11

The Development ProcessThe Development ProcessAn OverviewAn Overview

Forming the development conceptForming the development concept Evaluating your capacity and the needs of your Evaluating your capacity and the needs of your

communitycommunity Evaluating the properties in your communityEvaluating the properties in your community

FeasibilityFeasibility Creating an experienced project development Creating an experienced project development

teamteam Preparing financial statements and budgets and Preparing financial statements and budgets and

cost estimatescost estimates

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The Development ProcessThe Development ProcessAn OverviewAn Overview

Deal Making: Planning and FinancingDeal Making: Planning and Financing Identifying financing sourcesIdentifying financing sources Financial stability of lead applicantFinancial stability of lead applicant

Project constructionProject construction Planning and managing the construction processPlanning and managing the construction process

OperationOperation Preparing a long term management planPreparing a long term management plan

Compliance with federal requirementsCompliance with federal requirements

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NSP Eligible ActivitiesNSP Eligible Activities

NSP is organized according to the eligible NSP is organized according to the eligible activities provided in the Housing and activities provided in the Housing and Economic Recovery Act of 2008.Economic Recovery Act of 2008.

These activities provide for a wide array of These activities provide for a wide array of projects. projects.

Applicants can combine activities if necessary Applicants can combine activities if necessary to achieve the scope of their project.to achieve the scope of their project.

State’s Plan State’s Plan estimatedestimated funding by activity funding by activity

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NSP Residential Financing ProgramNSP Residential Financing Program

““Establish financing mechanisms for purchase and redevelopment of Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers.”loans for low- and moderate-income homebuyers.”

The State’s Plan estimated 15% of overall NSP funds for this activityThe State’s Plan estimated 15% of overall NSP funds for this activity Types of ProjectsTypes of Projects::

Assist home buyers acquire properties by providing a zero interest subordinate Assist home buyers acquire properties by providing a zero interest subordinate

loan or grant to bring down the purchase price to an affordable level.loan or grant to bring down the purchase price to an affordable level. Loan Loss ReserveLoan Loss Reserve Revolving Loan FundRevolving Loan Fund

55

NSP Homebuyer ProgramNSP Homebuyer Program

““Purchase and rehabilitate homes and residential Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes upon in order to sell, rent, or redevelop such homes and properties.”and properties.”

The State’s Plan estimated 20% of NSP funds would The State’s Plan estimated 20% of NSP funds would address this activity.address this activity.

Possible Project TypesPossible Project Types:: Acquire and rehabilitate single family homesAcquire and rehabilitate single family homes Acquire and rehabilitate multi-unit properties for sale Acquire and rehabilitate multi-unit properties for sale

(condos, townhomes, etc.)(condos, townhomes, etc.)

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NSP Rental ProgramNSP Rental Program ““Purchase and rehabilitate homes and residential properties Purchase and rehabilitate homes and residential properties

that have been abandoned or foreclosed upon in order to that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties.”sell, rent, or redevelop such homes and properties.”

State’s Plan estimated 30% of NSP funds would address State’s Plan estimated 30% of NSP funds would address this activity.this activity.

Intended for permanent housingIntended for permanent housing Possible project types:Possible project types:

Scattered site acquisition and rehabilitation of single family Scattered site acquisition and rehabilitation of single family homes for long term rentalhomes for long term rental

Scattered site acquisition and rehabilitation of small multi-unit Scattered site acquisition and rehabilitation of small multi-unit properties for long term rentalproperties for long term rental

Larger single site acquisition and rehabilitation for long term Larger single site acquisition and rehabilitation for long term rentalrental

Rent-to-Own modelsRent-to-Own models Special needs housingSpecial needs housing

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NSP Land Bank ProgramNSP Land Bank Program

““Establish land banks for homes that have been Establish land banks for homes that have been foreclosed upon.”foreclosed upon.”

Can not be used for vacant land.Can not be used for vacant land. Must have defined geographic area that meets the Must have defined geographic area that meets the

CDBG national objective of “benefiting low, moderate, CDBG national objective of “benefiting low, moderate, and middle income persons”.and middle income persons”.

Homes acquired must be brought to their end use within Homes acquired must be brought to their end use within 10 years.10 years.

State’s Plan estimated 5% of NSP funds would address State’s Plan estimated 5% of NSP funds would address this activity.this activity.

Possible project types:Possible project types: Acquire homes for later redevelopment, rehabilitation or Acquire homes for later redevelopment, rehabilitation or

affordable sale or rentalaffordable sale or rental

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NSP Demolition ProgramNSP Demolition Program

““Demolish blighted structures”Demolish blighted structures” Properties must meet definition of blight covered later in Properties must meet definition of blight covered later in

this presentation and discussed in State’s Plan.this presentation and discussed in State’s Plan. State’s Plan estimated 3% of NSP funds would address State’s Plan estimated 3% of NSP funds would address

this activity.this activity. The CDBG national objective to “eliminate slum and blight” The CDBG national objective to “eliminate slum and blight”

is not eligible under NSP. is not eligible under NSP. All activities must be tied to benefit low-mod-middle income All activities must be tied to benefit low-mod-middle income

households. households. Area benefit test would be necessary.Area benefit test would be necessary.

Possible projects types:Possible projects types: Demolition of homes to leave as green space to lower the chance Demolition of homes to leave as green space to lower the chance

of flooding for surrounding homes.of flooding for surrounding homes.

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NSP Redevelopment of Demolished NSP Redevelopment of Demolished or Vacant Property Programor Vacant Property Program

““Redevelop demolished or vacant properties.”Redevelop demolished or vacant properties.” Public facilities are eligible but must provide an “area Public facilities are eligible but must provide an “area

benefit” to low-mod-middle income householdsbenefit” to low-mod-middle income households New construction only eligible under this activityNew construction only eligible under this activity State’s Plan estimated 10% of NSP funds would address State’s Plan estimated 10% of NSP funds would address

this activitythis activity Possible Project Types:Possible Project Types:

Single site new construction for sale or rentalSingle site new construction for sale or rental Scattered site new construction for sale or rentalScattered site new construction for sale or rental Special needs housing / Supportive housingSpecial needs housing / Supportive housing

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NSP Eligible PropertiesNSP Eligible Properties

The type of property that can be assisted with NSP The type of property that can be assisted with NSP funds varies according to the eligible activity undertaken.funds varies according to the eligible activity undertaken.

Federally required minimum of 25% of all NSP funds Federally required minimum of 25% of all NSP funds must be used to provide housing for households with must be used to provide housing for households with incomes at or below 50% of the area median incomeincomes at or below 50% of the area median incomeState has set goal of targeting 40% of NSP funds to State has set goal of targeting 40% of NSP funds to assist 50% AMI households.assist 50% AMI households.

Properties must be residential and have been Properties must be residential and have been foreclosed or abandoned in order to meet the 25% foreclosed or abandoned in order to meet the 25% requirement, even if that is not required by the activity. requirement, even if that is not required by the activity.

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NSP Eligible Properties Cont’dNSP Eligible Properties Cont’d

HUD has defined –HUD has defined – Foreclosed: Foreclosed: “A property has been foreclosed upon “A property has been foreclosed upon

at the point under state or local law, the mortgage or at the point under state or local law, the mortgage or tax foreclosure is complete. Title to the property tax foreclosure is complete. Title to the property must have been transferred.”must have been transferred.”

Abandoned: Abandoned: “When mortgage or tax foreclosure “When mortgage or tax foreclosure proceedings have been initiated for that property, no proceedings have been initiated for that property, no mortgage or tax payments have been made by the mortgage or tax payments have been made by the property owner for at least 90 days, AND the property owner for at least 90 days, AND the property has been vacant for at least 90 days.”property has been vacant for at least 90 days.”

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NSP Eligible Properties Cont’dNSP Eligible Properties Cont’d

Homes: Homes: “Any type of permanent residential dwelling “Any type of permanent residential dwelling unit, such as detached single family structures, unit, such as detached single family structures, townhouses, condominium units, multifamily rental townhouses, condominium units, multifamily rental apartments (covering the entire property), and apartments (covering the entire property), and manufactured homes where treated under state law manufactured homes where treated under state law as real estate (not personal property).”as real estate (not personal property).”

Residential Properties: Residential Properties: “includes all of the above “includes all of the above plus vacant land that is currently designated for plus vacant land that is currently designated for residential use, e.g. through zoning.”residential use, e.g. through zoning.”

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NSP Eligible Properties Cont’dNSP Eligible Properties Cont’d

Blighted Structure: Blighted Structure: “A structure is blighted “A structure is blighted when it exhibits objectively determinable when it exhibits objectively determinable signs of deterioration to constitute a threat to signs of deterioration to constitute a threat to human health, safety, and public welfare.”human health, safety, and public welfare.”

Further defined by the State’s NSP Plan. Further defined by the State’s NSP Plan. State’s Plan allows local laws defining blight State’s Plan allows local laws defining blight to be used or, in the absence of a local to be used or, in the absence of a local definition to use the State’s definition.definition to use the State’s definition.

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NSP Eligible Properties Cont’dNSP Eligible Properties Cont’d

DilapidationDilapidation

ObsolescenceObsolescence DeteriorationDeterioration Presence of Structures Presence of Structures

below minimum codebelow minimum code Illegal Use of Illegal Use of

Individual StructuresIndividual Structures Excessive VacanciesExcessive Vacancies Lack of VentilationLack of Ventilation Inadequate UtilitiesInadequate Utilities

Excessive land coverage and Excessive land coverage and overcrowding of structuresovercrowding of structures

Deleterious land layoutDeleterious land layout Environmental Clean UpEnvironmental Clean Up Lack of community planningLack of community planning Total equalized assessed Total equalized assessed

value of the proposed value of the proposed redevelopment has declined redevelopment has declined for 3 of the last 5 yearsfor 3 of the last 5 years

State’s definition of blight is satisfied by displaying State’s definition of blight is satisfied by displaying at least 5 of the following characteristics:at least 5 of the following characteristics:

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Eligible ActivityEligible Activity Eligible Property TypeEligible Property Type

NSP Residential Financing NSP Residential Financing ProgramProgram

““Establish financing mechanisms Establish financing mechanisms for purchase and redevelopment for purchase and redevelopment of foreclosed upon homes and of foreclosed upon homes and residential properties, including residential properties, including such mechanisms as soft-such mechanisms as soft-seconds, loan loss reserves, and seconds, loan loss reserves, and shared-equity loans for low- and shared-equity loans for low- and moderate-income homebuyers.”moderate-income homebuyers.”

Properties must be both residential Properties must be both residential and have been foreclosed upon. and have been foreclosed upon.

NSP Home Buyer Program/ NSP NSP Home Buyer Program/ NSP Rental ProgramRental Program

““Purchase and rehabilitate homes Purchase and rehabilitate homes and residential properties in order and residential properties in order to sell, rent, or redevelop such to sell, rent, or redevelop such homes and propertieshomes and properties.”.”

Properties must be residential, Properties must be residential, have been foreclosed upon or have been foreclosed upon or have been abandoned as defined have been abandoned as defined by HUD. by HUD.

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Eligible ActivityEligible Activity Eligible Property TypeEligible Property Type

NSP Land Bank ProgramNSP Land Bank Program

““Establish land banks for homes Establish land banks for homes that have been foreclosed upon.”that have been foreclosed upon.”

Properties must be residential and Properties must be residential and have been foreclosed upon. have been foreclosed upon. Vacant land can not be acquired Vacant land can not be acquired for land banking purposes.for land banking purposes.

NSP Demolition ProgramNSP Demolition Program““Demolish blighted structures.”Demolish blighted structures.”

Properties do NOT have to be Properties do NOT have to be foreclosed, abandoned, or foreclosed, abandoned, or residential but must meet local or residential but must meet local or State’s definition of blighted as State’s definition of blighted as defined in the NSP Plan defined in the NSP Plan Amendment.Amendment.

NSP Redevelopment of NSP Redevelopment of Demolished or Vacant Property Demolished or Vacant Property ProgramProgram

““Redevelop demolished or vacant Redevelop demolished or vacant properties.properties.””

Properties do NOT have to be Properties do NOT have to be foreclosed or abandoned or foreclosed or abandoned or residential but MUST be vacant residential but MUST be vacant land or structure. Vacant land land or structure. Vacant land must have been previously must have been previously developed. developed.

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Components of NSP Housing Components of NSP Housing Development: Acquisition Development: Acquisition StrategyStrategyTargeting and Site SelectionTargeting and Site Selection

Areas of Greatest NeedAreas of Greatest NeedCommunity ImpactCommunity Impact

Property Type and End UseProperty Type and End Use

Applicants proposing a single site activity should be Applicants proposing a single site activity should be able to able to discuss location, while applicants able to able to discuss location, while applicants proposing a scattered site should be able to discuss proposing a scattered site should be able to discuss target area, type of properties, and availability of those target area, type of properties, and availability of those properties, at a minimum.properties, at a minimum.

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Components of NSP Housing Components of NSP Housing Development: Acquisition StrategyDevelopment: Acquisition Strategy

Should not acquire property before approval from StateShould not acquire property before approval from State Highly recommended to pursue vacant property onlyHighly recommended to pursue vacant property only Property sellers and REO (“Real Estate Owned”)Property sellers and REO (“Real Estate Owned”) NOT encouraged to consider eminent domainNOT encouraged to consider eminent domain Acquisition price must be at a minimum 15% discount Acquisition price must be at a minimum 15% discount

from the current appraised value of the propertyfrom the current appraised value of the property Current AppraisalCurrent Appraisal

Appraisal must be made within 60 days of any offer on the Appraisal must be made within 60 days of any offer on the property property

Must be an independent appraisal – property holder’s Must be an independent appraisal – property holder’s appraisal is not acceptableappraisal is not acceptable

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Components of NSP Housing Components of NSP Housing Development: The End UseDevelopment: The End Use

Homeownership ConsiderationsHomeownership ConsiderationsMarket Assessment and Outreach PlanMarket Assessment and Outreach Plan

Qualifying Home BuyersQualifying Home Buyers

Housing CounselingHousing Counseling

Resale limit Resale limit Final sale of home to income eligible household Final sale of home to income eligible household must be for less than the total cost to acquire and must be for less than the total cost to acquire and redevelop the propertyredevelop the property

Home Purchase FinancingHome Purchase FinancingLending Requirement Lending Requirement

http://www.fdic.gov/regulations/laws/rules/5000-5160.htmlhttp://www.fdic.gov/regulations/laws/rules/5000-5160.html

2020

Components of NSP Housing Components of NSP Housing Development: The End UseDevelopment: The End Use

Rental ConsiderationsRental Considerations Market Analysis Market Analysis Rent LevelsRent Levels

IHDA’s “Schedule of Maximum Monthly IHDA’s “Schedule of Maximum Monthly Gross Rents for Most Multifamily Programs”Gross Rents for Most Multifamily Programs”

Tenant Selection Plan and Tenant OutreachTenant Selection Plan and Tenant OutreachIncome Qualifying TenantsIncome Qualifying TenantsProperty ManagementProperty ManagementRent-to-OwnRent-to-Own

2121

Components of NSP Housing Components of NSP Housing Development : Per Unit Cost Development : Per Unit Cost LimitsLimits

No per-unit limits set by CDBG or HUD rulesNo per-unit limits set by CDBG or HUD rules State has established per unit maximum by adopting State has established per unit maximum by adopting

Maximum Purchase Price Limits for Non-Targeted Maximum Purchase Price Limits for Non-Targeted Areas used with IHDA’s first mortgage productsAreas used with IHDA’s first mortgage products Using the “1-unit New Construction Limit for Non Targeted Using the “1-unit New Construction Limit for Non Targeted

Areas”Areas” Limit includes all costs of project including acquisition, Limit includes all costs of project including acquisition,

rehabilitation, redevelopmentrehabilitation, redevelopment

Cost of rehabilitation must be no more than 75% of the Cost of rehabilitation must be no more than 75% of the cost of acquiring the unitcost of acquiring the unit

On a per-unit basis for multi-family developmentsOn a per-unit basis for multi-family developments

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Components of NSP Housing Components of NSP Housing Development: Construction and Development: Construction and Rehabilitation PlanRehabilitation Plan

Evaluation of Property ConditionEvaluation of Property Condition

Establish Construction and Rehab StandardsEstablish Construction and Rehab Standards

Cost estimates Construction/RehabCost estimates Construction/Rehab

Davis Bacon applies at 8 units or moreDavis Bacon applies at 8 units or more

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Components of NSP Housing Components of NSP Housing Development - FinanceDevelopment - Finance

NSP funds will be structured largely as grantsNSP funds will be structured largely as grantsWill require an affordability periodWill require an affordability periodCDBG program income requirements applyCDBG program income requirements apply State will consider providing 100% project financing State will consider providing 100% project financing from NSP fundsfrom NSP fundsLeverageLeverage

Traditional State resources will be difficult to combine with NSPTraditional State resources will be difficult to combine with NSPBring local resources to the projectBring local resources to the project

Acquisition and Construction FinancingAcquisition and Construction FinancingBank Financing, Local CDBG, HOMEBank Financing, Local CDBG, HOME

Proceeds from ResaleProceeds from Resale Private and pool financingPrivate and pool financing Foundations and local grantsFoundations and local grants End buyer financing - IHDAEnd buyer financing - IHDA

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Affordability RequirementsAffordability RequirementsNSP Investment Per UnitNSP Investment Per Unit Length of Affordability Length of Affordability

PeriodPeriod

Less than $14,999Less than $14,999 5 Years5 Years

$15,000 - $40,000$15,000 - $40,000 10 Years10 Years

More than $40,000More than $40,000 15 Years15 Years

New ConstructionNew Construction 20 Years20 Years

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Components of NSP Housing Components of NSP Housing Development - FinanceDevelopment - Finance

Development BudgetDevelopment Budget Acquisition costsAcquisition costs Construction/ Construction/

Rehabilitation Rehabilitation Capitalized ReservesCapitalized Reserves

Holding / Carrying CostsHolding / Carrying Costs ContingencyContingency Soft CostsSoft Costs

Development FeesDevelopment FeesDeveloper FeesDeveloper Fees

Maximum of 12%Maximum of 12%Project DeliveryProject DeliveryAdministrative FeesAdministrative Fees

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Components of NSP Housing Components of NSP Housing Development - FinanceDevelopment - Finance

Operating Budget Operating Budget Projected Income Projected Income

+ Residential rental income+ Residential rental income + Commercial rental income+ Commercial rental income - Rental vacancy- Rental vacancy

Operating ExpensesOperating Expenses Taxes, insurance, utilitiesTaxes, insurance, utilities Property management, maintenanceProperty management, maintenance Operating ReservesOperating Reserves

Debt ServiceDebt Service Feasible projects will be self supportingFeasible projects will be self supporting

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Components of NSP Housing Components of NSP Housing Development – Property ManagementDevelopment – Property Management

For Sale developments will need to address For Sale developments will need to address how properties will be managed for holding how properties will be managed for holding periodperiod

Long term rental projects should use Long term rental projects should use experienced project managers with existing experienced project managers with existing policies and procedurespolicies and procedures

Scattered site projects, likely under NSP are Scattered site projects, likely under NSP are notoriously difficult and expensive to managenotoriously difficult and expensive to manage