Evolving Trends in Maryland Affordable Housing

Transcription

1 Evolving Trends in Maryland Affordable Housing

2 Welcome and Introductions Lila Shapiro-Cyr, Ballard Spahr 2

3 Legislative and Tax Update Mary Grace Folwell, Ballard Spahr Scott W. Cockerham, Ballard Spahr 3

4 Legislative Update Federal Appropriations - FY 2015 currently under negotiation - Election year - usually appropriations pass after the elections - Senate bi-partisan two-year budget agreement - HUD appropriations likely to be flat - Two major issues: Project Based Rental Assistance RAD expansion 4

5 Legislative Update HUD Demonstration Program to Affirmatively Further Fair Housing in Baltimore, Maryland Standard Metropolitan Statistical Area - Geographic Targeting - FHA 221(d)(4) and other FHA-insured mortgages - HUD incentives 5

6 Legislative Update Housing Finance Reform Johnson-Crapo Senate Bipartisan Proposal - Remove Affordable Housing targets - Funding Affordable Housing Trust Fund - Funding Capital Magnet Fund - Winding down Fannie Mae and Freddie Mac - Creation of a new Federal Mortgage Insurance Corporation 6

7 Tax Update Dave Camp Tax Reform Discussion Draft - Repeals 4% LIHTC for tax-exempt bond financed projects (coinciding with the elimination of private activity bonds) - Repeals the 30% basis boost for projects located in a HUDdesignated qualified census tract or difficult development area - Extends LIHTC credit period from 10 to 15 years to match the 15- year compliance period; repeals recapture rules - Provides that states would allocate qualified basis rather than LIHTC dollar amounts - Repeals federal historic rehabilitation tax credits; lets New Markets Tax Credit program expire 7

8 Tax Update Expiring Provisions Improvement Reform and Efficiency Act (EXPIRE Act) - Extends temporary minimum 9% LIHTC credit rate to include allocations made prior to January 1, Extends New Markets Tax Credit allocation authority for an additional two years - Extends availability of 50% bonus depreciation for qualified property (as defined in Section 168(k) of the Internal Revenue Code) purchased and placed in service before January 1, 2016 (before January 1, 2017 for certain longer-lived and transportation assets) 8

9 What s New at DHCD 9

10 Panel Participants Moderator - Danielle E. Howarth, Ballard Spahr Panelists - Margaret Allen, AGM Financial Services - Ivy Dench-Carter, Pennrose Properties - Anne Marculewicz, DHCD, Office of the Attorney General - Amy M. McClain, Ballard Spahr - Pat Sylvester, DHCD 10

11 HB 453 Legislative Changes to DHCD Programs 11

12 Four Primary Changes One program for surplus cash rental housing funds Loans may be made by either DHCD or CDA No more local resolutions or mandatory contributions for bond loans or rental housing funds Partnership loans may be repayable 12

13 Rental Housing Program Consolidates: - Elderly Rental Housing Program (ERHP) - Rental Housing Production Program (RHPP) - Multifamily Rehabilitation Program (part of MHRP) - Nonprofit Rehabilitation Program (also part of MHRP) One program for: - Elderly or family - Construction or rehabilitation Loan terms and documents mostly unchanged 13

14 Flexibility with Lender Entity Rental Housing and PRHP Funds are authorized to be administered by DHCD Amendment allows loans either by DHCD or CDA Allow consolidation of loan documents Reduce duplication of insurance certificates and P&P Bonds, etc. 14

15 Local Approval No local approval for Rental Housing Program and bond loans Now required to notify the chief executive officer of local jurisdiction and give reasonable opportunity to comment Consistent with LIHTC requirements under tax code and QAP Still must comply with other applicable local laws (i.e. zoning and permits) 15

16 PRHP Changes Loans with tax credits may be deferred loans payable at a set maturity date Interest rate will generally be 1% unless different rate is needed, but no higher than 3% Section 8 projects won t have to require tenant contributed services Local approval and contribution unchanged 16

17 Administrative Items Legislation goes into effect July 1, 2014 QAP and Guide revisions will be posted for public comment in mid May with public hearing in early June. Final QAP/Guide in early July. Working on regulations - Goal to submit for review by AELR by late May - May be final by early October - Will have a regulatory waiver to allow legislative changes to be implemented 17

18 Rental Assistance Demonstration 18

19 The Need for RAD Address a growing backlog of public housing capital need - Over $25 billion in deferred capital improvements Preserve affordable housing - 10,000 15,000 units of affordable housing are lost annually Allow access to capital that is not otherwise available to public housing Uses a budget neutral approach 19

20 RAD Snapshot First RAD projects awarded in January 2013 to 68 housing Authorities Commitments to enter into Housing Assistance Payments Contracts (CHAPs) have been issued up to the 60,000 maximum. Applications total more than 176,000 units have been filed with HUD, exceeding the cap by 116,000. HUD continues to accept and process applications and will award new CHAPs as existing CHAPs are either rescinded by HUD or declined by the HAs. HUD is working with Congress to raise the cap. 20

21 Two Types of Section 8 Assistance Element Project-Based Voucher HAP Project-Based Rental Assistance HAP Contract Term 15 years, but may obtain voucher administering 20 years agency approval for a 20 year term Mandatory Contract Renewal Project must be offered, and PHA must accept, a contract renewal Project must be offered, and PHA must accept, a contract renewal Administrator PHA HUD (for initial RAD conversions) or other HUD-approved contract administrator Contract Rents Rent Adjustments Fees to PHA Lower of current funding, reasonable rent or 110% of FMR (minus utility allowance) Adjusted by the Operating Cost Adjustment Factor, subject to appropriations; Section 8(o)(13)(I) of the Housing Act and 24 CFR and are not applicable Asset management fee may be paid to the PHA either as a "must pay" operating expense or from cash flow; for the remainder of the calendar year following conversion, a PHA will not receive any administrative fees under the HAP; such fees may be paid after the remainder of the first calendar year has expired Lower of 120% of FMR (minus utility allowance) or current funding Adjusted by the Operating Cost Adjustment Factor, subject to appropriations; Section 8(c)(2) of the Housing Act and 24 CFR are not applicable Asset management fee may be paid from cash flow 21

22 Two Types of Section 8 Assistance, cont. Element Project-Based Voucher HAP Project-Based Rental Assistance HAP Resident Choice Mobility Resident may move after one year of residency, Resident may move with a Housing Choice using the first available Housing Choice Voucher in accordance with Section 8(o)(13(E) of the U.S. Housing Act of 1937; the choice mobility requirement cannot be waived. Voucher upon the later of (a) 24 months from the date of the execution of the HAP; or (b) 24 months after the tenant's move-in date. The PHA providing the vouchers need not provide more than one-third of its turnover vouchers to the residents of covered RAD PBRA projects. On a project-basis, a PHA may limit Choice Mobility moves to no more than 15% of the assisted units within the project. Cap on Number of Assisted Units Environmental Review As permitted by a RAD waiver of Section 8(o)(13)(D), 24 CFR (a), up to 50% of the units may be assisted with PBV (or up to 100% for projects with elderly, disabled and family units offered supportive services within 50% of the units, noting that the leases for households which decline services will not be terminated) Required; completed environmental review must be submitted with the financing plan No cap Required; completed environmental review must be submitted with the financing plan 22

23 Elements of RAD Allows multi-phased and portfolio-based RAD awards Allows bundling of rent levels across multiple RAD sites Permits setting contract rents at FY 2012 rent levels for all applications submitted by Dec. 31, 2013 Allows Moving to Work agencies to apply for RAD and continue to use MTW block grant flexibility Allows joint RAD/Choice Neighborhood Initiative applications 23

24 Elements of RAD, cont. Section 18 public housing disposition not applicable for de minimis reduction in units (i.e., greater of five percent or five units) - De minimis limitation does not apply where the additional units: Were previously approved for demolition or disposition; Have been vacant for 24 months or longer; or The reduction of the units will allow the reconfiguration of the units (e.g., convert efficiency units to 1BR units) or the facilitation of social service delivery. 24

25 Elements of RAD, cont. Existing asset repositioning fees and Replacement Housing Factor funds may be used to support the conversion (although the units that are converted through RAD do not generate additional ARF or RHF funds) Faircloth Limit is permanently reduced, thus further limiting the number of public housing units an HA may develop following conversion 25

26 Elements of RAD, cont. Site selection and neighborhood standards per the Fair Housing Act and Title VI of the Civil Rights Act HUD access to records ( any reasonable HUD request for data to support program evaluation ) Ongoing PHA Board monitoring and annual approval of operating budgets Davis Bacon and Section 3 apply to all RAD projects PHA must preserve its interest in RAD LIHTC projects; other RAD projects must be owned or controlled by PHA or nonprofit 26

27 Elements of RAD, cont. - Future Refinancing Any refinancing or restructuring of permanent debt during HAP term requires HUD approval HUD seeks to ensure financing supports the long-term preservation of affordable housing Reserves must be sized to address 20 year capital needs 27

28 Resident Protections No re-screening of tenants upon conversion - Not subject to rescreening, income eligibility or income targeting Thus a household with income in excess of 60% of AMI will not generate low-income housing tax credits and cannot be required to relocate Right to return - existing residents have the right to return following rehabilitation work or to occupy an assisted unit at a new site if the assistance is transferred to such a site Phase-in of tenant rent increases - Any rent increase by the greater of 10% or $25 shall be phased in over three or five years (subject to HA discretion as described at Sections 1.16.C.4 and 1.7.B.3 of the RAD Notice) 28

29 Resident Protections, cont. Public housing family self sufficiency and resident opportunities and self sufficiency service coordinator programs Resident organization formations and funding Resident procedural rights - Upon conversion, residents are afforded additional termination notification and grievance procedure protections - HUD preparing additional tenant protection guidance 29

30 CHAP Award and Milestones Number of Days from CHAP Milestone Issuance 30 days Accepted lender engagement or commitment letter must include the HUD-required language indicating the lender is aware of all relevant RAD policies including the RAD Use Agreement and the ongoing requirements upon a foreclosure or bankruptcy. Letter must identify the proposed loan amount, key business terms for the loan and a pro forma sources and uses and cash flow. Statement of development team capacity, identifying and providing evidence of proposed development team members capacity with work similar to that involved with the RAD project. 60 days Significant Amendment to Annual and Five Year Plans including: a decision about conversion of assistance to PBV or PBRA. 90 days Due diligence certification from the PHA confirming that all industry-standard due diligence has been performed for and received by the lender and/or other financing provider. Due diligence must include the physical condition assessment (PCA) and the necessary environmental reports, as well as other lenderrequired items (e.g., appraisal, survey, pro forma title insurance policy). 150 days A certification from the PHA confirming that all firm commitments for firm financing have been applied for. 180 days Financing Plan submission to HUD (note if the RAD financing involves an FHA insured loan, this milestone is satisfied with the FHA firm commitment submitted at 150 days following CHAP issuance). 320 days (and no later than PHA submits evidence of firm commitment for financing. 40 days prior to closing) 360 days Closing months General timeframe for completion of all rehabilitation items, as approved by HUD depending on the scope of work funded with closing. 30

31 Financing Plan Submission Submitted to HUD Senior Transaction Manager - A description of the type of conversion - Physical Condition Assessment - Scope of Work - Completed environmental review - Accessibility and relocation plan - Development budget - Development team description - Proposed financing details - Operating pro forma HUD has asked for evidence of property tax abatement - Market study - Rehabilitation/construction management; - Title/Survey 31

32 Financing Plan Review Escorted through the review process by the HUD senior transaction manager - Prepares a transaction memo - Reviewed by HUD loan committee HUD underwriting requirements - Fixed interest rate - Fully amortized with minimum loan term of 18 years/maximum amortization 40 years - Minimum DSC of

33 Financing Plan Review, cont. Contingency: At least 10% required by HUD for rehab or new construction Soft Costs - No specific standard for most non-financing related soft costs (A/E, market study, etc.) - Non-LIHTC Developer Fee: 10% of Total Development Cost less fee, reserves and IOI acquisition costs - LIHTC Developer Fee: Lower of HFA standard or 15% - Must include relocation costs (under URA requirements for rehab of existing units) 33

34 Financing Plan Review, cont. Upon approval, HUD issues a signed RAD Conversion Commitment (form RCC available at Closing process begins 34

35 RAD Conversion Commitment (RCC) Main Elements - Applicable HUD Regulations and Requirements a broad set of rules applied to RAD deals and to which all transaction documents must be subject - Must be countersigned by HA and Owner within 30 days of issuance and closing to occur within 90 days of issuance - Any modifications to RCC must be set forth in an amendment to RCC - Unlikely HUD will include a written approval of transaction documents as part of the RCC or any amendment, but approval seems to be implied 35

36 RCC, cont. Identifies Section 8 Rents Confirms milestones Sets out scope of repairs Contains a series of exhibits RAD Use Agreement, HAP, Sources & Uses of Funds, Key Business Terms, List of Repairs or New Construction, Critical Repair Items (required prior to conversion), Cert re: Accounts Payable, Excess Obligations Rehabilitation escrow required for projects that do not involve LIHTC or conventional financing 36

37 RAD Closing Process PHA and new property owner (if any) must countersign the RCC within 30 days of its issuance PHA then submits several transaction documents to HUD regional counsel s office and HUD closing manager for review - Closing checklists for PBV and PBRA deals are available at under Contracts and Closing Documents Legal review tends to focus on title and survey and RAD Use Agreement with reliance on attorney s opinion to confirm compliance with applicable HUD regulations and requirements 37

38 Key Closing Documents RAD Use Agreement 20 year term; renews simultaneously w/hap but survives HAP termination - Senior recording position; survives foreclosure - Rents not to exceed 80% of AMI Release of HUD Declaration of Trust/Restrictive Covenants Housing Assistance Payments Contract and applicable riders - If lender takes an assignment of the HAP, HUD will execute a HUD form of Consent to Assignment Consolidated Certification Opinions Termination of any mixed-finance documents (i.e., Mixed- Finance ACC Amendment, Regulatory & Operating Agreement) 38

39 Lessons Learned Make submissions to HUD on a timely basis and in an organized manner Ensure legal descriptions used across survey and transaction documents do not include any discrepancies (no matter how minor) Be ready to accommodate unexpected requests HUD is still working out elements of the process - e.g., Public Housing Lease Termination 30 day notice requirement runs counter to the resident protections imposed by RAD, but per HUD Office of General Counsel, must satisfy both 39

40 Contacts and Questions Margaret Allen Scott W. Cockerham Ivy Dench-Carter Mary Grace Folwell Danielle E. Howarth Anne Marculewicz Amy M. McClain Lila Shapiro-Cyr Pat Sylvester A copy of these slides will be available at Copyright 2014 by Ballard Spahr LLP. The content is intended for general information purposes only. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are advised to consult your Ballard Spahr or other attorney regarding your specific legal situation. 40