#MAMConf15

Long-Term Sustainability of

Affordable Housing

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Maximize/Increase Income Overlooked Opportunities

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Commonly Overlooked

Tough Market: Rents under Max

When utility allowances change do not

lower rents on S8 units

Always charge max rents on lower tier

units (e.g. 30%, 40%, and 50% set-asides)

when 60% units are higher than these

limits

On a mixed income property (market and

affordable) 60% rents should be at least

equal to market rent while remaining at

maximum allowable

No more lower tier units (30%, 40%, 50%)

than necessary

Lease lower tier to S8 participants at 60%

rents as long as household income does

not exceed income level of the lower set-

aside, especially on a new lease-up

Great Market: Rents at Max

When utility allowances

change do not lower

rents on S8 units

Lease lower tier to S8

participants at 60% rents

as long as household

income does not exceed

income level of the lower

set-aside, especially on a

new lease-up

#MAMConf15

UA Change Case Study: PHA Rents

Property A (56 Units) has a Gain to lease of $19,140 YTD

(07/31/2015)

Property B (80 Units) has a Gain to Lease of $13,823 YTD

(07/31/2015)

Property C (80 Units) has a Gain to Lease of $13,283 YTD

(07/31/2015)

Property D (304 Units) has a Gain to Lease of $10,815

YTD (07/31/2015)

#MAMConf15

Eliminate/Reduce Loss Revenue

Eliminate Fraud

Common practice – no cash accepted

Audit ledgers to deposits

Audit ledgers for application fees

Policy regarding who can approve concessions & write-offs

Best Practice - online payment (money order theft)

Reduce Delinquency

Common practice – policy in place

Strict adherence

Enforce late fee policy (initial and daily fees, where allowed by law)

Faithfully send out late notice

Faithfully evict

Eliminate deferred maintenance

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Market Knowledge: Actual Case Studies

Trust the Market (Market Surveys)

Lease-Up Rent Annual Gross

One Bedroom/One Bath 66 355 23,430

Two Bedroom/Two Bath 88 570 50,160

Three Bedroom/Two Bath 66 720 47,520

Total GPR 121,110

Occupancy 99%

Rental Income 119,899

Renewal Rent Annual Gross

One Bedroom/One Bath 66 575 37,950

Two Bedroom/Two Bath 88 675 59,400

Three Bedroom/Two Bath 66 820 54,120

Total GPR 151,470

Occupancy 90%

Rental Income 136,323

Know Market Movement (August – last good capture month)

Move-in Special/Concession Avg. Rent Vacancy Loss

45 vacant units as of July 662 29,790

$100 off first months rent 4,500

$10 off application fee 450

Total concessions 4,950

Move-in month additional income 17,495

Additional income the following month 29,790 Specials were run when no other property was running a special. This Community is surrounded by much competition. After some concession fallout, occupancy remained stable at 98% - well above competition.

#MAMConf15

Maximize Auxiliary Income

Charge for amenities not

in Eligible Basis

Covered Parking

Storage

Garage

Pet Rent

Merchant Referral

Drinking water

Appliance and

furniture rental

Merchant Advertising

Newsletter

Move-in Packet

An extra $5 to $10 monthly per Merchant can help off-set office

expenses

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#MAMConf15

#MAMConf15

Where our prospects and

residents are moving to

Online Data

It is who we have always included

Answer the phone or return the

fax

Within “x” miles of us (location)

Final Application Community

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#MAMConf15

Errors using inadequate

data are much less than

those using no data at all.

Charles

Babbage

#MAMConf15 Intuition verses Data Revenue variance to budget

Intuition Only 3.5% under

Only used known accurate

data – Phase 1

1% under

Data – Phase 2 3% over

Data – Phase 3 1% over

Average of Entire Portfolio 1.3% under

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To

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Based on hour-by-hour computer simulations and independent third-party research of

residential behavior

Evaluates utility performance based on systems and construction specific to each unique

property

Generates an estimate of expected utility usage for a conserving household of modest

means

Can be calculated for individual dwelling units

Rewards investments in efficiency that are site specific

Engineered Utility Allowances are…

#MAMConf15

Across The Affordable Housing Industry

Rising utility allowances due to over-estimated PHA HUSM calculations

Changing state and federal regulations are limiting revenue growth potential and making the process more difficult

Organizations are married to the old way of doing things resulting in reluctance to change

The Affordable Housing Industry losses over a billion dollars annually in rent revenues due to over-estimated utility allowances.

Based on 2.4 million Affordable Housing units as of 2012 with a utility allowance reduction of $35 per unit x 12months

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Engineered Utility Allowance State Approvals

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Engineered Utility Allowance Project Details

Property and unit data is collected by a technician either through a

site visit or property submits fillable pdf forms

Collected property data includes building plans, floor plans, number of unit types,

orientation of building, insulation values, construction/renovation dates

Collected unit data included HVAC, water heater, and appliance model numbers,

door/window types and measurements, water fixture flow rates, lighting fixtures,

wall specifications

Projects generally completed within 30 days of notice to proceed

Assistance with allowance submissions for HFA approval

12-months of ongoing support and consultation

Tenant education and annual renewals

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A LIHTC property?

Located in a state that has adopted the engineered allowances

method under the 2010 IRS regulations?

At or close to max rent?

A property that incorporates energy efficient building features,

newly constructed or recently renovated property?

Feeling like your allowances are unreasoningly high?

Ideal Engineered Utility Allowance Property

#MAMConf15

Increase Value Reduce Operating Expenses

#MAMConf15

Reducing Operating Expenses

Bid service contracts annually and negotiate longer terms with no increases

Utilities

Ask Management to keep utility logs to monitor movement (potential leak/abuse)

Xeriscape with colorful drought tolerant plants

Restrict resident use of outside faucets

Separate water/sewer bills by consumption and base fees for tracking increases in rate and/or consumption

Tax incentives, energy conservation and utility audits

Avoid paying late fees on utilities – send directly to corporate

Reduce unnecessary phone and fax lines

Alarm monitoring contracts – save money on phone lines by contracting with a monitoring company compatible to VoIP

Adopt an attitude of “Zero Based Budgeting” and look at every expense independently on a 12-month actual to budget report

Turn 10+ units in bulk (below NOI)

Hire and train staff – good staff is critical

Develop and enforce tight check and balances

In-house purchasing procedures

Every purchase must fit into the budget

Set-up preferred vendors (BIG savings)

Repair first, replace only when necessary

Reduce turnover (good customer service, resident retention activities, no deferred maintenance)

Reduce travel costs – scanners, online eviction platform

#MAMConf15

Reducing Operating Costs: Actual Case Studies

Supportive Services and Landscape Contracts - 3 Year (2015-2018)

Prior Contract New Contract Annual Savings 3-Yr. Savings

Property A (52 units)

Supportive Services $ 29,880 $ 24,000 $ 5,880 $ 17,640

Landscape $ 8,856 $ 7,440 $ 1,416 $ 4,248 $ 21,888

Property B (48 units)

Supportive Services $ 25,548 $ 24,345 $ 1,203 $ 3,609

Landscape $ 5,568 $ 3,720 $ 1,848 $ 5,544 $ 9,153

Property C (21 units)

Supportive Service $ 26,016 $ 16,800 $ 9,216 $ 27,648

Landscape $ 5,568 $ 3,720 $ 1,848 $ 5,544 $ 33,192

$ 21,411 $ 64,233

#MAMConf15

Reducing Utility Costs: Tax Incentives and Energy Audit

Utility Rate Negotiations (0.4595)

Old Rate Est. Annual Savings

Property A 0.11700 $ 13,000

Property B 0.05800 $ 4,000

Property C 0.79000 $ 6,000

Property D 0.68330 $ 15,000

Total savings $ 38,000

Property A also received a tax

refund

$8,341.51 Gas

$5,195.57 Electric

Image courtesy of Atibobyphoto at

FreeDigitalPhotos.net

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Controlling Costs

Donation of gift cards, food and drinks, and merchant marketing gimmicks to cover meetings, resident early bird payments, resident activities, etc.

Over $5,500 in gifts cards were raised to help cover Annual Meeting costs

Vendors donated pens, pencils, notepads, and marketing propaganda for meeting

Vendors willingly paid for lunches and dinners in exchange for a brief meeting with staff to discuss their product

Vendors willingly donate food and drinks for resident functions

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

#MAMConf15

Deferred Maintenance: Real Costs

Bad residents will rent bad-looking apartments

A bad tenant is worse than no tenant

High turnover

High delinquency

Good residents move-out

More evictions/Higher legal fees

Higher maintenance costs

Staff burn-out

Good residents want a decent-looking place to live

If management does not care

about property appearance,

neither will residents

#MAMConf15

Capital Improvements ROI

#MAMConf15

Once upon a time… Investment (w/o proper Employee Management)

Negative cash flow; Negative Net

Income; NOI slipping

Occupancy averaged 89% (2006-

2011), 88% in 2012 and 79% through

the end of June 2013

Unpaid management fees (4 years);

Unpaid asset management fees (2

years)

Deferred maintenance; Heavy

crime/drug activity

Maintenance staff turnover; Over 500

outstanding work orders; Employee

theft

Numerous break-ins; Vandalism; High

delinquency

GP funding required

-400

-300

-200

-100

0

100

200

300

400

500

2011 2012 2013

PROGRESSION

NOI Cash Flow Net Income

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2013 Upgrades

Interior Upgrades

New Appliances $19,993

Upgraded Flooring $61,125

Tile and Vinyl $4,170

Plumbing Upgrades $5,351

Ceiling Fans $3,528

Door Hardware $16,636

Interior Turn and Upgrades $7,288

Window Treatments $4,670

$122,761

Exterior Upgrades

Deferred Maintenance

Fence Replacement $10,400

Exterior Panting $87,149

HVAC Replacement $16,236

Exterior Lighting $20,526

Garbage Disposal $1,249

Roof Repairs $5,733

Sprinkler Repairs $1,326

Other Exterior Capital $4,533

$147,152

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Then along came change… Investment (w/proper Employee Management)

Created a 90-day marketing campaign

Upper management worked side-by-side

with staff for 10 days

Turned 39 units in 10 days; Occupancy

rose from 79% to 95% in 10 days

Cash flow climbed; NOI climbed

Upper management helped with small

projects from afar to alleviate some of

the workload

Organized staff; Eliminated inefficiency

Trained, trained, and retrained in those

areas where inefficiency existed

Management and Asset Management

fees paid in full

No GP funding required

Before Rehab

• Jan. through June 2013 –

79%

After Rehab

• July through Dec. 2013 –

93%

• 2014 – 96%

• 2015 (as of June) – 97%

Average Occupancies

#MAMConf15

$3,286,597 From 2013 to 2014

(8% cap)

Projected additional change in 2015

$814,353

leading to a total change of

$4,100,950 From 2013 to 2015

Change in Value

-400

-200

0

200

400

600

800

2013 2014 2015

PROGRESSION

NOI Cash Flow Net Income

110.18% increase in NOI from

2013 to June 2015

(annualized)

#MAMConf15

Thank you!

Jennifer G. Guerra Vice President, Westlake Housing jguerra@westlakehousing.com Angie Hug Director of Operations, Herman & Kittle Properties ahug@hermankittle.com Emmanuel Hales Sales Director, 2rw Consultants Inc./Zappling emmanuelh@2rw.com Michael Snowdon Vice President, Highridge Costa Investors, LLC Michael.Snowdon@Housingpartners.com