Download - Cooperative Housing and FHA
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Cooperative Housing and FHA
Insurance
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Presenters
Tim Gruenes: Minneapolis HUD;Supervisory Project Manager/Team Leader
Scott Werdal: Minneapolis HUD;Operations Officer
Terry W. McKinley; President & CEO ofCooperative Housing Resources in St. Paul,
MN: President of the Senior Coop Foundation CHR is an FHA Approved Lender
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Agenda
Basic co-op concept
General characteristics
Board of Directors
Structure - $s
HUD (Section 213) requirements Pre-sale of units
Review of share purchasers
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Agenda - Continued
MN Hub procedures
Section 213 for purchasers/consumers
Section 213 for sponsors/developers
Section 213 for HUD
Appreciationlimited equity vs. market Co-op legal documents
References
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Agenda - Continued
Why is the Co-op so Popular WithOlder Adults?
Why do developers like the co-opmodel so much?
Sponsorship IncentivesBusiness
Sponsorship IncentivesMission
Community Incentives
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Agenda - Continued
Difficulties in Developing/Managing aCoop
Pictures of Coops.
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Basic Cooperative Concept
Mortgagor = N.P.corp. owns the project
Co-op members: own a membership
certificate in the corporation
Membership certificate gives them the right
to occupy and the right to participate:
Board member
Voter
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Cooperative Structures
There are many ways to structure a
cooperative.
This presentation deals with the mostcommon structure that the MN HUD office
has processed.
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Structure
General Characteristics Processed under Section 213
Elderly, new construction
Pre-sale, management type
Co-operative formed before construction
Sponsor/development service agent (DSA) Loan term of 40 years
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StructureGeneral
Characteristics Valuation, downpayment and carrying
charge amounts are usually allocated by sq.
ft.; average optimal unit size 1350 s.f. Typical unit mix of newer co-ops:
20-30% 1 BRs
50-60% 2 BRs
10-20% 2+Den/3 BRs
Most utilities are typically included
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StructureBoard of Directors
Provisional Board of Directors till first annualmeeting of members
Within 1 year and 3 months of Cert. ofOccupancy/Final Endorsement
Usually individuals from sponsor/DSA
Board of Directors (after provisional) Members/occupants of units
Staggered, eventually 3 year terms
Training is now available for board membersthrough Senior Cooperative Housing EducationProgram
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Structure - $s
Development costs covered by:
Downpayments: (typically 3040%)
FHA Insured mortgage (typically 60-70%) Carrying charges: covers on-going
expenses/debt service (typically $700$1,500 PUPM); Trending down!
100% of income after expenses & reservesused for debt service
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HUD (Section 213)
Requirements Criterion 3 maximum mortgage = 98% of
Replacement Cost
Stat. Limits > (d)(4)similar to 207/220 No MAPright now must go TAP
General Operating Reserve: begins at 3% of total
carrying charges. Controlled by mortgagor.
Minimum downpayments: 3% of total cost.
Pre-Salesee next two slides
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Pre-sale of Units
Insurance of Advances 90% + of the units prior to Initial Closing
If construction has begun, 50% + of the units with
Directors permission. Sponsor/DSA must cover difference
Sponsor/DSA must agree to pay the monthly carrying
charges on any remaining units for a maximum of 3
years or until sold.
HUD must review/approve share purchasers
before Initial Endorsement
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Pre-sale of Units
Insurance Upon Completion 97% + of the units prior to closing
Director may adjust downward.
Sponsor/DSA must agree to pay themonthly carrying charges on any remainingunits for a maximum of 3 years or until
sold. HUD must review/approve sharepurchasers before Final Endorsement
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Review of Share Purchasers
Handbook 4550.2 (paragraph 11-6).
Co-op Membership Exhibit (FHA 3203)
Credit Reports
Personal Financial Statements (FHA 3232A)
Verification of employment
Verification of deposit
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MN Hub Procedures
Variable down payments: Allowed by handbook,
however we require at least 5% participation in
mortgage (Common Interests) Collections of downpayments:
Handbook - no collections until commitment
We typically waiveallow after invite issued and legal
documents reviewed.
Ins. Upon Completion: 60% + pre-sale prior to
allowing use of downpayments.
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Section 213 for Purchasers/Consumers
Advantages:
Long-term, fixed-rate, non-recourse Built-in mechanisms to protect the consumer FHA known to Seniors generation: trusted
name recognition Institutional oversight and discipline: audits,
reserves., etc Distributive Shares - MIP has been refunded.
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Section 213 for Purchasers/Consumers
Disadvantages Some co-op members chafe under co-op
oversight Some members or their beneficiaries may
prefer unrestricted equity returns and nonage-restricted potential buyers to liquidityand ease of transfer to waiting list elderly(i.e., condo structure)
Lock-outs (when excluding is not pricedwithin the rate)
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Section 213 for Sponsors/Developers
Advantages: Nonrecourse Not rate-sensitive
Equity funded by buyers, and non-mortgageable costs can be paid from equity. Profit margin
Disadvantages: Pre-sale requirement Unless IUC is used, must collect full down
payment prior to construction
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Section 213 for HUD
Advantages: Very low loan-to-cost (50%-65%; Trend to 35%) Significant pre-sale requirement before closing Very favorable default experience - good track-
record High resident creditworthiness Is not subject to credit-subsidy limits
Disadvantages: Co-op members call HUD when they have a
problem with the developer
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Appreciation -
Limited Equity vs. Market Model Form of Bylaws sets appreciation as
the amount of principal pay-down.
We have seen different approaches:From:
1-3% appreciation per annum plus principalpaydown (most utilized)
To:
Marketappreciation not limited
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Transfer of Membership
(Regulated by the Bylaws) Co-op has first option to deal with departing
members share.
Co-op compiles waiting list If co-op waives right, member responsible
New member must be approved by co-op.
MN Insured projects usually sold by Co-op7500 Yorkcurrent waiting list > 550 peopleAvg. transfer time of one developer, 1-5 days
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Cooperative Legal Documents
Articles of Incorporation
Subscription Agreement
Occupancy Agreement
Cooperative Agency Agreement
Management Agreement
Bylaws
Information Bulletin (Disclosures!)
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References
New construction:
HUD Handbook 4550.1
HUD Handbook 4550.2
Existing: HUD Handbook 4550.3
HUD Clips does not contain Appendices
(legal docs and forms): Contact MN officeif you need copies.
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WHY IS THE CO-OP SO
POPULAR WITH ACTIVEOLDER ADULTS?
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It is most important to understand that the
cooperative concept appeals to older adultsespecially couples--who would not
normally consider seniors housing and who
typically would remain in their single-familyhomes.
Rick Fenske, Senior Market Researcher
Maxfield Research, Minneapolis
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Co-op Advantages for Older Adults
They remain in control at a time of life whenmost other alternatives require sacrificingcontrol.
Seniors can get out of SF home maintenance,
and especially with high down-payments, livelike snow birds (with no better high returnsafe investment available for their nest eggsavings from SF home sale)!
Co-op governance provides a forum for activeparticipation and taking of responsibility Preserve equity - no spend-down of assets.
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Co-op Advantages for Older Adults
Continued
They preserve tax benefits ofhomeownership
They save money paying only the actualcosts - no outside owner or mandatoryservices ($1000 PUPA < G.O. Rental)
Affordable by senior homeowners with
modest income Attracts young- and old-old alike.
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SENIOR LIVING ENVIRONMENTS
Age 65+
75%
20%
5%
DEPENDENT LIVING -RENTAL
INDEPENDENT LIVING
- RENTAL
INDEPENDENT LIVING
- OWNERSHIP
Source: AARP
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Outdoor Heavy Light Trips to Light Cooking Personal
maintenance housework maintenance store, etc. Housework meals grooming
SENIORS ANTICIPATING NEED FOR HELP
Page 65+
65%
54%
34%
26%
18%
14%11%
0%
10%
20%
30%
40%
50%
60%
70%
Source: AARP
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Senior Cooperative Members' Ages
0
10
20
30
40
50
60
70
80
90
100
1 5 913
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97
101
105
109
113
117
121
125
129
133
137
141
Ages Median
Age:
74Age
55-59
4%
Age
60-64
6%
Age
65-69
19%
Age
70-74
29%
Age
75-79
27%
Age 80-84
18%
Age 85-90
2%
Age 90+
1%
Buyers
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Senior Cooperative Members' Incomes
-
20,000
40,000
60,000
80,000
100,000
120,000
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111
Median
Income:
BUYERS
INCOMES
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Cardinal Pointe - Purchasers' Single-family Home Values
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000$500,000
1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91Buyers
Two a dd'l buyers'
homes at $970,000 &
$1,630,000
Median:
Mean:
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WHY DO DEVELOPERS
LIKE THE CO-OP MODELSO MUCH?
C ti D l
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Cooperative Developers
(nonprofits in italics) Ebenezer Society (1976) Episcopal Church Home of Minnesota (1980) Calvary Lutheran Church - Golden Valley (1980) Nokomis Community Development Corp (1980) Presbyterian Homes (1985)
Realife Corporation (1988) Gramercy Corporation (1995) Paul Sentman - Sentman Enterprises (1998) Elim Care (2000)
Nichols Development (Summerhill) (2001) United Properties Real Estate Equities, LLC (2003) Guardian Angels (2003)
St. Annes Extended Care (2005)
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Year: 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Growth of Older Population1990-2050
0
5000
10000
15000
20000
25000
30000
35000
40000
Older
Population(int
housands) Ages 65-74
Ages 75-84
Ages 85+
Littl F ll 15 Mil R di
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Little Falls - 15 Mile RadiusHouseholds, age 65-85, by Income
61 3
28 4
26 4 25 9
21 820 4
13 0
10 4 10 811 6
10 3
70
3725 22
4 4 00
10 0
20 0
30 0
40 0
50 0
60 0
70 0
$500,
000
Income Ranges
Median Income: $23,400
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Sponsorship Incentives - Business
Land profit Development profit Appeals to a diverse market -- especially
young old
Simple operating program Creating a market for elder services Management fees
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Sponsorship Incentives - Mission
Providing a better alternative that --Supports aging in placeEnhances true independence through
interdependence Improves members health and well-being Preserves seniors financial resourcesFrees up affordable homes for younger
families Contributing to community economic health
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Community Incentives
Turns over single-family homes to youngerfamilies Retains seniors and their contributions in the
community
Economic development Adds a significant amenity/housing option in
order for a community to retain otherwise out-migrating elderly who would prefer to stay in
the neighborhoods they know best (tale oftwo mayors)
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Difficulties in
Developing/Managing a Coop Marketing a cooperative project is very different
than a rental - selling a sense of community.
If this is the first cooperative, nothing to showpeople other than planssome developers build
sample units.
Oftentimes, experienced marketing personnel
from other cooperatives are hired by newdevelopments.
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...decreased environmentalcontrollability is associated with
negative health outcomes, while
increased controllability is associatedwith positive outcomes.
Judith Rodin, Ph.D., gerontologistPresident, University of Pennsylvania
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Gerald Glaser, Gerontologist
Ebenezer Center for Aging, testifying before the
Presidents Housing Commission, 1981
"From a gerontological point of view, the essential
benefit of the cooperative is that it provides an
economic structure and social framework that fosters
self-reliance, self-control and determination,
interdependence, and cooperation among the resident
members, even among those with severe chronic
conditions. As gerontologists we know that these factors
contribute directly to continued independent living,
successful aging and the enhancement of longer life."
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Gross Floor Area(est.) : 82,760 DEVELOPMENT BUDGET
Project: Current Project Interest Rate: 6.5%Location: Minnesota Term (yrs): 40 CONSTRUCTION/SF 60$ 4,965,600$Project #: Not Assigned Down Payment/SF: 54.00$ Architect 3.00% 148,968
Average Monthly Charge/SF: 0.916$ Other Fees/DU 2,500$ 105,000 253,968$Loan Amount: 4,050,000$ TOT. for all Improvements 5,219,568$
PRICING, INCOME & EXPENSES FINANCING, TAXES, CLOSING COSTS:
Interest 12 mos. & 6.50%
Total 40.0% Required Total Total on 4,050,000$ 131,625$
# of Unit Unit Unit Down Monthly Income to Down Monthly Taxes 15,000
Units Descr. Size Price Payment Charge Qualify Payments Charges FHA Fees 1.8% 72,900
3 1BR/1BA 800 112,080$ 44,830$ 760$ 19,826$ 134,490$ 2,280$ Consulting 54,000
6 1BR/D/1BA 960 134,500$ 53,800$ 890$ 23,217$ 322,800$ 5,340$ Finance Fees/Discounts 3.0% 121,500
6 2BR/1.5BA 1,075 150,610$ 60,240$ 980$ 25,565$ 361,440$ 5,880$ Appraisal 7,000
9 2BR/2BA 1,150 161,120$ 64,450$ 1,060$ 27,652$ 580,050$ 9,540$ Title & Rec. 20,250 422,275$
12 2BR/2BA 1,240 173,730$ 69,490$ 1,130$ 29,478$ 833,880$ 13,560$
6 2BR/D/2BA 1,360 190,540$ 76,220$ 1,230$ 32,087$ 457,320$ 7,380$ LEGAL, ORG.MARKETING, & DEV. FEES
42 48,000 2,689,980$ 43,980$ Furnishings 75,000Working Capital 81,000
OTHER INCOME: Total Annual Monthly Charges: 527,760$ Legal 35,000Paid parking: 0 stalls @ -$ Organizational 10,000Guest Room: 10 nights @ 35$ 350$ Marketing 5,000$ 210,000
350$ 4,200$ Developer's Fee 10,000$ 420,000 831,000$Total Annual Income, all Sources: 531,960$
LAND VALUE 6,000$ 252,000$OPERATING BUDGET: Estimate of Annual Common Expense 210,000$
Per unit: 5,000$ TOTAL PROJECT COSTS: 6,724,843$
Annual Fixed Charges: LTV: 60%
Int.Rate. 6.50% Term/yrs: 40 TOTAL REQUIREMENTS FOR SETTLEMENTInterest Plus Curtail 7.025482% 284,532 TOTAL COSTS/USES: 6,724,843$Mortgage Insurance 0.50% 20,250 SOURCES: Mortgage Amount 4,050,000$Operating Reserve 3.00% 15,833 320,615$ Downpayments 2,689,980$
Total Funds Available: 6,739,980$Total Gross Ann.Exp. And Fixed Charge s: 530,615$ CASH INVESTMENT REQUIRED (15,137)$
NET INCOME/(LOSS): 1,345$ Total Project Costs: 6,724,843$
Project Cost per unit: 160,115$Project Cost per netsquare foot: 140$
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Contacts
Tim Gruenes: [email protected]
Scott Werdal: [email protected]
Terry W. McKinley: