Financing & Developing Affordable Housing

Adrienne E. Quinn

V.P. Public Policy & Government Relations

Enterprise Community Partners

aquinn@enterprisecommunity.org

July 13, 2010

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Overview

Project Vision – population served/income level Identifying Potential Development & Management Partners Site Selection Determining the Size of the Building/Project Identifying Funding Sources Build a Timeline Developing A Capitol Budget Developing An Operating Budget Outreach to Neighbors Submitting Funding Applications Permitting Construction Rent Up/Tenant Selection

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Identifying Potential Development & Funding Partners

Why? Managing permanent housing requires a different skill set than

successfully operating a service program or shelter; The compliance requirements for the housing funding sources are

challenging and can result in the loss of funding; In order to obtain funding, funders will look for experience from your

project team developing and managing a similar building/project. Who?

Has your organization worked successfully with an owner and operator of affordable housing within the community?

Ask a local funder, e.g. city or state, for recommendations regarding what organizations develop projects on time and on budget and successfully manage affordable housing.

If looking for a partner to manage your project, determine if they have managed a building for a the same population that you intend to serve.

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Site Selection

Not Every Site is a Good Site – Even Free Ones!!!!

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Site Selection - Due Diligence

Zoning Does the local code allow an apartment building and what size building? Does the zoning require retail on the first floor? Does the site have any special restrictions, e.g. setbacks from a stream,

an historic building on site?

What constraints does the site have? e.g., fill, historic building, steep slope

Cost What is the land cost per unit? Will site constraints dramatically increase cost?

Accessibility to services, transit Actual Sales Price of Comparable Sites/Appraisal Neighborhood Out Reach/ Potential Opposition

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Determining Size of Building/Project

What does zoning allow, e.g. height, lot coverage, density for a lot that size, minus setbacks, etc.?

What are the funding limits from your potential funding sources, e.g. not project/organization may receive more than $2 million?

What is the likely amount of funding you might receive?

(have initial conversations with state and local funders)

Construction type & cost – wood frame v. steel depends on height.

Operating considerations for population being served – No such thing as too big to fail!!!!

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Potential Funding Sources

Local Funding Sources General Fund Inclusionary Zoning Funds Tax Increment Financing Funds Human Services funding

State Sources State Housing Trust Funds Document Recording Fees Services Funding

Federal Sources Administered By State/Locality Community Development Block Grant (CDBG) HOME McKinney Vento – capital + operating Medicaid

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Potential Funding Sources- cont.

State Housing Finance Agency + Investor Low Income Housing Tax Credits (LIHTC) 9% & 4% Private Activity Bonds

Federal Sources Administered By Federal Govt. Section 202 – Senior Housing (HUD) Section 811 – Disabled Housing (HUD) Veterans Per Diem (VA)

Housing Authority Section 8 Vouchers VASH Vouchers

Philanthropy Bank Loans

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Build a Timeline

Acquiring the Property/Building• Purchase and Sale Agreement / Option• Maximum Extensions• ClosingInitial Feasibility/Environmental • Site survey• Market study• Phase I Environmental Assessment• Phase 2 Environmental Assessment• State Environmental Review /NEPA• Capital needs assessment • Neighborhood notification (if required)• Relocation of existing tenantsFinance• Appraisal• Financial underwriting• Application for each capital funding source

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Build a Timeline con’t.

Construction costs and Approvals• Construction cost estimate• Lender selection• Investor Selection• Funding for services• Award date for each funding source• Preliminary drawings completed• Zoning approval• Site plan approval• Building permit application submitted• Building permits issued• Final Plans and Specs Completed• Selection of general contractor• Begin construction• Issued certificate of occupancyLease Up, Management Selection • Selection of management entity• Selection of service providers• Begin lease-up• Placed in service - 1st Building• Placed in service - Last Building• Projected First LIHTC Year

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Building a Capital Budget

Acquisition Costs:

• Total Purchase Price: Land Existing Structure

• Liens• Closing, Title & Recording Costs• Extension payment• OtherSUBTOTAL

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Building a Capital Budget con’t

TOTAL CAPITAL BUDGET=

Acquisition Costs +

Construction Costs +

Other Development Costs +

Soft Costs

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Building a Capital Budget con’t.

Construction Costs: Demolition Total Construction Contract:

New Building Rehab Contractor Profit Contract Overhead Contingency

Site Work / Infrastructure Off site Infrastructure Environmental Abatement (Building) Environmental Abatement (Land) Sales Tax Bond Premium Equipment and FurnishingsSUBTOTAL

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Building a Capital Budget, con’t.

Other Development Costs: Real Estate Tax Insurance Relocation Bidding Costs Permits, Fees & Hookups Impact/Mitigation Fees Development Period Utilities Bridge Loan Fees & Interest Construction Loan Fees Construction Loan Interest Permanent Loan Fees Other Loan Fees

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Building A Capital Budget, con’t.

Other Development Costs con’t: State & Local Loan Fees LIHTC Fees LIHTC Nonprofit Donation Accounting/Audit Marketing/Leasing Expenses Carrying Costs at Rent up Operating Reserves Replacement ReservesSUBTOTAL

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Building A Capital Budget, con’t.

Soft Costs: Appraisal Market Study Architect Engineering Environmental Assessment Geotechnical Study Boundary & Topographic Survey Legal Fees: Developer Fee Project Management / Development Consultant FeesSUBTOTAL

CAPTIAL BUDGET = TOTAL ALL CAPITAL BUDGET SUBTOTALS

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Operating Budget

• Calculate Revenues & Expenses

• Revenues Must Equal or Exceed Expenses

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Operating Budget con’t.

REVENUES• Residential Income • Annual Gross Tenant Paid Rental Income• Annual Gross Rental Subsidy Income• Total Annual Operating Subsidy Sources• Commercial Income• Rent from Commercial Tenants

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Operating Budget con’t.

EXPENSES • Operating Expenses- • Heat• Electric• Water & Sewer• Garbage Removal• Contract Repairs• Maintenance and janitorial • Management - Off-site• Management - On-site• Insurance• Accounting• Marketing• Real Estate Taxes• Replacement Reserves• Operating Reserves• Debt Service• OtherTotal Residential Operating Expenses

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Financing & Developing Affordable Housing

Outreach to Neighbors

Submitting Funding Applications

Permitting

Construction

Rent Up/Tenant Selection