 120 days before conversion event 2. Confirm Tenant Notification Requirements 150 days for most 236 prepayments 30 days plus comment period for most 202 prepayments 3. Submit HAP Renewal and Rent Increase Request to PBCA Determine renewal option, required rents Request 20 year HAP 120 days before desired execution date Submit Rent Comparability Study, allow 120 days for HUD 3 rd Party RCS 4. Submit list of Comfort Letters Required Based on rents required for underwriting 5. Request to Amend LIHPRHA Use Agreement (if applicable) Allow days for processing, including HUD HQ approval 24

25 Asset Management: Transaction Timeline 0-90 days before closing 1. Request Prepayment Approval for Existing FHA Loan Requires HUD HQ approval Approval for 236 prepayment no more than 90 days before closing 2. Submit any Waiver Requests for HUD HQ Approval Including waivers of Ch. 15 of the Section 8 Renewal Guide 3. Submit HUD 2530 Previous Participation forms New Participants in property (General Partners, Ownership Entity) Management Agent Limited Investor (LLCI Certification) 4. Confirm Use Agreement and Legal Documents for Closing Prepare all new/ amended Use Agreements for execution Prepare all legal agreements for closing Assignment and Assumption of the HAP Consent to Assignment of the HAP as Security for Financing 25

26 Section 236 Preservation OAHP Processing As of July 1, 2013, most Section 236 prepayment transactions processed by Office of Affordable Housing Preservation (OAHP): Loan Prepayment Flexible Subsidy Deferrals Unit Rent-Setting Excess Income Compliance Housing Assistance Payment (HAP) Assumptions Issuance of Tenant Protection Vouchers and Enhanced Vouchers Modifications to existing Use Agreements (LIHPRHA / ELIPHA) Online application and processing system at : 26

27 RECENT PROJECTS: Preservation success stories in the SF Region 27

28 Garfield Park Village - Santa Cruz, California Section 202 Senior Facility Total Units: 94 S/8 HAP Contract 19 units Constructed 1964 Final Endorsement June 1969 Outstanding Flexible Subsidy Loan Non-Profit Ownership Recapitalization Proposal: Rehab Cost: $7,708,230, Per Unit: $82,002 Exterior/interior unit upgrades, Energy Star appliances & efficient lighting fixtures, Upgrading fire & life/safety systems, windows, & more Financing Sources: 4% LIHTC equity, tax exempt bonds, Seller carry-back loan, HOME loan from City Deferral of flexible subsidy loan & 35 year permanent loan 28

29 Garfield Park Village HUD Requirements and Deliverables: Post rehab rents at construction completion & new 20-year HAP Contract w/preservation Exhibit (SF Hub); Approval of 202 Loan Prepayment (OAHP) with Use Agreement; (Notice H )* Approval to Defer Flexible Subsidy (Office of Housing) (partial repayment due at closing) with Use Agreement (Notice H ) Award of SPRAC (OAHP)* Approval of Ch. 3 & 15 Waivers of S/8 Renewal Guidebook (Office of Housing Assistance & Grant Administration) Estimated Closing Date: April 15, 2014 Estimated Start of Renovations: May 1,

30 Riverside Apartments - Hilo, Hawaii 74-unit family project; 69 S/8 Units Original 1974 Section 236 mortgage prepaid March 2013 LIHPRHA Use Agreement restricts rents through 2045 Severe erosion from Wailuku Riverbank Poor Physical Condition resulted in issuance of Notice of Violation & HAP Default Recapitalization Proposal: $7 million; $94,600 per unit (includes riverbank stabilization) Replacing major building systems, Upgrading units, Landscaping, walkways, parking lot re-surfacing, Slope stabilization and more Financing Sources: 9% Federal/State LIHTCs, Hawaiian Community Re-investment loan, State of Hawaii Rental Housing Trust Fund, NP carry-back loan, Energy tax credits, and Deferred developer s fee. 30

31 Riverside Apartments HUD Requirements and Deliverables: Section 236 Loan Repayment (Notice H 06-11) Recorded Amended/Restated LIHPRHA Use Agreement in effect for remaining useful life of project (Notice H ) Amendment of LIHPRHA Use Agreement for annual owner distribution of 8% of transfer preservation equity from surplus cash Comfort Letter for 20-Year S/8 HAP & 12 year use of residual receipts in accordance with outstanding requirements Closed November 2013 Renovations to units & embankment stabilization underway 31

32 Twin Oaks Apartments - Vacaville, California 46-unit family project situated in 12 buildings S/8 HAP (pre-mahra) Contract Constructed 1983, original loan w/ California Housing Finance Agency Recapitalization Proposal: 223(f) LIHTC Pilot Program $1.8 million ($40,000 per unit) Replacing water heaters, Asphalt in parking areas, Windows, Porch lights w/ Energy Star system, Unit upgrades Alteration of 3 units for handicapped accessibility, Installing security cameras & more Financing Sources: 9% Low Income Housing Tax Credits Operating income, Deferred developer fee 223(f) FHA insured loan 32

33 Twin Oaks HUD Requirements and Deliverables H Multifamily Low Income Housing Tax Credit Pilot Program Ch. 15 waiver of a pre-mahra contract, renewal under Option 1B of Renewal Guidebook Comfort Letter for 20-year S/8 HAP & post rehab rents at completion of rehab Closed February 2013 Renovations completed September

34 202 Preservation Property Eskaton Hazel Shirley Manor Recapitalization Proposal: New HUD 223(f) loan. 223(f) loan for $4,194,700, at 2.99% New 20-Year HAP Contract effective June 1, Improvements Include: New windows, New showers, new kitchens, HVAC upgrades, water circulation tank installation, roof repairs & pole lights. Elderly 202/8 property 63 units; 100% Section 8 34

35 Hazel Shirley Manor old windows 35

36 Hazel Shirley Manor new windows 36

37 Hazel Shirley Manor old kitchen 37

38 Hazel Shirley Manor new kitchen 38

39 Eden Housing - Successful Recapitalization of Six Aging East Bay 202 Properties Refinancing Challenges Impractical to refinance w/lihtc s, tax exempt bonds due to small size of four properties (21-26 units) High transaction costs, operating expenses due to intensive service needs of residents Mixture of senior, physically & mentally disabled residents Projects had joint ventures between Eden, other NP s so moving forward lengthy process, requiring agreements from multiple NP boards Five of six properties required HUD approval to prepay Eden Issei Terrace Required interpreting regulations to facilitate workable refinancing structure 39

40 Eden Housing Creative Solutions Teamwork Development & Financing Consultants, HUD San Francisco, tax credit investor & lender Properties went through Mark to Market process; four received higher rents under 20- year HAP HUD allowed use of R4R to fund rehab costs; approved prepayments in exchange for owners commitment to 20-year HAP beyond original maturity date Properties were able to cross-subsidize each other on a one time, upfront basis through use of seller proceeds End Result Enabled securing of 4% tax credits, tax exempt bonds; refinancing & rehab of all six properties One of first refinancing proposals to combine smaller properties w/larger properties under one refinancing package Created more attractive opportunities for lenders, tax credit investors & path that other 202 s needing sub rehab can follow 40