Lw and Mderate Incme Rental (LMIR) and Flexible Financing fr Capital Csts (FFCC) Prgrams Prcedural Guide Nvember 2015
Minnesta Husing des nt discriminate n the basis f race, clr, creed, natinal rigin, sex, religin, and marital status, status with regard t public assistance, disability, familial status, r sexual r affectinal rientatin in the prvisin f services. An equal pprtunity emplyer. This infrmatin will be made available in alternative frmat upn request by emailing mn.husing@state.mn.us r by calling 800.657.3769 r TTY 651.297.2361.
Table f Cntents Intrductin Prgram Purpse and Backgrund... 4 Chapter 1 Funding Surces and Pririties...5 1.01 LMIR FUNDING SOURCES...5 1.02 FFCC FUNDING SOURCE...5 1.03 HUD RISK-SHARE MORTGAGE INSURANCE...5 Chapter 2 Eligible Uses and Eligibility Criteria...7 2.01 ELIGIBLE HOUSING TYPES...7 2.02 ELIGIBLE PROJECTS...7 2.03 INELIGIBLE PROJECTS...7 2.04 ELIGIBLE ACTIVITIES...7 2.05 ELIGIBLE OWNERS AND SPONSORS...7 2.06 INCOME LIMITS...8 2.07 RENT LEVELS...8 2.08 TAX-EXEMPT BOND REQUIREMENTS...8 2.09 COMMON SELECTION AND COMMON FUNDING PRIORITIES...9 Chapter 3 General Amrtizing Lan Characteristics...10 3.01 LOAN TERM...10 3.02 DEBT COVERAGE RATIO...10 3.03 MAXIMUM LOAN-TO-COST/LOAN-TO-VALUE...10 3.04 OPERATING DEFICIT ESCROWS...10 3.05 ESCROWS AND RESERVES...11 3.06 MONITORING AND REPORTING REQUIREMENTS...11 3.07 RETURN ON EQUITY...11 3.08 GUARANTEES...11 Chapter 4 Fees and Interest...13 4.01 LMIR FEES...13 4.02 INTEREST RATES...13 4.03 MORTGAGE INSURANCE PREMIUM...13 4.04 CONSTRUCTION OVERSIGHT FEE...14 Chapter 5 Hw t Apply...15 Chapter 6 Cmpliance and Fair Husing...16 6.01 CONTRACT COMPLIANCE AND EQUAL OPPORTUNITY...16 6.02 FAIR HOUSING POLICY...16 Chapter 7 Prgram Cntact...18
Intrductin Prgram Purpse and Backgrund The purpse f the Lw and Mderate Incme Rental (LMIR) prgram is t prvide lng-term amrtizing mrtgage debt fr multifamily rental husing affrdable t lw- and mderateincme Minnestans. Lng-term, fixed-rate mrtgage lans are available fr financing new cnstructin, stabilizatin f existing prperties, and fr the preservatin f existing federally assisted rental husing. The Flexible Financing fr Capital Csts (FFCC) prgram wrks in tandem with LMIR lans. FFCC lans are traditinally structured as deferred lans at lw r n interest and are used as a mechanism t reduce the verall interest rate t the develpment. Bth lan prgrams wrk in cnjunctin with HOME funds, federal Husing Tax Credits (HTC), r ther public r private funding surces. LMIR and FFCC lans are available thrugh the annual Multifamily Cnslidated Request fr Prpsal (RFP) prcess as well as n an pen pipeline basis (subject t the availability f sufficient funding). Refer t Chapter 6 f the RFP Guide fr applicatin instructins. 4
Chapter 1 Funding Surces and Pririties 1.01 LMIR Funding Surces LMIR lans are funded thrugh the fllwing tw surces: Husing Investment Fund: Minnesta Husing generates resurces frm its lending activities and makes them available t fund investment-quality LMIR amrtizing first mrtgage lans. This is a nn-federal resurce that wrks well with 9% cmpetitive husing tax credits. Federal Tax-Exempt Bnd Prceeds: Minnesta Husing issues tax-exempt bnds t fund LMIR lans alng with applicatins fr 4% husing tax credits. If needed fr eligibility fr tax credits, shrt-term LMIR Bridge Lans may als be available. Develpers r Owners wh are cnsidering 4% tax credits fr their prperties shuld carry ut a preliminary evaluatin f their prpsal t determine if it will meet minimum eligibility and threshld requirements as called fr in the state s Qualified Allcatin Plan (QAP). Applicants shuld als review the Minnesta Bnd Statutes t becme familiar with state requirements. If the tax-exempt bnd prpsal can satisfy the minimum threshld requirements fr tax credits, develpers shuld review the Tax Credit Allcatin Prcedural Manual and Dcuments and the Self-Scring Wrksheet. These dcuments prvide much greater detail t allw fr the full evaluatin f a prpsal s ptential t access, secure, and utilize husing tax credits. In seeking tax credits, a Develper r Owner must submit a full and cmplete applicatin package fr Husing Tax Credits in cnjunctin with, and in additin t, any related applicatin packages fr Minnesta Husing s ther lan prducts. 1.02 FFCC Funding Surce Husing Affrdability Fund: The FFCC prgram ffers deferred lans and is financed thrugh the Husing Affrdability Fund, which are funds generated thrugh Agency resurces. FFCC deferred lans are available nly in partnership with LMIR lans. 1.03 HUD Risk-Share Mrtgage Insurance In rder t minimize Minnesta Husing s risks, all LMIR lans will btain mrtgage insurance thrugh HUD s Risk-Sharing Prgram. Under Minnesta Husing s Risk-Sharing Agreement with HUD, HUD cntracts t reimburse Minnesta Husing fr a prtin f the lss frm any defaults that ccur while the insurance is in frce. In this way, Minnesta Husing is able t effectively increase its financing capacity. In additin, Minnesta Husing utilizes the prgram as an incentive t partner with HUD t preserve and renew expiring Sectin 8 cntracts. HUD s insured prtin will be either 50% (Level I) r up t 90% (Level II). A Mrtgage Insurance Premium (MIP) f 0.25% (Level I) r up t 0.45% (Level II) will be charged in additin t Minnesta Husing s interest rate n the lan. 5
In additin, the first year MIP is paid in advance and will be included in the develpment cst budget. Typically the lans are insured upn cnstructin cmpletin, therefre Davis Bacn federal wage requirements d nt apply. 6
Chapter 2 Eligible Uses and Eligibility Criteria 2.01 Eligible Husing Types Permanent, general ccupancy, rental husing Permanent, supprtive husing 2.02 Eligible Prjects Must cntain a minimum f fur units. Generally a develpment needs t cntain a minimum f 24 husing units t be financially feasible; hwever, smaller develpments may be cnsidered. Scattered site develpments must be lcated in the same city r cunty and als cntain a minimum f fur units. Develpments with age restrictins f 55 and lder are eligible fr LMIR lans. 2.03 Ineligible Prjects Nursing hmes, bard and care facilities, and supervised living facilities licensed by the State f Minnesta r a delegated lcal Department f Health are nt eligible fr funding, nr are prperties where residents require a 24-hur plan fr supervisin and/r medical/health care. 2.04 Eligible Activities New cnstructin Rehabilitatin f existing affrdable husing Adaptive Reuse (i.e. cnversin t husing frm anther use) Preservatin f affrdable husing Preservatin f federally assisted husing Cnstructin t permanent financing Permanent financing 2.05 Eligible Owners and Spnsrs Ownership must be in the frm f a single asset entity. Limited Dividend and Nn-Prfit Spnsr: Minnesta Husing s mrtgage credit review ensures that the spnsr has the ability t cver any revenue shrtages. Therefre, spnsrs will be evaluated as t financial capacity. Factrs such as assets, liquidity, length f time in peratin, and previus husing experience will be cnsidered. 7
2.06 Incme Limits Incme limits are in effect fr the life f the mrtgage, unless therwise nted. At a minimum, 40% f the units must be ccupied by individuals/families whse incme at initial ccupancy des nt exceed 60% f Area Median Incme (AMI) (adjusted fr family size); r 20% f the units must be ccupied by individuals/families whse incme des nt exceed 50% f AMI. Refer t the Multifamily Rent and Incme Tables. N mre than 25% f the units may have unrestricted incmes. The balance f units must be ccupied by tenants whse incmes at initial ccupancy that d nt exceed 100% f the greater f area r statewide median incme fr a furpersn husehld as determined by HUD. Verificatin Requirements: At initial ccupancy, husehlds must self-certify their grss annual husehld incme in Part I f the frm Initial Occupancy Statement by Tenant. Verificatin f incme is nt required. This frm must be signed and dated by the head f husehld and the wner/agent. A mre detailed certificatin used fr anther prgram is als acceptable (e.g., HUD frm 50059 r 50058, Husing Tax Credit Tenant Incme Certificatin, USDA Rural Develpment certificatin frm, etc.). The LMIR prgram des nt require annual recertificatin f incme. Fr ccupied prperties, the brrwer is required t submit an Incme Verificatin Certificatin t Minnesta Husing. Within 120 days f clsing the wner will need t cntact each tenant t btain a Tenant Incme Verificatin frm. 2.07 Rent Levels Rent restrictins remain in place fr the life f the mrtgage, unless therwise nted: The rent levels will be marketable, taking int cnsideratin the husehld incmes that must be served, but at a minimum, the rent levels must cmply with the fllwing: 40% f units affrdable t persns and families at 60% f AMI; r 20% f units affrdable t persns and families at 50% f AMI The balance f units with rents at market rates as determined by Minnesta Husing In rder t ensure affrdability t a brader tenant base, the Agency prvides a selectin pririty fr applicatins that prpse incme limits at 60% AMI but has rents that are affrdable t husehlds at 50% AMI. Refer t the Multifamily Rent and Incme Tables. 2.08 Tax-Exempt Bnd Requirements In additin t the ther LMIR requirements, LMIR lans funded with tax-exempt bnds must adhere t the fllwing requirements: 8
The maximum rent fr at least 20% f the units must nt exceed the area fair market rents Scattered site develpments (nn-cntiguus pieces f real prperty separated by mre than just a street) must meet this requirement fr each building. Develpments with prject based rent assistance are deemed t meet this requirement; and The wner must agree t extend any affrdability restrictins and any cntract r agreement fr rental assistance fr the maximum term permitted including any renewals; and The units required t be set aside fr lw and mderate incme tenants must be cntinuusly ffered fr a qualified prject perid which is generally the lnger f 15 years frm 50% ccupancy, the day the bnds are n lnger utstanding r the date when any Sectin 8 assistance terminates; and Rehabilitatin cst must equal r exceed 15% f the prtin f the cst f acquisitin financed by the bnds Scattered site develpments (nn-cntiguus pieces f real prperty separated by mre than just a street) must meet this requirement fr each building; and 95% f tax-exempt bnd prceeds must be used fr qualified csts, which, with certain limitatins, means amunts allcable t the capital csts f residential rental prperty. Ineligible csts f up t 5% (including csts f issuance) may be financed with prceeds f the bnd issue. 2.09 Cmmn Selectin and Cmmn Funding Pririties In additin t the rent and incme limits described abve, fr selectin and funding pririties cmmn t all Minnesta Husing prgrams, refer t the Multifamily Cnslidated Request fr Prpsal Guide. 9
Chapter 3 General Amrtizing Lan Characteristics Minnesta Husing s underwriting includes a thrugh analysis f all aspects f the feasibility f the develpment prpsal. In additin t requirements detailed in this guide, all LMIR lans are underwritten in cnfrmance with Minnesta Husing s Multifamily Underwriting Standards. 3.01 Lan Term LMIR lans are 30-year, fully amrtizing, fixed rate lans. FFCC lans are generally made with an interest rate f 0%. They are c-terminus with the accmpanying LMIR lan and will be due and payable upn prepayment r maturity f the LMIR lan. 3.02 Debt Cverage Rati Lans are sized t meet Minnesta Husing s minimum Debt Cverage Ratis (DCR), which range frm 1.15:1 t 1.25:1 depending n the prperty characteristics and risk factrs (refer t the Multifamily Underwriting Standards fr current DCR guidelines). The develpment must maintain a break-even cash flw fr a minimum f 15 years n a prfrma basis. 3.03 Maximum Lan-t-Cst/Lan-t-Value Level I HUD Risk-Share (HUD shares 50% f the risk f lss): The Lan-t-Value limit fr the amrtizing first mrtgage shall be in accrdance with the requirements established in the Multifamily Underwriting Standards. Level II HUD Risk-Share (HUD shares mre than 50% f the risk f lss): In accrdance with HUD Handbk 4590.01, paragraph 2-4C(2) and Mrtgagee Letter 2010-21 : The Lan-t-Cst shall nt exceed 87% fr affrdable new cnstructin/substantial rehabilitatin transactins. Substantial rehabilitatin is defined as a minimum f $15,000 per dwelling unit in rehabilitatin The Lan-t-Value shall nt exceed 85% fr existing affrdable prperties 3.04 Operating Deficit Escrws Effective March, 2015 a new requirement fr all develpments funded with LMIR amrtizing lans is the requirement f an Operating Deficit Escrw. This Escrw cmbines and replaces the previusly required Wrking Capital Escrw and the Rent Up Escrw. At the time f initial clsing f the LMIR lan, brrwers are required t establish an Operating Deficit Escrw (ODE), funded with cash r an irrevcable and uncnditinal letter f credit. Cash 10
t fund the ODE shall nt be derived frm the prceeds f any develpment surces including equity. The ODE is nt included in the ttal develpment csts. Minnesta Husing may use the ODE at its sle discretin, n behalf f the brrwer t pay fr develpment rent up and perating expenses during the initial lease-up perid. The Operating Deficit Escrw will be sized based n the greater f: 3% f the lan amunt, r The prjected perating deficit during the absrptin perid, as determined by the Agency s underwriting analysis. The Escrw will be maintained until the later f the fllwing tw scenaris: One year after permanent lan clsing, r Achievement f a 1.15 t 1 debt cverage rati fr six cnsecutive mnths. The DCR will be calculated based n actual cllected revenue less the greater f actual r underwritten effective grss expenses. After achievement f bth f these scenaris, the letter f credit r the remaining cash and interest earned theren are returned t the brrwer. Based n Minnesta Husing s Mrtgage Credit Cmmittee review, bnd rating agency r marketing requirements, Minnesta Husing may require the brrwer t extend the perid r require a larger Operating Deficit Escrw. 3.05 Escrws and Reserves Minnesta Husing cllects and hlds the perating deficit escrw, replacement reserves, residual receipts, if any, and the tax and insurance escrw during the lan term. 3.06 Mnitring and Reprting Requirements Minnesta Husing actively mnitrs each develpment including tenant incmes, rents, affirmative actin and equal pprtunity requirements. In additin, the Agency mnitrs mnthly perating statements and cnducts management reviews and prperty inspectins. The Agency apprves the annual budget and distributins frm cash-flw. 3.07 Return n Equity Minnesta Husing statutes currently allw a maximum return f 15% based n actual develper equity. Nn-prfit wned develpments are nt allwed a distributin. 3.08 Guarantees Minnesta Husing requires at least ne individual r crpratin (spnsr) with adequate financial capacity t guarantee: 11
Cnstructin cmpletin All mnetary bligatins, including perating cst shrtfalls and debt service, until the prperty has achieved a debt service cverage rati f at least 1.15:1 (based n actual cllected revenue less underwritten effective grss expenses, fr three cnsecutive mnths) All mnetary bligatins except principal and interest fr the life f the lan 12
Chapter 4 Fees and Interest 4.01 LMIR Fees All LMIR lans: A $250.00 Applicatin Fee is required fr all LMIR applicatins, including resubmissins. An Originatin Fee f 2% n the first $5 millin in financing and 1% n amunts abve $5 millin. The minimum Originatin Fee is $25,000. Tax-Exempt Bnd funded lans: Originatin Fees fr LMIR Bridge Lans (available nly as required t meet the 50% test), will be charged an riginatin fee f 0.50%. Bnd Issuance Fees will be charged as part f the develpment budget as fllws: $100,000; plus 1.0% f the par amunt f the lng-term bnds; plus 0.75% f the par amunt f the shrt-term bnds. Tax-exempt bnd fees (including bridge lan riginatin fees are subject t revisin as determined apprpriate by Minnesta Husing Finance. 4.02 Interest Rates Interest rates will be at a fixed rate thrugh the term f the LMIR lan. Husing Investment Fund: Current interest rates are published n Minnesta Husing s website. Fr applicatins received as part f the annual RFP, rates are set prir t Bard selectin apprval (selectin) and will be hnred fr ne year. Rates (at the selected rate if within 12 mnths; therwise at the current market rate) will be lcked fr six mnths at the time f final Bard cmmitment apprval (cmmitment). Fr applicatins received utside f the annual RFP, the rate will be lcked fr six mnths at the time f final Bard cmmitment apprval (cmmitment). Tax-Exempt Bnd funded lans: Interest rates are based n market rates at the time f the clsing f the bnd issuance, plus a spread based n the size f the lan. The interest rate n the permanent LMIR lan will be fixed fr the term f the lan. 4.03 Mrtgage Insurance Premium Fr all LMIR lans insured under HUD s Risk-Sharing prgram, a Mrtgage Insurance Premium (MIP) f 0.25% (Level I), r up t 0.45% (Level II), will be charged in additin t the interest rate 13
n the lan. MIP is paid in advance fr the first year and is included in the Develpment Cst Budget and can be paid frm lan prceeds. 4.04 Cnstructin Oversight Fee Histrically, Minnesta Husing has charged a Cnstructin Oversight Fee nly t develpments funded with a LMIR lan. Effective in 2015, a Cnstructin Oversight Fee will be assessed t all develpments receiving Minnesta Husing amrtizing r deferred lans. The fee will be assessed at the lessr f 0.25% f the cnstructin cntract amunt r 1.0% f the ttal Agency lans. 14
Chapter 5 Hw t Apply LMIR and FFCC lans are available n an nging, pipeline basis (subject t funding availability). Lans are als available thrugh the annual Multifamily Cnslidated Request fr Prpsal (RFP). The RFP Guide, Underwriting Standards, and applicatin materials will be used fr bth RFP and pipeline applicatins. The materials are available thrugh the fllwing link: Multifamily Rental Husing Cmmn Applicatin Materials. Chapter 12 f the RFP Guide includes instructins fr submitting an applicatin utside f the RFP (pipeline r nging basis). 15
Chapter 6 Cmpliance and Fair Husing 6.01 Cntract Cmpliance and Equal Opprtunity Plicy. It is the plicy f Minnesta Husing t practice affirmative actin t prvide equal pprtunity in all f ur prjects, prgrams, and ther endeavrs. Minnesta Husing s gal is t achieve a client and recipient mix that is representative f the peple wh live in ur state and ur cmmunities s that all emplyment and cntractual benefits that develp as a result f ur prgrams will be shared by all Minnestans. This plicy applies t all Minnesta Husing emplyees and the Agency s external partners. Purpse. The purpse f this Plan is t make Minnesta Husing s cmmitment t act affirmatively t achieve equal pprtunity in all facets f its peratin, clear t bth internal staff and utside parties with whm we d business. Gals. Our gal is t ensure minrity and female cntractrs and subcntractrs equal access t business pprtunities n Minnesta Husing financed prjects and t encurage the presence f minrities and wmen at all levels, n the staffs f the prgram participants having cntractual agreements with Minnesta Husing. Minnesta Husing s gal is t ensure that the wrkfrces n the prjects and prgrams we finance reflect demgraphically the area in which they are lcated. Our gal is t ensure equal business pprtunity t minrity and female cntractrs and subcntractrs n the prjects we finance and equal emplyment pprtunity in the wrkfrces f the firms with whm we sign cntractual agreements, in which a cntractr cmmits t meet Minnesta Husing s emplyment and business gals. These gals will apply fr the length f the cntract r the life f the mrtgage. Minnesta Husing, at its discretin, may set numerical r percentage gals dependent n the lcatin and size f a given prject. Current gals will be determined by staff based n the lcatin f the prject. Requirements. Minnesta Husing is required t cmply with all applicable lcal, state, and federal laws. These requirements are passed n t everyne with the Agency des business with, either by cntractual agreement r as a Minnesta Husing plicy. Sanctins. Minnesta Husing has the cntractual authrity t demand full payment f any lan r grant, stp prceeding with any prject at any stage, and cease t d business with any entity r individual that fails t fllw its affirmative actin plicies r fails t meet its/his/her cntractual equal pprtunity bligatins. 6.02 Fair Husing Plicy It is the plicy f Minnesta Husing t affirmatively further fair husing in all its prgrams s that individuals f similar incme levels have equal access t Minnesta Husing prgrams, regardless f race, clr, creed, religin, natinal rigin, sex, marital status, status with regard t public assistance, disability, familial status, r sexual rientatin. 16
Minnesta Husing's fair husing plicy incrprates the affirmative fair husing marketing practices addressed in Title VIII f the Civil Rights Act f 1968, as amended by the Fair Husing Amendment Act f 1988, which states that it is unlawful t discriminate in the sale, rental, and financing f husing based n race, clr, religin, sex, handicap, familial status r natinal rigin; as well as the fair husing prtectins prvided by the Minnesta Human Rights Act, which adds creed, marital status, status with regard t public husing, and sexual rientatin. In part, regarding rental husing issues, Title VIII and the Human Rights Act makes it unlawful t: (i) discriminate in the selectin/acceptance f applicants in rental f husing units; (ii) discriminate in terms, cnditins r privileges f rental f a dwelling unit; (iii) engage in any cnduct relating t the prvisin f husing that therwise make unavailable r denies rental f a dwelling unit; (iv) make r publish (r have anyne else make r publish) advertisements that indicate preferences r limitatins based n race, etc.; (v) tell a persn that because f race, etc., a dwelling unit is nt available when it is; and (vi) deny access t, r membership r participatin in, assciatins r ther services rganizatin r facility relating t the business f renting a dwelling r discriminate in the terms r cnditins r membership r participatin. Minnesta Husing has a cmmitment t affirmatively further fair husing fr members f the disabled cmmunities by prmting the accessibility requirements set ut in the Fair Husing Amendment Act f 1988, which establish design and cnstructin mandates and prvide fr the residents right t make reasnable accmmdatins under certain cnditins. (Applicable t cvered multifamily dwellings, which are buildings cnsisting f 4 r mre units if such buildings have ne r mre elevatrs. It is als applicable t grund flr dwelling units in ther buildings cnsisting f 4 r mre dwelling units.) All Minnesta Husing prgrams require wners t market affirmatively, using specific steps geared t the particular prgram. These steps include: Outreach t all grups prtected by the Civil Rights Act f 1968, as amended in 1988, and thse prtected by the Minnesta Human Rights Act Affirmative marketing strategy that reaches prtected grups Self-analysis t make sure all steps are nn-discriminatry Upn request by Minnesta Husing, the submissin f reprts and dcuments that cnfirm the wner s fair husing effrts Applicants will be expected t submit a Minnesta Husing Affirmative Fair Husing Marketing Plan at the time f applicatin and use affirmative fair husing marketing practices in sliciting renters, determining eligibility, and cncluding all transactins. 17
Chapter 7 Prgram Cntact Fr questins, cntact Susan Thmpsn, Prgram Manager, at 651.296.9838 r susan.thmpsn@state.mn.us. Yu may als cntact the Husing Develpment Officer (HDO) identified in yur selectin letter. 18