Housing Commission FY 13/14 Annual Plan & RAD

WWW.hud.gov/RAD

City of Ann Arbor February 11, 2013Jennifer Hall

Executive DirectorAnn Arbor Housing Commission

jhall@a2gov.org734 794-6721

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Agenda

• Recent AAHC Improvements• AAHC Funding Challenges• HUD funding solution through the Rental

Assistance Demonstration (RAD) Program• Annual Plan • Family Self Sufficiency program

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Improvements in 2012

• Unit Turns Maintenance/New Occupant• Previously 190+ days average to turn & occupy• Currently 21 day average to turn• Currently 45 days average to turn & occupy

• Occupancy• Currently 99% (1-5 vacant units)• Previously 95% (12 – 20 vacant units)

• Hired Facility and Maintenance Manager• Received Family Self Sufficiency Grant

Policies and Procedures

• Hired Consultant• Every policy and procedure for public housing and voucher program

reviewed and revised• Ensure compliance with HUD, Fair Housing, landlord/tenant laws

etc.• Maximize efficiency and standardization

• Updated Lease• Created Preventive Maintenance Plan• Updated Maintenance Policy• Working on Tenant and Staff Manuals for Public Housing

Units• Working on Disaster Response and Emergency Response Plan

Technology

• Implemented Mobile Maintenance• Maintenance Techs use mobile devices to access work

orders and enter completions• Implemented On-line Waitlist for Vouchers

• Open for 48 hours• Over 15,000 applications• Pulled 500 names by random lottery to be on the

waitlist• Laptops for public housing management staff so

that they can hold office hours at remote sites• Working on option of on-line payments for tenants

and electronic payments for vendors

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Positive Impact

• No Longer in Troubled Status• REAC Physical Inspection Score

• Increased score from a 78 to a 81 on the East side• Increased score from a 64 to a 86 on the West side

• Eligible for new HUD grants

Maintenance

• Duct cleaning all sites• Gutters cleaned and fixed• Retaining walls and landscaping• Sidewalk grinding and concrete replacement• Fire Stops above stoves to prevent stove fires• Footing drain disconnects• Roof replacement• Marmoleum flooring (similar to linoleum) • Tuck pointing (brick exterior of buildings)• Jetting sewer lines• Boiler and A/C maintenance

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Replace Carpet with Marmoleum

Baker Lounge Tenants voted for color scheme

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Replace Carpets with Marmoleum

• Installed in 2012/2013• Funding through HUD Capital Funds• $96,000 all common areas at Baker and Miller

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Replaced Asphalt Roof with Steel

• New Steel Roof installed in 2013• Funding provided by the Downtown Development Authority• Initial bid $246,000. Extensive rafter damage increased cost to $305,000

Green & Energy Efficiency

• LED and photocell exterior lights• Energy Star appliances• Water sense bath fixtures and toilets• Wrapping duct work and water pipes• DTE direct install program for units

• CFL lighting, aerators and showerheads• DTE rebate program

• Common area energy improvements• Low VOC paint• Tank-less water heater (pilot) at N. Maple• Demand circulating hot water pump• Boiler control valve to sequence boilers at Miller• Started insulating attic spaces• Started replacing windows

Additional Needs

• Air Conditioning all units• Health as well as security ($300,000 - $375,000)

• Roofs and Windows• Security Cameras ($200,000 - $300,000)• Security Guards ($80,000 - $300,000/year)• Energy Efficiency ($900,000 +)• Some sites need to be demolished and rebuilt

• Age, functionally obsolete, flooding

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Two Funding Problems

• Annual Operating Subsidy• Maintenance• Staffing

• Capital Re-investment• Replacing major systems like roof, furnaces

etc.

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Federal Funding

• Historical decline in Congressional support for HUD• 1976 HUD’s budget was $86.8 billion• 2012 HUD’s budget was $41.7 billion

• HUD losing 10,000-15,000 public housing units/year due to disrepair requiring demolition

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AAHC Capital Needs

• National HUD study• Immediate capital repair needs in excess of $25.6B

across HUD public housing portfolio, or $23,365/unit• Capital Accrual 20–year projection of $82,125/unit

• AAHC Capital Needs Assessment • A 2009 AAHC Capital Needs Assessment indicated

$40,337/unit in capital needs over next 15 years• At current HUD rates, AAHC will get $18,000/unit• Which is $22,000/unit shortfall in capital repair funding

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Decreased Funding Public Housing

• Operating Fees (rent subsidy)• In 2012 HUD reimbursed the AAHC at 95% of the

operating fees owed• $62,700 less than owed

• In 2013 HUD is reimbursing the AAHC at 81% due to sequestration• Estimated at $262,000 less than owed

• Capital Funds (building improvements)• 2010 Capital Funding from HUD $557,000• 2012 Capital Funding $440,478• 2013 Capital Funding TBD (sequestration)

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Three Options to Fund AAHC Properties

1. No ChangeNegative impact on units, tenants & neighborhood due to

lack of funding, continued deterioration of units

2. City of Ann Arbor provide annual gap fundingCover the gap between HUD funding and shortfall

Approximately $500,000/year for capital needs

If Sequestration permanent, much greater problem

3. Convert Public Housing to Project-Based Vouchers with private funding reinvestmentImmediate rehabilitation of all properties

Long-term operating subsidy from different HUD program that has more stable funding by Congress

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Rental Assistance Demonstration (RAD)

HUD’s goal is to convert 60,000 public housing units to Project Based Vouchers

• NEW rent subsidy with vouchers (Operations)

• NEW access to capital funding • Reinvest in physical structures• Leverage private capital to preserve assets

Tenant Payment $318

Tenant Payment $318

Capital Fund $144

Operating Fund $330

Housing Assistance Payment

$474

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

Pre-Conversion Post-Conversion

Sample Public Housing Conversion Per Unit Monthly (PUM)

$792

How RAD rent/operating subsidy will be determined

19Public Housing Voucher

At conversion, PHAs will convert

funding to a Section 8 rent subsidy (HAP)

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AAHC RAD Rents

• First year limited to current per unit funding• Annually re-evaluated by HUD and increased

(based on operating adjustment factor)• Will never be less than first year• No longer subject to public housing decreases

Bedrooms AAHC EAST AAHC WEST

1 $466 $470

2 $567 $572

3 $713 $719

4 $734 $741

5 $844 $852

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Rehabilitation

• Physical Condition Assessment must be completed• 20 year schedule • all replacement costs in replacement reserve

• Rehab budget determined by architect/engineer and actual bid• Minimum 10% rehab contingency

• Market competitive upgrades (a/c) must be included• Must use energy efficient products as finances allow• Must use general contractor

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Pre-Development Work

• Issued Request for Proposal • Co-Developer and Development Consultants Selected

• Surveys• Environmental Reviews

• Radon, Lead, Asbestos

• Physical Needs Assessment• Energy Audit

• Title Search• Appraisals• Architectural Analysis and Scope of Work

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Development Team

• Dykema Gossett • Legal Counsel

• Recap Real Estate Advisors• RAD Consultant

• Avalon Housing• Supportive Housing Consultant

• Norstar Development• Co-developer

• O’Brien Construction• General Contractor

• Mitchell and Mouat• Architect

• Equity Investor/Equity Partner• TBD

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How will Construction be financed?

• Equity from Low Income Housing Tax Credits

• GrantsHOME

Community Development Block Grant

Federal Home Loan Bank

AAHTF

DDA

Private Foundations

MSHDA Community Development Funds

Corporation for Supportive Housing

• Debt

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Low Income Housing Tax Credits (LIHTC)

• Created in 1986 pursuant to the Internal Revenue Code Section 42• Incentivize private sector to invest in housing• Single largest funding source for affordable

rental housing development• Tax Credits allocated to States

• Developers compete for 9% tax credits• Developer sells tax credits to private sector

• Creates Cash (Equity) for affordable property• 10 years of tax credits to Equity Investor

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LIHTC Continued

• Credit is a dollar for dollar credit -10 years • Compliance Period of Affordability is

minimally 15 years under Section 42• Extended Low-Income Use Period can be

greater time period … up to 99 years • Limited Partner or Equity Investor will remain

partner for that initial compliance period • Governed by a MSHDA Regulatory

Agreement – a recorded document

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Legal Structure

• IRS requires Equity Investor to be part of the ownership structure• known as equity limited partner or equity member

• Create a limited partnership or limited liability company with developer/owner• known as general partner or co-general partners/ co-

members

• Must be single purpose entity• Purpose is to utilize tax credits to invest in a specific

property (or group of properties)• No cross collateralization & liability with other

properties/businesses

• Under RAD, HUD requires permanent affordability

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How does current structure work?

City of Ann Arbor AAHC

Public Housing

HUD funding & regs

deed

Property manager

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How will new structure work?

Affordable Housing

City of Ann Arbor AAHC

NonprofitGeneral Partner/

Managing Partner

Co-General Partner/Co-Developer

Equity Partner/Limited Partner

Limited Dividend Housing Association, LP or LLC

15 year limited partnership

HUD funds &

regs

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Phase I Properties

• Convert under RAD and rehabilitate using Low Income Housing Tax Credits (LIHTC) if awarded in December 2013• Baker Commons• Miller Manor• Green/Baxter• Hikone• S. Maple

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Phase I Properties

• Convert under RAD and rehabilitate using existing AAHC funds in 2014• Mallets Creek• Hillside Manor• S. Seventh• Upper Platt (Colonial)

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Phase I Properties

• De minimis or Section 18 disposition• Evelyn Court

• one 3-bedroom single family home

• W. Washington• 1 bedroom units - duplex

• Oakwood • three 5-bedroom single family homes

Continuing analysis on whether to dispose of by selling or converting to project based vouchers using AAHC existing vouchers, not RAD vouchers

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Phase II Properties

• Demolition and new construction LIHTC• N. Maple Estates and Duplexes• Lower Platt

• Evaluating whether demolition and new construction or rehabilitation LIHTC• Broadway• White/State/Henry

LIHTC application in 2014

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Impact

• Reinvestment in properties• Increased energy efficiency• Remedy structural problems• Higher quality living conditions for residents

• $25 - $45 Million economic impact• Construction, professional services, tenant jobs

• Diversifies & Stabilizes AAHC revenue• More stable source of rent (operating) subsidy

• AAHC staff continue to manage properties

Impact on Tenants

• Improved units• AAHC pays for any short-term or long-term

relocation if needed to fix up unit• Lower utility costs (unless rates increase

significantly)• Tenants still pay 30% of income on rent• Still permanently affordable, cant turn into

market rate units

Impact on Tenants

• AAHC cannot re-screen tenants, must allow current tenants who are compliant with lease to stay in units

• Public Housing type grievance policies which are more favorable to tenants

• Continue to receive services• Peace, CSTS, ROSS, CAN etc.

• Can continue to have Resident Councils• $25/unit stipend if follow HUD rules

PBV – Project Based Vouchers

• Tenant can voluntarily request a tenant-based voucher after 1 year of residency

• 100% of units will be designated as receiving services

• HQS inspections – focus on inside of units• Termination notification consistent with

public housing requirements

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Next Steps

• Feasibility Analysis of every property• Phase I projects - Scope of work • Phase II - Rehab or demo & new construction

• Resident Meetings• Council approval of PILOT • Council approval of a Resolution to

transfer the properties to AAHC, with contingencies

• Apply for financing

Examples of Norstar, O’Brien, and Avalon Affordable Housing Projects

Partnerships with Public Housing Authority & non-profits using

Low Income Housing Tax Credits

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Carrot Way Apartments

30 units & Community Center

$5.5 million Total Cost

Tax credit syndication: Great Lakes Capital Fund, limited partner equity MSHDA HOME Funds City of Ann Arbor HOME Funds Religious Action for Affordable Housing Federal Home Loan Bank Affordable Housing Program General Partner Equity

Avalon Housing Developer, Owner, Property Manager

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Arbordale Apartments

39 units

$4.6 million Total Cost

Tax credit syndication: National Equity Fund, limited partner MSHDA HOME Funds City of Ann Arbor HOME Funds Ann Arbor Housing Trust Funds General Partner Equity Federal Home Loan Bank Affordable Housing Program Washtenaw County General Funds

Avalon Housing Developer, Owner, Property Manager

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BEFORE: Herman Gardens Public Housing – Detroit MI

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490 Rental Units

$109.5 million Total Cost

Tax credit syndication: Great Lakes Capital Fund & Bank of America, limited partner equity

HUD Hope VI Funds Neighborhood Stabilization Funds MSHDA Tax Exempt Loan Brownfield Tax Credits MSHDA HOME loan

NORSTAR Developer hired by Detroit Public Housing Commission O’Brien Construction

AFTER: Garden View Estates

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BEFORE: 1630 Dewey Ave – Rochester NY

Former Dry Cleaning Factory – view from the front

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80 Rental Units

$16 million Total Cost

Tax credit syndication: Goldman Sachs, limited partner equity NYS Homes and Community Renewal Urban Initiative NYS Housing Trust Fund Corporation NYS Homeless Housing Assistance Program City of Rochester HOME Funds HUD Continuum of Care Grant Federal Home Loan Bank JP Morgan Chase Bank

NORSTAR Developer hired by Common Ground Nonprofit

AFTER: 1630 Dewey

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Risks/FAQ’s

• Unable to secure capital funds to make project work• Continues as public housing instead of converting to Project

Based Vouchers• Cost of pre-development activities absorbed by AAHC

• Co-developer and AAHC disagree on …• Master Developer Agreement executed regarding roles &

responsibilities• Equity Partner wants to remove AAHC from partnership

• AAHC cannot be removed unless egregiously fail to perform per contract

• Same as current situation with HUD. HUD can remove if egregiously fail to perform

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Risks/FAQ’s Continued

• Co-developer or Equity Partner want to convert to market rate• Cannot be done. HUD has regulatory agreement that precedes

all other agreements and financing. MSHDA also has LIHTC regulatory agreement

• Construction costs exceed budget• Use contingency, secure additional funds, change scope of

work, or costs paid for from developer fee• Construction problems cause delay

• Norstar provides construction and LIHTC completion guarantees

• Liquidated damages in general contractor agreement to share in costs